Financial Analysis of Sainsbury's: Liquidity, Solvency, Profitability, and Efficiency Ratios

This report provides a comprehensive analysis of Sainsbury's financial performance using liquidity, solvency, profitability, and efficiency ratios. It includes an evaluation of the company's current and quick ratios, debt equity ratio, gross profit ratio, net profit ratio, return on investment, return on capital employed, inventory turnover ratio, and asset turnover ratio. The report also discusses the impact of the macro environment on Sainsbury's operations.

ACCOUNTING AND FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Macro environment impacts over operations...............................................................................8
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1
APPENDIX......................................................................................................................................3

INTRODUCTION
Finance is the process of managing of funds and investment of individual, company and
corporation. These are maintaining by financial professionals such as investment banking,
Charted financial analyst (Fatihudin, Mochklas, 2018). on individual basis or in company and are
responsible for the fund's availability for the company and helps in decision-making. This report
shows the financial statement of Sainsbury’s financial year I.e. 2018 and 2019 and shows the
financial ratios of the company. This also shows the macro environment of Sainsbury’s operation
with current and planned operations which also includes the micro environment aspects like
demand and supply, competition and market structure of the company which are affects from the
various sources. However, at the end collective analysis of the company report is stated of
economics and financial statements
MAIN BODY
Financial reporting is a report which disclose the financial statement of the company
and related information of finance and management which shows the overall performance of the
company for the period. These reports are usually made by the management on quarterly basis or
annual basis. This includes balance sheet, income statement, statements of change in equity and
the cash flow statement of the company. Financial reporting is made by the public or private
companies in accordance with the guideline of GAAP. This guideline includes the rules and
regulation which company have to be followed to ensure the accuracy, consistency and
compatibility of the company (Keliwon, Shukor, Hassan, 2018).
Financial performance measures the use of the firm's assets from its primary mode to
generate the business revenue. This shows the financial position of the company and the
company's health over the period. Financial performance can be measured by the various ways
like revenue from operation, cash flow statement, and operating income. Financial performance
is measured from the balance sheet, income statement and the cash flow statements.
Financial position of the business shows the current balance of assets and liabilities and
equity of the company. This information is recorded on the balance sheet which is income
statement of the company. This shows the financial condition of the company which evaluate
from the information’s and examining of financial Statement. These are calculated from the
financial ratio of the company's statements.

Financial Report analysis of Sainsbury 2017,2018 and 2019.
Particulars Formula 2019 2018 2017
Liquidity Ratios
Current Assets 7550 7857 19798
Current Liabilities 11849 10302 8586
Stock 1929 1810 1775
Quick assets
Current Assets - Stock-
Prepaid Expenses 5621 6047 18014
Current Ratio
Current Assets /
Current Liabilities 0.63 0.76 2.3
Quick Ratio
Quick Assets/ Current
Liabilities 0.47 0.58 2.1
Particulars Formula 2019 2018 2017
Solvency Ratios
Long term loans 6535 822 1249
Eq. Sh. Capital 2457 2437 2425
Pref. Sh. Capital 0 0 0
Reserves 4829 4478 3951
Long term Debt
Debentures + Long term
loans 6535 822 1249
Shareholder Funds
Eq. Sh. Cap.+ Pref. Sh.
Cap.+ Res. - Fictitious
Assets 7286 6915 6376
Debt Equity Ratio
Long term Debt/
Shareholders Funds 0.89 0.11 020
Particulars Formula 2019 2018 2017

Profitability Ratio
Gross Profit 2007 1882 1634
Operating Profit 312 518 642
Net Profit/ Income 219 309 377
Net Sales 38080 37753 29112
Total Assets 28011 22001 19798
Current Liabilities 11849 10302 8586
EBIT 620 544 633
Capital Employed
Total Assets - Current
Liabilities 16162 11699
11212
Gross Profit Ratio Gross Profit/ Net Sales 5.2% 4.98% 5.69%
Net profit Ratio Net Profit/ Net Sales 0.57% 0.81% 1.23%
Operating Profit
Ratio
Operating Profit/ Net
Sales 0.81% 1.37% 2.24%
Return on
Investment Net Profit/ Total Assets 0.78% 1.40% 1.90%
Return on Capital
Emp
EBIT/ Capital
Employed 3.83% 4.64% 5.65%
Particulars Formula 2019 2018 2017
Efficiency Ratio
COGS 26807 26593 24590
Average Inventory
(Opening + Closing
Inventory)/ 2 1792.5 1869.5 1371.5
Average Total
Assets
(Opening + Closing
Total Assets)/ 2 25006 20899.5 18385.5
Net Sales 38080 37753 29112

