Financial Analysis Management And Enterpirse - Assignment

Financial Analysis
Management and Enterpirse

Table of Contents
INTRODUCTION...........................................................................................................................3
Question 1 Presenting ratio analysis, vertical and horizontal analysis of the financial statement
of Tesco and Sainsbury for past 4 years......................................................................................3
Question 2 Explaining the importance of working capital analysis for both the companies in
the process of decision-making.................................................................................................12
Question 3 Critical analysis of the cash flow statement of both the companies for last two
years and its assistance in the decision making process...........................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................16
APPENDIXE:................................................................................................................................17

INTRODUCTION
Financial Analysis management and Enterprise can be related for business organisation
as investigating and evaluation of the performance of the business in terms of ratio analysis and
balance sheet evaluation thorough vertical and horizontal evaluation, This assist the comparison
of financial performance of two or more business pertaining to similar industry to determine their
over al performer and the competitive advantages they have on each other. In the present report
the financial performance of Sainsbury and Tesco is compared in fiscal terms in this the ratio
analysis in done where liquidity, profitability, efficiency and investment ratios are calculated
than both them are compared. Apart form this horizontal and vertical analysis is also done for the
balance sheet of both the organisation. In the next part of the report the working capital status
and cash flow of the both the organisation is depicted and their status in both the files is
explained.
Question 1 Presenting ratio analysis, vertical and horizontal analysis of the financial statement of
Tesco and Sainsbury for past 4 years
Ratio analysis
Ratio analysis is that tool which depicts the financial position of a company and
facilitates comparison among two of more organizations.
PROFITABILITY RATIO
Gross profit ratio
Year / companies 2015 2016 2017 2018
Sainsbury
5.08% 6.19% 6.23% 6.61%
Tesco -3.39% 5.24% 5.19% 5.83%
Net Profit ratio
Year / companies 2015 2016 2017 2018
Sainsbury
-7.00% 2.00% 1.44% 1.09%
Tesco -9.22% 0.25% -0.07% 0.02%
Interpretation:
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The gross profit ratio of companies defines the difference between the sales revenue and
cost of good s sold of the organization. For GP ratio of Sainsbury have shown a consistent
growth in gross earning for a period of 4 years and the table above depict growth of more than
1% in gross profits of the company (Tesco Plc, 2019). On the other hand the growth of Tesco in
Gp is immense as it had a negative profits in 2015 but in 2108 it had a gross profit of 5.83 % so
there is direct increase of 8%. So it can be stated among both organisation the performance of
Tesco is better in basis of Gp ratio.
For the net profits ratio it can be seen for Sainsbury that in 2015 it has negative profits
while in 2018 it have reached to positive with a percentage of 1.09. On the other hand for Tesco
the net profits were to low in 2015 rather it was operating under net loss of 9.22%. in 2018 the
company have reached to a profitable position with just .02% of net profits. This can be stated
that for position of both companies in 2018 is good as compared to 2015 as in this both
companies have started to earn profits though at lower rates.
LIQUIDITY RATIO
Current ratio
Year / companies 2015 2016 2017 2018
Sainsbury
0.07 0.66 0.74 0.76
Tesco 0.06 0.75 0.79 0.71
Quick ratio
Year / companies 2015 2016 2017 2018
Sainsbury
0.51 0.52 0.53 0.59
Tesco 0.44 0.61 0.68 0.6
Interpretation:
The current ratio of both the organisation for all 4 years is lower than the standard ratio
2:1, rather both the companies do not have a ratio near 1 (Tesco Plc, 2019). This means that the
liquidity position of the business is not too goods and the current assets of companies are too low
to meet their immediate financial obligations. For quick ratio it can be stated that oth
organisation of not have a standard ratio of 1:1 rather noth of hme are operting at lower level
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and small increment in 4 year can be seen. This can be stated that for all 4 years both Tesco and
Sainsbury do not have shown a growth in attaining a good liquidity position.
SOLVENCY RATIO
Debt-equity ratio
Year / companies 2015 2016 2017 2018
Sainsbury
0.44 0.35 0.31 0.2
Tesco 1.49 1.23 1.45 0.67
Interpretation: The debt equity ratio depict the position of the business in the proportion
of debt regarding the equity. This can be stared that the position Sainsbury in past 4 years have
not shown a growth rather a fall can be seen from 0.4 to 0.2 this means company only have 20%
of equity over 100 %. Same is the position of Tesco which depicts that debt equity ratio have
fallen and the debt financing in capital structure have increased for Tesco.
EFFICIENCY RATIO
Inventory turnover ratio
Year / companies 2015 2016 2017 2018
Sainsbury
22.63 22.44 17.93 14.83
Tesco 21.78 19.15 22.41 23.73
Total assets turnover ratio
Year / companies 2015 2016 2017 2018
Sainsbury
1.44 1.4 1.43 1.36
Tesco 1.41 1.24 1.25 1.27
Fixed assets turnover ratio
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Year / companies 2015 2016 2017 2018
Sainsbury
1.98 1.91 2.02 2.07
Tesco 1.93 1.78 1.88 1.87
Interpretation: Efficiency ratio can be understood as assistance In determination of efficiency
of business by the use of its different resources and generating income. A Higher value of these
ratios displays a higher efficiency level of organization and its different assets. Different
efficiency ratios such as inventory turnover ratio, fixed assets turnover ratio, and others.(Muda
and et.al., 2018). The ratios of Sainsbury show that efficiency of generating profits from
different assets held by it is keep increasing over the year.
INVESTMENT RATIOS
Earnings per share
Year / companies 2015 2016 2017 2018
Sainsbury
-0.09 0.23 0.17 0.13
Tesco -2.12 0.05 -0.01 0.44
Dividends per share
Year / companies 2015 2016 2017 2018
Sainsbury
0.1 0.12 0.12 0.1
Tesco - - - 0.03
Interpretation: The earning per share have increased for Sainsbury period of 4 years and
same is the case of Tesco, which shows the good earning level of both businesses. The dividend
per share of Sainsbury have seen ups and down to minor level only.
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Horizontal analysis
Sainsbury: Income statement
Particulars 2015 2016
%
change
in 2016
2017 % change
in 2017 2018
%
change
in 2018
Revenue 23,775 23,506 -1.13% 26,22
4 11.56% 28,45
6 8.51%
Cost of revenue 22,567 22,050 -2.29% 24,59
0 11.52% 26,57
4 8.07%
Gross profit 1,208 1,456 20.53% 1,634 12.23% 1,882 15.18%
Total operating
expenses 1,127 749 -33.54% 992 32.44% 1,364 37.50%
Operating income 81 707 772.84% 642 -9.19% 518 -19.31%
Interest Expense 154 142 -7.79% 130 -8.45% 135 3.85%
Other income 1 26
Other expenses 17 9 -47.06%
Income before
income t... -72 548 -861.11% 503 -8.21% 409 -18.69%
Provision for
income t... 94 77 -18.09% 126 63.64% 100 -20.63%
Net income -166 471 183.73% 377 -19.96% 309 -18.04%
Interpretation: The horizontal analysis of income statement Sainsbury depicts that
overall financial performance of company' is diminishing over a time period of 4 year. In the
horizontal income statement each percentage is reducing with every passing year. Hence, it can
be seen that it is required by the management of Sainsbury to design and implement effective
