Comparative Analysis of Financial Statement and Ratio Analysis of Tesco and Sainsbury

Running head: FINANCE
Finance
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Table of Contents
Introduction................................................................................................................................2
Comparative Analysis of Financial statement............................................................................2
RATIO ANALYSIS...................................................................................................................3
Limitations of ratio analysis.......................................................................................................5
Information’s from other sources...............................................................................................5
Conclusion..................................................................................................................................6
Reference....................................................................................................................................7
Appendices.................................................................................................................................8

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Introduction
In this report, an attempt is made to analyse two companies in order to make decision
for investment. The two companies that have been selected for analysis are Tesco and
Sainsbury. In order to make the investment decision the financial statements and significant
ratios of both the companies are compared. The report also discusses the limitation of the
ratio analysis and the information from the other sources. The main aim of the report was to
make the decision in which company the investment should be made.
Comparative Analysis of Financial statement
Income Statement
On analysing the income statement of Tesco Group, it can be observed that revenue
from operation for the year 2016 was £53,933m and this increased to £55,917m in the year
2017. As a result of which the cost of sales has also increased from £51,089m in the year
2016 to £53,015m in 2017. Hence, from the above figures it was found that the gross profit of
the company has increased to £2,902m in the current financial year. During the year 2016, the
operating profit for the company was £1,072m that slightly increased to £1,017m in 2017.
However, it can be observed that despite of increase in operating profit and the amount of
gross profit, there was significant decline in the amount of profit before tax of the company
(Baltes et al., 2015). The Profit before tax of the company in 2016 was £202m which
decreased to £145m in 2017. This decrease in the amount of profit was due to increase in the
figure of finance cost and administrative expenses. As a result of this decline in the profit
before tax, there was an overall loss of the company.
On analysing the income statement of Sainsbury, it can be seen that the sales of the
business have increased by 12.7%. However, the underlying profit before tax of the company
has declined by 1%.

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Balance sheet
On analysing the balance sheet of the Tesco, it can be seen that the current assets of
the company has increased. By 4%. On the other hand, it can be seen that the current assets
of the Sainsbury has increased by 43% during the year. On analysing the liability side of the
balance sheet it can be seen that in case of Tesco the liability has increased by 8% whereas in
case of Sainsbury the current liability has increased by 28%.
RATIO ANALYSIS
As per the income statement and statement of financial position of both the
companies, three vital ratios are undertaken in order to assess the financial strengths and
weaknesses of the companies. These three ratios includes Net Profit Ratio, Current Ratio and
Debt Equity Ratio.
Net Profit ratio
Statement Showing Net Profit ratio (Amount in Million)
Particulars Tesco Sainsbury
2017 2016 2017 2016
Net Profit £ 58.00 £ 256.00 £ 377.00 £ 471.00
Sales/ Revenue £ 55,917.00 £ 53,933.00 £ 26,224.00 £ 23,506.00
Net Profit Margin 0.10% 0.47% 1.44% 2.00%
The ratio that indicates the profitability of the company after deduction of all
expenses of the business is called the net profit ratio. The net profit ratio is represented in
terms of percentage. In the current scenario, the net profit for Tesco for 2016 was 0.47% that
declined to 0.10% in 2017. Similarly for Sainsbury as well the amount of net profits have
declined in 2017 compared to 2016. In 2016 the net profit margin for Sainsbury was 2.00%
which declined to 1.44% in 2017. Therefore, it can be found that for both the companies, the
net profits have declined in the current financial year compared to that of the year 2016.