Inventory
Turnover Ratio
COGS/ Average
Inventory 14.95 14.22 17.9
Asset Turnover
Ratio
Net Sales/ Average
Total Assets 1.52 1.8 1.58
INTERPRETATION
Ratio analysis is a tool which is used for comparison of financial statement for company
to improve company's decision-making for business and position in market. Ratio helps company
to compare between the competitive and other firms from same industry. Ratios should be paired
with other metric to obtain broader picture of company's financial health which helps in taking
future growth and decision-making of the company's. It also helps the investor to know about the
company financial background and also help to make decision to invest in any company by
seeing the various ratio analysis and know the returns they are giving (Salah, 2020).
Liquidity Ratios
Liquidity Ratio is calculated to know an organization's capability to pay its debt in time
to their investor. These ratios are used by creditors and lenders to have known about
creditworthiness of borrowed money or financial situation of their customers. It used to
determine liquid assets to short term liabilities. Having good liquidity ratios indicate the capacity
of the firm to pat back to creditors. Current ratios are used to measure the ability of the
company's obligation and the ideal ratio is between the 1:2 to 2 which means the company has 2
time of assets compare to their liabilities and if the ratio is below 1, the company doesn't have
enough assets to meet short term liabilities. Current Ratio of the financial year 2019 is 0.63
which decreases when compare to 2018 is 0.76 with almost 0.13 in a year and Current ratio of
the company for the year 2017 is 2.3. The ratio indicates that company owns a strong
management of its current assets against the current liabilities of the organization. Which
indicate company should require more assets to meet the short term liabilities in 2018 and 2019
financial year. The weight age of the current asset in company for financial year 2017 owns more
than double in comparison to the current liabilities associated with the Sainsbury Company. The
ratio interpreted that company hold a strong position in respect to its current asset as compare to
the current nature liability of company.

Quick Ratio is a ratio which covert assets into cash within 90 days which exclude prepaid
expenses and inventory. An ideal quick ratio is 1 of any company and if the company has this
ratio below at 1, the company is not into the position to pay short term liabilities. Quick ratio of
company also represents the strong liquidity position of organization. It entertains 2.1 in 2017 as
the quick ratio which idealizes very strong and favourable position for the company in regard to
its liquidity position. Sainsbury’s finical year ratio of 2019 is 0.47 which was 0.58 in 2018
results in declining in ratios that shows the company is not in good state to fulfil their short term
liabilities (Sainsbury, et.al., 2019).
Solvency Ratio
It is the ratio is used to measure the ability of the firm to meet long term debts and
obligation and used by prospective business lenders. This ratio shows whether the cash flow
statements is sufficient to meet the long terms liabilities which help to determine the financial
health of the company. Mainly it measures number of time company can meet its interest
payment with current earning. Higher the ratio indicates the better position of the company but
the ratio should not be lower than 1.5 as it indicates company will find difficulties to meet the
debt. Sainsbury’s Debt Equity Ratio was 0.89 in 2019 and 0.11 in 2018 and Debt equity ratio
also disclose as 0.2 which denote that long term debt of company is approximately 20% weight
age against the shareholder fund company hold. Which shows the company finds difficulties to
meet their long term loans but shows positive note as their ratio increases in 2019 with 0.78
difference. However, it shows the company is achieving ideal ratio year by year which increase
the chances to raise the fund whenever required and investors can trust the company to get the
good overall return.
Profitability Ratio
Higher profitability ratio shows the company is more competitive over others companies.
It is a tool used by financial analyst and investors to measure company's performance in the form
of profitability. It evaluates if the company is generating income in relative to its revenue or not.
This is calculated for specific period.
Gross Profit Ratio shows the amount of money remains over the product excluding Cost of
Goods Sold also known as Gross Margin. Sainsbury shows ratio with 5.2% in 2019 and 4.98%
in 2018 and 2017 shows the 5.69% which increases the gross profit of the company year by year

