Financial Management of J Sainsbury: Analysis of Financial Ratios and Investment Appraisal Techniques

This report focuses on the financial information of J Sainsbury plc, a leading retail food supermarket in the UK. It includes a brief history of the company, financial performance analysis using different ratios, and evaluation of investment appraisal techniques. The report provides insights into the company's profitability, liquidity, gearing, and efficiency ratios.

Financial
Management

Table of Contents
INTRODUCTION ..........................................................................................................................3
PART A ..........................................................................................................................................3
A Brief history of J Sainsbury.....................................................................................................3
PART B ...........................................................................................................................................4
Sainsbury's Financial Performance.............................................................................................4
Calculation of last five years financial ratios ........................................................................4
PART C .........................................................................................................................................13
Usage of Investment Appraisal technique.................................................................................13
Calculation of Payback period, Accounting rate of return and net present value with critical
analysis of the results following recommendations..............................................................13
Advantages and Shortcomings of the different techniques of Investment appraisal............16
CONCLUSION .............................................................................................................................17
REFERENCES..............................................................................................................................19

INTRODUCTION
Financial management is the management theory and practices which focuses on strategically
planning, organising, directing and controlling of different financial issues and requirements of
an organisation. In simple words, it is a practice of handling finances of a company while
focusing on the organisation's success. Planning, budgeting, managing and assessing risks related
to finance is the main scope of financial management (Heo, Lee, and Rabbani, 2021). In this
report the main focus is given to the financial information of a plc. The company taken for this
report is J. Sainsbury plc. It is a retail food supermarket in the United Kingdom. This report is
divided into three parts. Part A highlights a brief history of J. Sainsbury, all about the company,
its business model and major competitors. Part B shows a detailed analysis of the different type
of ratios of J Sainsbury for the last five years and a detailed comparison with a major competitor.
The comeptitor chosen for this report is Morrisons. Morrisons is Part C shows a investment
appraisal techniques and evaluates the two projects provided.
PART A
A Brief history of J Sainsbury
J. Sainsbury is one the leading supermarket chain in the United Kingdom. It currently holds
market share of 16% in the the supermarket sector. It was founded in the year 1869 by John J
Sainsbury. He started the business as partnership between him and his wife Mary Ann with a
single shop in Drury Lane, London. They began trading with fresh foods and later expanded into
packaged consumable items and groceries like tea, sugar, chips (Cheak-Zamora, Teti, Peters, and
Maurer-Batjer, 2017). The mission of the business in the 19th century was Quality perfect, Prices
lower. The business grew stronger and wider. The management offered extra convenience to the
public to hold the competitive edge in the market and it was in the year 1922 that the business
was incorporated as a private company and became one of the UK's largest grocery group. In the
year 1928, there were 128 shops and James Sainsbury was replaced by his eldest son John
Benjamin Sainsbury after his death. From the year 1930s till 1940s, the company was run by his
eldest son and the company continued to produce quality products and maintained its leadership
in the market. In the year 1938, Alan Sainsbury, the founder's grandson became the managing
director of the business. Outbreak of World War II were the crucial and difficult years for the

business as most of the places where the company was trading were bombed. Male employees
were now replaced by women as the men were asked for National Service.
In the year 1950s-1960s, the company introduced the self-service supermarkets in the UK, when
Alan Sainsbury became the chairman after his father's death. The first self-service branch opened
in Croydon in the year 1950. The company was wholly owned by the Sainsbury family until the
company went public in the 1973. A million of shares were kept for the staff which raised the
prices of shares in the market when the employees started buying. The application were closed
within a minute and £495 million were offered already for the available shares (Osoolian,
Hoseyni Esfidavajani, and Bagheri, 2019). The family still retained the 85% of the shares as they
did not want to dilute the ownership and management as they were benefiting largely from the
management by the family. The company was now managed by the fourth generation of the
founding family. John Davan Sainsbury, from the fourth generation, took over chairmanship
from his Sir Robert Sainsbury in 1969 after the two years of retirement of Alan Sainsbury. The
company now started changing its supermarkets into all self service supermarkets with varied
services like valet parking, and larger space for parking and delivering items, either in outskirts
location or town center. The policy of the company was to invest in well designed stores with the
vision of good food, costs less. The company started diversification of its product line. The
company offers the groceries like fruits and vegetables, meat and fish, dairy and bakery products
health and beauty and household products. And Sainsbury Bank. Bank offers savings accounts,
credit cards, insurance products etc. The major competitors of Sainsbury are, Tesco, Morrisons,
ASDA. Lord Sainsbury is the current president of the business.
PART B
Sainsbury's Financial Performance
Calculation of last five years financial ratios
Profitability Ratios
These are the ratios which are calculated to ascertain the ability of the business to generate
earnings in regards to its revenue and other costs (Tey, and et.al., 2021). Following are the
profitability ratios calculated for Sainsbury.

