Sainsbury's Financial Analysis using Ratio Analysis

This assignment requires evaluating Sainsbury's financial performance by conducting ratio analysis. Calculate and interpret key ratios such as ROCE, inventory turnover, asset turnover, current ratio, and debt-to-equity ratio to assess the company's profitability, efficiency, liquidity, and solvency. Compare these ratios with past data and competitors' figures for a comprehensive assessment.

Finance Management

TABLE OF CONTENTS
PROJECT 1.....................................................................................................................................1
1. Stating the people to whom annual reports are disseminated and the manner in which it is
done..............................................................................................................................................1
2. Presenting the information need of the identified stakeholder contained in annual report.....1
3. Describing the contents of report and information served by it..............................................1
4. Examining the fiscal condition of company............................................................................2
5. Giving recommendations for the purpose of improvement.....................................................2
PROJECT 2.....................................................................................................................................3
Stating the extent to which ratio analysis technique helps in measuring business performance
and goals......................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Financial management is highly concerned with making optimum use of resources
through the means of sound strategic and policy framework. Such specialized function is directly
associated with the top management that lays high level of emphasis on the accomplishment of
the goals and objectives. The present report is based on Sainsbury which is one of the leading
British multinational retailers of UK. In this, report will shed light on the information need of
financial statements users. Further, it will provide deeper insight about the manner in which ratio
analysis technique assists in measuring business performance.
PROJECT 1
1. Stating the people to whom annual reports are disseminated and the manner in which it is done
In order to satisfy the information need and maintaining the faith of investors Sainsbury
prepares annual report at the end of accounting year. Along with this, firm disseminates annual
report to the investors through the means of mail and uploading the same on company’s website.
Once statements have been prepared and audited thereafter Sainsbury upload it on their websites
(Brigham and Ehrhardt, 2013). Hence, concerned stakeholders like shareholders, suppliers,
management etc can easily access the annual report and thereby would become able to evaluate
financial performance of business.
2. Presenting the information need of the identified stakeholder contained in annual report
Annual reports satisfy the information need of users to the significant level. Investors are
highly concerned towards the returns so they make evaluation of final accounts. Moreover,
annual reports provide information to them about the company’s profitability, EPS and dividend
offered by it. Hence, by getting information about such aspects investors can assess whether they
need to invest more money or not. In addition to this, higher management team needs
information about the sales revenue and profitability (Arnold, 2013). By considering all such
aspects it can be said that information contained in annual report satisfies the information need of
stakeholders to a great extent.

3. Describing the contents of report and information served by it
Financial reports serve information about the company profitability, liquidity, solvency,
growth, projects and auditors comment. In the reports, firms like Sainsbury specifically highlight
the projects and figures that represent success. Further, in the annual report company also
publishes information about loss which is turn indicates the non-successes of firm (Hill and
et.al., 2013). By considering all the aspects it can be entailed that financial report tells about both
successes and non-successes.
4. Examining the fiscal condition of company
In order to assess the fiscal condition annual reports of 2015 and 2016 are considered. By
doing evaluation, it has been identified that gross profit of Sainsbury inclined from £1208 to
£1456 respectively (Sainsbury (J) PLC, 2017). Along with this, net margin of the firm also
turned from negative results to the positive one. This aspect clearly reflects that in 2016
Sainsbury generated high margin over the past years. Further, to summarize the financial
condition ratio analysis tool has been undertaken that clearly reflects the extent to which
company is sound from the perspectives of liquidity and solvency.
In the accounting year 2015 and 2016, current ratio of Sainsbury accounts for .64:1
& .66:1 respectively. By considering this, it can be presented that Sainsbury had not enough
current assets for meeting the obligations like bank overdraft, creditors etc that need to be paid
within the one year. On the other side, quick ratio of the business unit was .48 and .50
respectively. This aspect presents that company has enough assets except inventory and prepaid
expenses for meeting the quick monetary obligation. In addition to this, debt equity position of
Sainsbury was .45 and .34 respectively. Such position of the firm was in line with the ideal ratio
such as.5:1. Thus, it can be said that solvency aspect of Sainsbury is good to some extent.
5. Giving recommendations for the purpose of improvement
 On the basis of financial statement analysis, it is recommended to Sainsbury to exert
control on spending and make focus on maintaining current assets. By doing this, firm
would become able to improve liquidity position.
 It is suggested to the business unit to issue 1 debt in against to 2 equities which in turn
helps firm in developing highly optimal capital structure.