strategies to control the failure of company as their financial performance at same level for long
may result in facing a critical situation.
Tesco: Income statement
Particulars 2015 2016
%
change
of 2017
2017
%
change
of 2018
2018
%
change
of 2019
Revenue 62,284 54,433 -12.61% 55,917 2.73% 57,491 2.81%
Cost of revenue 64,396 51,579 -19.90% 53,015 2.78% 54,141 2.12%
Gross profit -2,112 2,854 35.13% 2,902 1.68% 3,350 15.44%
Total operating
expenses 2,695 1,874 -30.46% 1,734 -7.47% 1,786 3.00%
Interest Expense 499 498 -0.20% 517 3.82% 431 -16.63%
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Other expenses 1070 320 -70.09% 506 58.13% 0
-
100.00
%
Net income -5,741 138 97.60% -40
-
128.99
%
1,206 3115.00
%
Interpretation: The horizontal income statement of Tesco plc states that performance of
company regarding earning income have shown an improvement in 4 years. The income
statement depicts the fact that directors and manager of the company have designed and
formulated the strategies to reach at a good financial position of the company.
Sainsbury: Balance sheet
Particulars 2015 2016
%
change
in 2016
2017 % change
in 2017 2018
%
change
in 2018
Assets
Total current
assets 4,505 4,444 -1.35% 6,322 42.26% 7,866 24.42%
Total non-current
assets. 12,032 12,529 4.13% 13,415 7.10% 14,135 5.37%
Total assets 16,537 16,973 2.64% 19,737 16.30% 22,001 11.47%
Liabilities and
stockholders
equity
Total current
liabilities 6,923 6,724 -2.87% 8,573 27.50% 10,302 20.20%
Total non-current
liabilities 4,075 3,884 -4.69% 4,292 10.50% 4,288 -0.09%
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Total liabilities 10,998 10,608 -3.55% 12,865 21.30% 14,590 13.41%
Total stockholders'
equity
5,539
6,365 14.91% 6,872 8.00% 7,411 7.84%
Total liabilities
and stakeholders
equity
16,537 16,973 2.64% 19,737 16.30% 22,001 11.47%
Interpretation: Sainsbury's horizontal balance sheet depicts that financial performance of
company have reduced in 4 years. With the above analysis financial position this is seen that that
financial position company in not good at the fall is going with a faster pace so immediate
control is required.
Tesco: Balance sheet
2015 2016
%
change
in 2016
2017
%
change
in 2017
2018
%
change
in 2018
Assets
Total current
assets 11,958 14,828 24.0% 15,417 4.00% 13,726 -11.00%
Total non-
current asse... 32,256 29,076 -9.9% 30,436 4.70% 31,136 2.30%
Total assets 44,214 43,904 -0.7% 45,853 4.40% 44,862 -2.20%
Total current
liabilit... 19,810 19,714 -0.5% 19,405 -1.60% 19,238 -0.90%
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Total non-
current liab... 17,333 15,564 -10.2% 20,010 28.60% 15,144 -24.30%
Total
liabilities 37,143 35,278 -5.0% 39,415 11.70% 34,382 -12.80%
Total
stockholders'
equity
7,071 8,626 22.0% 6,438 -25.40% 10,480 62.80%
Total
liabilities and
stakeholders
equity
44,214 43,904 -0.7% 45,853 4.40% 44,862 -2.20%
Interpretation: The horizontal statement of the company Tesco shows that financial
position reduced of company in the year 2018 is better as compare to 2017. With effective
implementation of strategies of directions and managers company have made a growth in the
recent years and gained a good financial position with starting to generate profits from the
business.
Vertical Analysis:
Income statement:
Sainsbury:
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Interpretation: There is growth in the gross profits for the Business in a time frame of 4
years but the net profits of the company have not been so good. But it can be stated that over
performance of company is satisfactory and it have reach to profitable position from loss making
position.
Tesco
Interpretation: The gross Profit percentage of company have increased and this can
directly be linked to the control of the cost of product of the goods by the company. For the net
profits company have came far form making loss to getting at a profit making position.
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Balance sheet
Sainsbury:
Interpretation: The financial position of the company shows good growth there is an increment
in current asset and shear holder equity but with rise in the current liabilities the liquidity
position of the company remains at same level with minor changes.
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Tesco
Interpretation: the current ration have increased but the current liability have also
increased with more percentage which make the liquidity position to stuck at same pace. The
total assets and share holder equity have also increased.
Question 2 Explaining the importance of working capital analysis for both the companies in the
process of decision-making
Working capital can be defined as the funds which are required by an organisation in
conducting day to day operations and activities. This is the basic requirement of the funds and
cash which is a priority of the business to complete the daily work. Working capital analysis is
used by the companies to determine the liquidity and sufficiency of current assets in comparison
of the current liabilities. With the use of working capital analysis is the companies Tesco and
Sainsbury determine their liquidity position as how much funds do they have in forms of cash
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and cash equivalents on order to meet their immediate liabilities and pay of their current dues to
credits and suppliers.
The current assets of Tesco is seen to be increasing from 2015 to 2017 but the for 2018 it
have fallen down by approx 2000 million dollar form previous year. For the same time of 4 years
he current liabilities have also shown a decrease with a small numbers. This depicts that facts
that the requirement of the working capital varies each year and ea per the different between
them the actual requirement of the funds is identified by Tesco to meet their daily operations. Te
working capital analysis directly assist the management of the Tesco in the process of decision
making regrading allocation of the resources as per the need and requirement. Also, the
management get to know the reasons for rapid change in the current liability and the
insufficiency of funds to meet the current obligations of the business.
On the other hand the working capita analysis of Sainsbury's depicts a different picture
which states that total current assets of the organisation have shown a tremendous growth in a
period of 5 years from 2015-2018, with almost a rise of 4300 million dollars. The figures of
current liabilities states a rise well this means the current assets and liberalities the have increase
in 4 year time. This had a direct impact o the liquidity postilion of the company a rise in current
liability is more than hike in current asset which means the requirement of working capital have
also increased (Sainsbury Plc, 2019). With the working capital analysis the organization is
assisted in taking the business decision as this is crucial for the company. This includes
examination of the timelines under which the current liabilities of the business are due for
payments. This is determined through the account receivable report of the company and state the
business as which payment are due and required to paid immediately or in the near future. With
this company is required to allocate and set he funds in such a way that the dues can be paid off
in time under the given deadline. The company also determines its liquidity position as how
quickly it can sale its current asset and can be converted into cash meet the obligation of the
business, if there are less asset then liabilities the current assets are required to enhances and
allocation shall be made accordingly.
Question 3 Critical analysis of the cash flow statement of both the companies for last two years
and its assistance in the decision making process
The cash floe statement of an organization depict the total cash incomes earned by the
company in a financial year and how much cash spendings are done by business in the same
14