Net Profit Margin: This ratio in profitability ratios calculates the amount of net profit that is
earned by the business in relation to its revenue.
Net Profit Margin = Net income / sales * 100
Year Calculation (£m) Ratio
2016 471 / 23506 * 100 2.00%
2017 377 / 26224 * 100 1.43%
2018 309 / 28456 * 100 1.08%
2019 186 / 29007 * 100 0.64%
2020 152 / 28993 * 100 0.52%
Interpretation: The net earnings margin of Sainsbury for the year 2016 to 2020 is overall low.
Though every year from 2016, its profit margin is continuously decreasing. It has an resulted in
diminishing the sales. The net profit is decreasing, even if the sale has elevated in the year 2019.
The organisation should put a focus on the strategies to decrease the expenses and increasing in
the margin of profit. If these profit continuously tend to decrease in the future, it will become
hard for the enterprise to pay its dividends and loans at the time to the investors and creditors.
Return on Investment: This ratio ascertains the amount of percentage that is being earned on the
investments and operational work.
Return on Investment = Net profit / cost of investment * 100
Year Calculation (£m) Ratio
2016 471 / 22050 * 100 2.13%
2017 377 / 24590 * 100 1.53%
2018 309 / 26574 * 100 1.16%
2019 186 / 26719 * 100 0.69%
2020 152 / 26997 * 100 0.56%
Interpretation: It is an close measurement of the profitability of the firm for the investment. It
measures the percentage of net profit on the cost of total investment made by the company. From

the above calculation, it can be interpreted that the returns on investment is positive but are every
less. But the return on investment of Sainsbury is decreasing every year with the decreasing in
profit and increase in investment expenses.
Operating Profit Margin: This ratio talks about how the operating profit of the business is in
relation to its sales (Croci, Del Giudice, and Jankensgård, 2017). It gives insight as how much
the operating costs are eating up profits.
Operating Profit Margin = operating profit / sales * 100
Year Calculation (£m) Ratio
2016 707 / 23506 * 100 3.01%
2017 642 / 26224 * 100 2.44%
2018 518 / 28456 * 100 1.82%
2019 601 / 29007 * 100 2.07%
2020 650 / 28993 *100 2.24%
Interpretation: The operating profit has reduced over the years from 2016 to 2018. In 2019, it
put a jump with 2.07 % of the operating profit margin. Sainsbury has made very less profit out of
the sales made by it. The above calculation depicts that it generates only £ 650 of the operating
profit on the overall revenue of £ 28,993. This figure is not at all good for the reputation and
monetary condition of the company. As a result, in the year 2020, its sale has also decreased.
This could be due to the disruption of the pandemic situation which has flown over the world in
an adverse way.
Liquidity Ratios
These ratios shows the liquidity power of the business. How the business can meet its short term
monetary requirements.
Current Ratio: This is a type of liquidity ratio which measures a company's ability to pay short
term liabilities. It is a ratio of current assets over current liabilities (Phan, Rieger and Wang,
2019).
Current ratio = Current assets / Current liabilities

Year Calculation (£m) Ratio
2016 4,444 / 6,724 0.66:1
2017 6,322 / 8,573 0.73:1
2018 7866 / 10,302 0.76:1
2019 7,558 / 11,849 0.63:1
2020 7586 / 12047 0.62:1
Interpretation: It illustrates to meet the short – term and long – term obligation of the
enterprise. The ideal current ratio for any organisation is 2 : 1. But here, the ratio of all the years
is below 1. It depicts that the current liabilities exceeds the existing assets. It is a negative aspect
for the company as it indicates that the organisation is not in a good fiscal state and is unable to
meet its commitments at the time.
Quick Ratio: This is similar to current ratio but it ignores the inventory as current assets.
Quick ratio = (Current assets – inventory) / current liabilities
Year Calculation (£m) Ratio
2016 (4,444 - 968) / 6,724 0.51:1
2017 (6,322 – 1775) / 8,573 0.53:1
2018 (7866 - 1810) / 10,302 0.58:1
2019 (7,558 - 1929) / 11,849 0.47:1
2020 (7586 - 1732) / 12047 0.48:1
Interpretation: It indicates that whether the organisation has sufficient funds to pay- off its
short-term liabilities. However, in 2016 its shows that the ratio is increasing till 2018. But, then
again in 2019 it has decreased and again in 2020 it showed a slight increase in the ratio. The
problem is that, continuously the current liabilities of Sainsbury is increasing, and it is a bad
indicator for the shareholders. It depicts that the undertaking is unable to convert its short – term
liability into cash.
Gearing Ratios (leverage ratio)