 In addition to this, by making focus on promotional aspects and quality of the products
or service Sainsbury can maximize the level of profitability.
PROJECT 2
Stating the extent to which ratio analysis technique helps in measuring business performance and
goals
Ratio analysis may be served as a tool or technique that helps in analyzing as well as
interpreting final accounts of the company. By using this, firm can evaluate liquidity,
profitability, efficiency and solvency aspect of firm. The main aim of the company is to attain
predetermined goals that are setting down by the team of higher management. In this regard,
business unit can gauge performance and goals through undertaking the technique of ratio
analysis. Main elements of ratio analysis that help in evaluating business position and
performance are as follows:
 Profitability ratios: It include GP and NP margin that renders information about the
profitability generated by the firm over direct as well as indirect expenses (Burt and
Amin, 2014). By undertaking such ratios business unit can assess and evaluate the trend
of profitability in against to the set standard as well as competitors.
 Liquidity ratios: Current and quick ratios are the main elements of liquidity ratio that
helps in assessing the extent to which business is financially capable or not. Moreover,
both the ratios clearly indicate the company’s ability in relation to fulfilling the monetary
obligations. Thus, by comparing such ratios with standard such as 2:1 & .5:1 firm can
evaluate its position in monetary terms.
 Efficiency ratios: This measure provides deeper insight to the company about how
efficiently it has made use of assets while performing business activities and functions.
ROCE, inventory and asset turnover are the main efficiency ratios that assists in
evaluating the employees ability as well as effectiveness of organizational policies.
 Solvency ratios: By using such measure one can analyze the extent to which capital
structure of the company is sound (Perini and et.al., 2014). It clearly presents how and
from which sources business unit has fulfilled its financial needs.

Hence, by taking into account all the above elements it can be presented that stakeholders of
namely investors, higher management, employees, suppliers etc can measure business
performance by conducting ratio analysis. Such technique offers opportunity to the stakeholders
to compare the current figures with past data and in against to the competitors. Ratio analysis is
highly effectual tools that help in simplifying the accounting figures to a great extent. Moreover,
it clearly exhibits company’s performance in a structured manner such as profitability, liquidity
etc and thereby helps in making suitable decisions. Moreover, users of final account namely
management, personnel, suppliers, shareholders, government etc have varied information needs
(Ostroumova and et.al., 2016). In this, segregated information about business performance offers
high level of convenience to the stakeholders. Through undertaking such technique corporation
can measure liquidity, long term solvency, profitability more effectively and efficiently.
CONCLUSION
From the above report, it has been concluded that financial reports that are prepared and
published by Sainsbury provides stakeholders with the valuable framework for decision making.
Besides this, it can be inferred that Sainsbury is required to undertake strategic framework that
ensures improvement in liquidity and solvency aspect. Further, it has been articulated that ratio
analysis is the most effectual tools that facilitates both inter and intra firm comparisons.

REFERENCES
Books and Journals
Brigham, E. F. and Ehrhardt, M. C., 2013. Financial management: Theory & practice. Cengage
Learning.
Arnold, G., 2013. Corporate financial management. Pearson Higher Ed.
Hill, M. D. and et.al., 2013. Determinants and effects of corporate lobbying. Financial
Management. 42(4). pp.931-957.
Burt, N. M. and Amin, M., 2014. A mini me?: Exploring early childhood diet with stable isotope
ratio analysis using primary teeth dentin. Archives of oral biology. 59(11). pp.1226-1232.
Perini, M. and et.al., 2014. Stable isotope ratio analysis for verifying the authenticity of balsamic
and wine vinegar. Journal of agricultural and food chemistry. 62(32). pp.8197-8203.
Ostroumova, E. and et.al., 2016. Non-thyroid cancer incidence in Belarusian residents exposed to
Chernobyl fallout in childhood and adolescence: Standardized Incidence Ratio analysis,
1997–2011. Environmental research. 147. pp.44-49.
Online
Sainsbury (J) PLC. 2017. [Online]. Available through:
<http://financials.morningstar.com/ratios/r.html?t=SBRY&region=gbr&culture=en-US>.
[Accessed on 31st August 2017].