and the margins are increasing and achieving the average standard Gross profits margin in
Market.
Net profit Ratio decrease to 0.57% in 2019 comparing with 2018 net profit is 0.81% which
shows inefficiency of the company which increase the overall cost as the ideal net ratio should
consider as 4% which is very far from the Sainsbury ratios.
Operating Profit Ratio in 2019, 0.81% of operating profit ratios which decrease compare to 2018
where operating profit ratio is1.37% and shows 1.23% in 2017 which again shows the increasing
in cost of the company and inefficiency work of investor and Sainsbury (Easton, et.al., 2018).
Return on Investment of the company is falling rapidly which is 0.78% in 2019 and 1.40% in
2018 while 1.9% in 2017 which was way better than 2018 and 2019 which may impact on the
investor and company may not raise enough amount of money from the market.
Return on Capital Employee shows the profitability and capital efficiency of the company. 2019
ratio shows 3.83% and 2018 is 4.64% which again decline by 0.81% in a year while 5.65% in
2017 which is high when it compares to 2018 and 2019.
Efficiency Ratios
An efficiency ratio is used by company for analysis that how efficiently company is using
their assets and liabilities internally. These ratios are used to calculate turnover of receivables,
the quantity and usage of equity funds and repayments of liability to creditors are used for
comparison of company's expenses with its revenues earned. These ratios are used by financial
analysts of the company. Sainsbury's efficiency ratio includes Inventory Turnover Ratio which is
14.95 in 2019 and 14.22 in 2018 and 17.9 in 2017 which shows slight increasing in year 2019
compared to previous year. Whereas, Asset Turnover Ratio is also considered as total asset
turnover which measures the efficiency of the Sainsbury using assets to produce sales in market.
An ideal ratio is between 0.25 – 0.5 and the company ratio is 1.52 in 2019 which was almost
similar in 2018 which is 1.8 and 1.58 in 2017. The company is using their assets efficiently year
by year as the technology is changes and focuses on lesser wastage of resources in the company
to reach the ideal ratio.
Macro environment impacts over operations
Macro environment is about the external environment in which the organization is
currently operating its business practices. External environment comprises with different external
factors such as political, economic, social, technological, environment and legal factors that can

influence the overall operations and functions of the organization. Political factor is directly
associated with the political situation in the country. In United Kingdom political situation is
very stable in the current time due to the strong position and support government in UK hold that
allow the corporate sector to grow in the country. In the current political party that is ruling the
government and country which hold a strong political support and also carry strong position in
all form of governmental insitution to implement long run policies that can sustain for too long in
the market (Shinkevich and et.al.,2017). All strategies form is based on the political situation in
country and the policies established by the government. Sainsbury Company can take
competitive advantage and strategic advantage by utilizing the strong political situation of
country in favour of the organization. Currently company owns a strong support in United
Kingdom market and the market of Republic of Ireland that has boosted the overall confidence
of the management of Sainsbury Company to come which created positive impact in the world
wide brand value of company.
Economic factor is another key factor that contribute under the macro environment
situation in respect to the business environment company is associated with in against to do the
business operations. All policies company form is based on the economic situation and position
of country and other such element. UK is among the fastest growing countries based on the
Gross domestic product of the country that create a favourable image of the country in front of
the global business context. Per capita income of the people in country is also increasing which
allow the companies to offer or deal more in luxury products. Inflation rate in UK is also
controlled through monetary policy of UK which also support the management at Sainsbury
Company to look forward of retail sector in attracting more growth and business development
opportunities in favour of the organization. Sainsbury Company is currently operating its
operations only in the United Kingdom and Republic of Ireland that needed to expand by the
country in against to create dominance in the international market. Retail sector comprises with
the basic product required for living in the society such as food product, clothing line and other
products. Company can offer these products and make the huge business outcome out of the
business operations sustained by the Sainsbury Company. On the basis of the recent records it is
anticipated that retail sector is growing at the rate of 9% to 11% which is an attractive rate that
denote the growth in market (Allahnouri, Aghbash and Pazhouhan, 2018). ON the basis of the
anticipation it is identified that retail sector would reach up-to the $1.1-1.3 trillion US Dollar up

to the year 2025 that also indicate about the huge business opportunities in favour of the
Sainsbury Company. All the statistic denote that company can entertain huge business growth
opportunities in UK. Along with the retail sector E-commerce retailing is another sector that is
growing rapidly in India. ON the basis of the current information and figures it is anticipated that
in India e-commerce market is growing at the rate of approximately 51% in UK in the previous
financial year which indicate that retail customers have become much active over online
shopping that allow them to meet the need and requirements efficiently (Ghouri, Mian and
Rowe, 2017). Sainsbury Company can further utilize this medium to entertain the growth and
development in market so that overall objectives behind the business operations of company can
meet by organization. The law of demand concept of economic is also support the company to
entertain its business operations due to massive demand of retail products. New market will
always offer new growth and business development opportunities that would further allow the
organization to offer immense level of growth and development in the market. This is also
beneficial in respect to the organization to cherish its existing brand value and image at a global
level.
IN the macro environment and micro environment social factor is a critical tool that
immensely influence the overall business operations and functions of organization. This involves
factors like fashion, trend, choices of customers in market, education and many such elements
that directly influence the overall buying decision-making entertain by the customers in market.
UK customers or youth becomes very active and constant over purchasing various retail sector
products especially related to fashion and clothing range (Mose, 2016). They are also aware in
respect to top fashion brands that Sainsbury Company can offer to customers in UK in order to
achieve the best level of competitive positioning in the associated market. The retail market also
provides the freedom to the company to offer new design and creative ideas as the customers are
very positive and acceptable towards choosing new designs and area of practices. Company can
take competitive advantage by attracting top brands to improve the overall growth of company in
market. Sainsbury Company will also get to expand its product portfolio by channelizing product
development campaign and practices improving the quality of company's products.
Sainsbury Company has been constantly active over its technological advancement and
development that can support the best level of customer satisfaction rate in market.
Technological facilitation of company has supported the organization to strongly delegate its