These ratios shows the relation of financial funds and its leverage.
Debt-equity ratio: It a type of financial ratio which measures company's financial leverage. It
shows the proportion of debt and equity used in financial model of the company.
Debt-equity Ratio = Total debt / Shareholder's Equity
Year Calculation (£m) Ratio
2016 10608 / 6,365 1.66
2017 12865 / 6,872 1.87
2018 14590 / 7,411 1.96
2019 20229 / 7,782 2.59
2020 20164 / 7,773 2.59
Interpretation: The debt-equity ratio shows how much debt the company is using in regards to
its share capital. The ideal debt-equity ratio is considered around 1 to 1.5. The above calculations
of debt-equity ratios for the 5 years shows that the company is using more of debt in its financial
leverage. In the year 2019 the ratio was 2.59 which means that the company was financed 2.59x
more through debt than the equity. A greater debt-equity ratio indicated a huge financial risk for
the business. Sainsbury has financial risk here.
Times Interest Earned Ratio = Earnings before interest, tax, depreciation and amortization
/ Interest expenses
Year Calculation (£m) Ratio
2016 707 / 167 4.23
2017 642 / 136 4.72
2018 518 / 140 3.7
2019 601 / 427 1.4
2020 650 / 398 1.63

Interpretation: The times interest earned ratio shows the company's ability to meet the debt
obligations of the business in regards to its profit earned. An ideal ratio is considered greater
than 2.5. The company was showing a fine amount of ratio in the first three years of the
interpretation but the ratio drastically went down in 2019 and 2020. This creates a much higher
risks for bankruptcy for the business.
Efficiency Ratios
Inventory turnover ratio = Cost of goods sold / Average inventory
Year Calculation (£m) Ratio
2016 22,050 / { ( 997 + 968 ) / 2 } 22.44
2017 24590 / { ( 968 + 1,775 ) / 2 } 17.92
2018 26574 / { ( 1,775 + 1,810 ) /
2 }
14.8
2019 26719 / { ( 1,810 + 1,929 ) /
2 }
14.29
2020 26977 / { ( 1,929 + 1,732) /
2 }
14.73
Interpretation: This ratio ascertains the rate at which the company can sell its inventory. The
ideal turnover ratio is considered to be between 5 to 10 but many companies consider the
turnover ratio between six to twelve as desirable. Sainsbury has its ratios near to the ideal ratios.
Sainsbury is able to sell its inventory at a much faster rate which brings continued inflow of
revenue into the company.
Asset Turnover Ratio = Net sales / Average Total Assets
Year Calculation (£m) Ratio
2016 23506 / {( 16,537 + 16,973 ) /
2}
1.4
2017 26224 / {( 16,973 + 19,737 ) /
2}
1.42

2018 28456 / {( 19,737 + 22,001 ) /
2}
1.36
2019 29007 / {( 22,001 + 28,011 ) /
2}
1.16
2020 28993 / {( 28,011 + 27,937 ) /
2}
1.03
Interpretation: Asset turnover ratios shows the company's ability to utilize its assets
appropriately. An Ideal turnover ratio is 2.5 or more for the retail sector. The trend of ratio in
Sainsbury is less than the ideal asset turnover ratio. This shows that the company is not yet
utilizing the assets at the rate they can earn maximum benefits from the assets.
The major competitor for the Sainsbury is Morrisons. So now the ratios of Morrisons will
be calculated below of the five years from 2016 to 2021.
1. Profitability ratio:
 Net profit Margin = (Net income / Net sales) * 100
2021 = (96 / 17598) * 100 = 0.545 %
2020 = (348 / 17536) * 100 = 1.98 %
2019 = (244 / 17735) * 100 = 1.38 %
2018 = (311 / 17232) *100 = 1.80 %
2017 = (305 / 16317) * 100 = 1.86 %
2016 = (222 / 16122) * 100 = 1.38 %
 Return on Investment = Net profit / cost of investment * 100
2021 = (96 / 17210) * 100 = 0.55 %
2020 = (348 / 16907) * 100 = 2.06 %
2019 = (244 / 17128) * 100 = 1.43 %
2018 = (311 / 16629) * 100 = 1.87 %
2017 = (305 / 15713) * 100 = 1.94 %