time and how much cash is left with organization which defines the immediate quick liquidity
position of the business. The cash flow analysis for both Tesco and Sainsbury is done for the
time period of two years that 2017 and 2018. The net cash inflow from the operating activities
for Sainsbury have increased from 2017 to 2018. Rather, the net cash flows form investing
activities have shown negative effected means the investment are not giving any income rather
payment on the investment made more then the earning, but the amount though negative have
also decreased in 2018. Same is the seen with financing activities where the outflow is more than
inflows and it has shown a reduction in 2018 then 2017. The over all cash by the en off year
2018 with Sainsbury is 409 million dollar which depicts that the liquidity position of the
company is week where it does not have sufficient funds to meet its quick intimidate liabilities
which are required to be paid in a time of less than a week. The management of Sainsbury take
the decision in this regard to take controlling activities to make the negative flow positive and
continue to operate at same or higher level for the activities which are giving good returns to
business.
On the other had the cash floe statement of Tesco, shows that the incomes received form
operating activities of Tesco have increased by almost 900 million dollar which stated that
management is required to operate at the same level to manage the inflow at same position and to
increase them. From inflow form investment activities have also increased from 2017 to 2018
which means the current investments made by the company are giving goods returners so it must
hold on to them the management is required to take decision of holding them and invest in such
investment to increase the income. The cash lo form the financing activities of Tesco hare
negative and the outflow in 2018 have increased which means that the resources which are
allocated for financial activities are either not utilized to their full potential or the activities are
not giving sufficient return due to ineffectiveness in the performance (Sainsbury Plc, 2019). The
management here takes the decision of finding out the reason for such a hug out foe and apply
corrective measure to control the situation and make the activity profitable. The overall cash in
hand for the 2018 have increased form 2017 and here the decision are made to operate at same
level and take corrective measures to enhance the cash inflows in the future.
CONCLUSION
From the above report it can be said that financial performance of an organisation can be
analysed through evaluation of its financial reports . Further, for the purpose conducting a
15