functions and entertain the best level of customer satisfaction rate in against to operate business
functions. Technological development of company could favour the organization to deliver the
best level of customer improvement Champaign which favour the organization to facilitate its
services. Company can also look to allocate its products over information technology system by
entering into the e-commerce market (Dwivedi, 2019). This will allow the organization to
allocate its operations over the technological platforms so that company can achieve the best
possible growth rate in market. Technological platforms and tools like customer relationship
management applications will further allow the organization to deliver the best level of customer
services in the market. As the retail sector is among the highly competitive market sector that
influence the organization to achieve the best level of competitive advantage in the associated
market. Micro environment analysis of company also allows the organization to utilize the
resources of company in such a way that it can advance its technology and boost the support
system of company so that professional level of services can be delivered by organization.
Sainsbury Company has also been involved in the corporate social responsibility
operations that also support the organization in boosting up the overall brand value of company.
IN UK there are so many areas where company can deliver its social responsibility operations
with the support of the local community and stakeholders that would allow the organization to
cherish its existing brand value in the respective market (Qi Yang and et.al., 2018). Company
can also form the strategic alliances with the stakeholders and producers that deal in natural retail
products and items. This is an important macro and micro environment factor that support and
look favourable in context to the Sainsbury Company for allowing the organization to achieve its
overall objectives and goals behind the business operations channelizes by the company. This
factor is also stated as the recent development of the business environment as in recent time
people and society UK and across the globe become active towards the social responsibility and
environment protection campaign which allowed the organization to channelize these practices.
Legal factor in India is very active. Different laws like anti-discrimination act, equality
act, data protection and many such laws that are applicable over companies. Sainsbury Company
would require coping up with all different requirements and regulations attached with all the
legal factors applicable over the organization. This is another key requirement that company
needed to fulfil in against to deliver the business operations (RAZALI, ABDULLAH and
MOHD, 2020). Sainsbury Company further has been much aware in respect to implication of

legal regulations and factor as company has never been involved in any controversies or in any
illegal activity that can create negative environment in respect to the organization. The active
presence of company for coping up with the legal retranslations has benefited to organization for
meeting all different regulations and requirements of company in respect to deliver the business
objectives.
CONCLUSION
The above report concludes that financial performance measure from the use of the firm's
assets from its primary mode to generate revenue. This shows the financial position of the
company in the market and the company's health over the period. Financial performance can be
measured by the revenue from operation, cash flow statement, and operating income or from
balance sheet. Financial performance is measured from the balance sheet, income statement and
the cash flow statements. The Sainsbury financial performance has been also discussed by
analysis the various ratios like liquidity, solvency, profitably and efficiency ratio. The liquidity
ratio is set to be ideal at 1:2 or 2 but the Sainsbury shows Current Ratio of the financial year
2019 is 0.63% which decreases when compare to 2018 is 0.76% with almost 0.13% which was
not sufficient assets to fulfil their liability of the company. Sainsbury Solvency Ratio Debt
Equity Ratio was 0.89 in 2019 and 0.11 in 2018 which shows the company finds difficulties to
meet their long term loans but the ratio increases in 2019 with 0.78 difference which shows the
company is more focusing on the meeting the long term debt with interest cover efficiently.
Profitably of the Sainsbury shows the gross profit ratio with 5.2% in 2019 and 4.98% in 2018
which indicate the rise in 2019 and more competitive in the market with high profits. Net profit
Ratio fallen to 0.57% in 2019 comparing with 2018 net profit is 0.81% which determine the
increase in cost of production and other cost of the company performance which results decrease
in margin and profits of the company after all the expenses and tax was deducted. Sainsbury's
efficiency ratio includes Inventory Turnover Ratio which is 14.95 in 2019 and 14.22 in 2018
which shows slight increasing in year 2019 shows the efficiency of the company that are using
their assets to produce sales in the market. Whereas, liquidity ratios show the ratio of 0.76 in
2018 and 0.63 in 2019 with the difference of 0.13 in both the year and shows the company not
reliable in the eye of investor and may find difficulties to raise the money. The overall
performance of the Sainsbury is not up-to the mark with the view of investor as the returns is
quite low compare to other competitor and the reliability of the company may differ as the

