Financial Analysis of Sainsbury and Tesco

FINANCIAL ANALYSIS
MANAGEMENT &
ENTERPRISE

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................2
REPORT..........................................................................................................................................2
Evaluation of financial performance and the financial position of the Sainsbury and Tesco.....2
Evaluation of working capital......................................................................................................3
Evaluation of Cash Flow Statements...........................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1
APPENDICES.................................................................................................................................2
Ratio Analysis..............................................................................................................................2
Horizontal & Vertical analysis....................................................................................................5

INTRODUTION
Financial analysis refers to process involving evaluation of budgets, projects and other
financial factors of the enterprise for determining the performance and suitability of the
company. This is used for analysing whether a company is solvent, stable, profitable and liquid
enough for warranting the monetary investments. Present report will provide financial analysis of
Sainsbury and Tesco over the four years. It will cover the financial factors associated with the
performance of companies. Further report will provide analysis on working capital of company
and the cash flow statement over the two years.
REPORT
Evaluation of financial performance and the financial position of the Sainsbury and Tesco
Profitability ratio
2016 2017 2018 2019 2016 2017 2018 2019
Return
on
capital
employe
d
Net operating
profit/Employ
ed Capital 4.44
%
3.16
%
2.48
% 1.02% 1.02
%
0.27
%
3.87
%
3.53
%
Return
on
Equity
Net Income /
Shareholder's
Equity
7.86
%
5.64
%
4.22
% 2.23% 3.07
%
1.12
%
9.47
%
9.46
%
Gross
Margin
Total Sales –
COGS/Total
Sales
8.43
%
8.23
%
9.14
%
11.75
%
5.21
%
5.45
%
5.91
%
7.06
%
Net
profit
ratio
Operating
Income/ Net
Sales
1.95
%
1.37
%
1.02
% 0.58% 0.49
%
0.13
%
1.73
%
1.99
%
Analysis
It could be evaluated from the above profitability ratios of the two companies that Tesco
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is moving towards profitability where Sainsbury is showing downward slope of the profitability.
Return on Capital Employed
The ratio analyses the efficiency of management in generating sales over the existing
assets and resources of the company. ROCE is of Sainsbury is showing a continuous decline over
the four years period. The declines show that the management is losing its efficiency in utilising
the resources to generate revenues for the firm. Company is showing a declining trend from the
recent past in returns. There is great need of new corporate strategies to be laid by the company
that generate maximum returns using the existing resources of the entity. Such decliing growth is
matter of concern for the management as despite of increase in revenues the returns are declining
of the enterprise. Company is required to improve and enhance the returns generated by the
company over its resources.
Tesco on the other is having ROCE rising from 1.02% to 3.53%. It could be seen that the
management of company is putting full efforts for promoting the growth of organisation.
Existing resources of the entity are being best utilised by the entity for generating higher returns
for the entity. The ratio shows that the performance of Tesco is improving and becoming better
than before due to the new strategies implemented by the management. Companies should
reduce the unproductive assets by writing off the projects (Benavides and et.al., 2017). From the
above two companies ROCE of Tesco is more better and also showing increasing trend which
means that it could achieve the required growth prospects in coming future.
Return on Equity
It is a metric used for identifying the returns provided by company over their equity
investment. Every investor is desirous of getting higher returns over their investment. It is used
for analysing whether the company is providing adequate returns over their investments.
Sainsbury is having steady decline in ROE, it has decreased from 7.86% in 2016 to 2.23% in
2019. It could be evaluated from the ratio that Sainsbury is showing declining trend. This shows
that company is not providing adequate returns to the investors over their investments in the
company. This could cause serious impact over the market position and demand for company
shares. It affects the investors and decreases the wealth of shareholders due to decline in return
over their earnings.
On the other ROE of Tesco has risen from 3.017% to 9.46%. It could be evaluated from
the above ratios that Tesco is generating adequate returns over the investments. Returns of the
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