detailed analysis of organization's financial position, financial ratios are evaluated for both Tesco
and Sainsbury. Horizontal and vertical financial statements have been prepared and then
evaluated which can assist the stakeholders to have a more accurate information over the change
in the financial performance of both companies. Moreover, working capital analysis and the cash
flow statements are two major component of analysing the financial performance of business
which can aid the stakeholders in analysing capabilities of a organisation.
16

REFERENCES
Books and journals
Muda, I. and et.al., 2018, March. Factors of quality of financial report of local government in
Indonesia. In IOP Conference Series: Earth and Environmental Science (Vol. 126, No. 1,
p. 012067). IOP Publishing.
Online
Tesco Plc. 2019. [online]. Available through
:<http://financials.morningstar.com/cash-flow/cf.html?t=TSCDY&region=usa&culture=en-
US>.
Tesco Plc. 2019. [online]. Available through :<http://financials.morningstar.com/balance-
sheet/bs.html?t=TSCDY&region=usa&culture=en-US>.
Sainsbury Plc. 2019. [online]. Available through :<http://financials.morningstar.com/cash-
flow/cf.html?t=SBRY&region=gbr&culture=en-US>.
Sainsbury Plc. 2019. [online]. Available through :<http://financials.morningstar.com/balance-
sheet/bs.html?t=SBRY&region=gbr&culture=en-US>.
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APPENDIXE:
Balance sheet of Tesco Plc
18

Balance sheet of Sainsbury
19

20

Cash flow statements of Sainsbury
21

22

Cash flow statement of Tesco Plc
23

24

25