financial performance of the company was not good also the performance decline in 2019.
Company may find difficulties to raise funds from the market as the financial performance of the
company is not up to the mark and comparing with competitive firm’s other companies are
providing with more of return to their investment (Drake, Quinn, Thornock, 2017).
The economic aspect of Sainsbury shows the internal and external aspect of the company
which is affected with the changing environment and trends that are to be followed by the
company with the time changes. The competitive market environment is very dynamic and the
company need to updated their technology and trends towards the market need and fulfil the
customer satisfaction by providing the demanded products. There are two factors which is affect
the company I.e. micro environment and macro environment. Micro environment factor affects
the company management internally and are controllable in nature. This factor is measured from
various analysis like SWOT which shows the Sainsbury strength and weakness, opportunity and
threat in the market. The company analysis the future opportunities and garb it on time to remain
at top from their competitor and analysis the future threat and to avoid the loses. However,
strength and weakness are modified with time and change according to the market and create
competition in the market and weakness are the disadvantages of the company that can be
overcome with time but the competitor takes the advantage of other weakness to capture the
market share. Micro environmental factor affects the management of the company and
performance but can be control through effective decision-making at the right time. Whereas,
Macro environment factors are the external factors which directly affect the whole company
performance and lead to occur losses of the company if timely decision are not taken by the
company. Sainsbury may affect various factors and are analysis through PESTLE which shows
the Political factors which are affected with the changes government and norms in the country
and affect company policy. Economic factor shows the change in economic condition of the
country which may affect due to inflation, recession, tax rate, trade policy etc. which directly hits
the performance of company. Social factor shows the change in lifestyle which include wealth,
religion, purchase habits etc. of the people in country and changes by time to time. Technological
factor is the most dynamic factor that affect the company performance and need to update with
time to reduce the cost efficiency and increase the profits of the company, this help the company
to promote and market their product to fulfil their needs and demand of consumers. Company
have to update their production technology to produce the innovative products with minimize

cost and maximize the profits of the company. The Latest technology is used for the customer4
satisfaction like online shopping app that are used from anywhere saves time and efforts of
customers. Legal factors are those factors which are governed by the government and local
authorities for doing the business without hurting any religion, caste or gender who are directly
or indirectly dealing with company and also include laws like labour law and wage act which
may differ from country to country. Lastly ecological factors which affect the environment
surrounding by producing of goods and service. This factor states the environment should not be
harmed while producing the goods or service. Uses of ecological renewable material for the
production should be taken by the company which can easily disposed of. Hence, this is the
factors which affect the company performance and decision-making of the company to grow in
the market and financially sound.
Sainsbury operate in worldwide and have much wider market when it compares to Tesco.
While the market of Sainsbury supermarket is much wider than Tesco and also food quality was
better in Sainsbury. Tesco had face serious quality issue in their product while Sainsbury have
been maintaining the standard quality of products and market price. While the Tesco had
outdated stores in the some of the market and Sainsbury have been updated their store time to
time.

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1

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Online
Sainsbury. 2020. [Online]. Available through:
<http://tools.morningstar.co.uk/uk/stockreport/default.aspx?
tab=10&vw=is&SecurityToken=0P000090N6%5D3%5D0%5DE0WWE
%24%24ALL&Id=0P000090N6&ClientFund=0&CurrencyId=BAS>
Sainsbury. 2017. [Online] Available through:
<https://www.annualreports.com/HostedData/AnnualReportArchive/j/LSE_GB076762
8_2017.pdf>
Sainsbury (J) PLCSBRY. 2020. [Online] Available through:
<http://tools.morningstar.co.uk/uk/stockreport/default.aspx?
tab=10&vw=is&SecurityToken=0P000090N6%5D3%5D0%5DE0WWE
%24%24ALL&Id=0P000090N6&ClientFund=0&CurrencyId=BAS>
2

APPENDIX
3
Illustration 1: Income Statement 2017

4

5
Illustration 2: Balance Sheet of 2017

6