 Operating Profit Margin = operating profit / sales * 100
2021 = (254 / 17210) * 100 = 1.47 %
2020 = (521 / 16907) * 100 = 3.08 %
2019 = (394 / 17128) * 100 = 2.30 %
2018 = (458 / 16629) * 100 = 12.75 %
2017 = (468 / 15713) * 100 = 2.98 %
2. Liquidity Ratios
 Current ratio = Current assets / Current liabilities
2021 = 9606 / 2981 = 3.22 : 1
2020 = 9598 / 3396 = 2.83 : 1
2019 = 8534 / 3295 = 2.59 : 1
2018 = 8385 / 3081 =2.72 : 1
2017 = 8070 / 2864 =2.81 : 1
 Quick ratio = (Current assets – inventory) / current liabilities
2021 = (9606 – 814) / 2981 = 2.95 : 1
2020 = (9598 – 660) / 3396 = 2.63 : 1
2019 = (8534 – 713) / 3295 = 2.37 : 1
2018 = (8385 – 686) / 3081 = 2.5 : 1
2017 = (8070 – 614) / 2864 = 2.60 : 1
3. Gearing Ratios (leverage ratio)
 Debt-equity Ratio = Total debt / Shareholder's Equity
2021 = 6820 / 4216 = 1.62
2020 = 6379 / 4541 = 1.41
2019 = 5285 / 4631 = 1.14
2018 = 5122 / 4545 = 1.13
2017 = 6927 / 4063 = 1.71
 Times Interest Earned Ratio = EBIT / Interest expenses
2021 = 165 / 111 = 1.49
2020 = 435 / 111 = 3.92

2019 = 320 / 97 = 3.3
2018 = 380 / 94 = 4.04
2017 = 325 / 160 = 2.03
3. Efficiency Ratios
 Inventory Turnover ratio = Cost of goods sold / Average inventory
2021 = 17210 / 737 = 23.35
2020 = 16907 / 686.5 = 24.63
2019 = 17128 / 699.5 = 24.49
2018 = 16629 / 655 = 25.39
2017 = 15713 / 615 = 25.55
 Asset Turnover Ratio = Net sales / Average Total Assets
2021 = 17898 / 10978 = 1.63
2020 = 17536 / 10418 = 1.68
2019 = 17735 / 9791.5 = 1.81
2018 = 17262 / 9456.5 =1.82
2017 = 15713 / 9276.5 = 1.69
Comparative Analysis of Sainsbury with its competitor Morrisons:
The operating profit margin of Sainsbury is less compare to that of the Morrisons. The sales of
both the companies is not so stable, which results in the fluctuation of the operating profit. Good
profitability is generated by the good revenue. The operating profit of Morrisons is more it
means that it operates at low costs compared to Sainsbury. The cost of sales represents expense
for the retail market, a change in the return on investment is caused due to the decrease or
increase in the net profit. The efficiency ratio shows the turnover of the inventory and assets over
the whole year. The asset turnover ratio is relatively low of Morrisons, it means it make a high
profit on the goods but a low profit margin (Thacoor, van den Bosch and Akhavani, 2019). The
same goes with Sainsbury. But in comparison of both the enterprises the ratio differentiation of
Morrisons is better than Sainsbury. The inventory turnover ratio measures the productivity of the
company. The ratios calculated shows that Sainsbury is becoming more efficient and is trying to
make its performance better. In the liquidity ratios, the hypermarket and supermarket chains

usually have a low current ratio. As it only sales the good which comes under the category of
Fast Moving Consumer Goods (FMCG). The ratio calculation of the both companies shows that
the current and quick ratio of Morrisons is very much better than Sainsbury. The current
liabilities exceeds the existing liabilities of the organisation which can prove a risk to the
company. However, the debt – equity ratio of Sainsbury is very much high of all the five years, it
means it is in a position where it is difficult for it to pay the borrowings to their creditors.
Thus, it can be said from the above analysis that the position of Morrisons is much better
than that of Sainsbury.
Recommendation: From the above analysis it is clear that Sainsbury is not doing great in
comparison to its competitor, Morrisons. The financial condition of Sainsbury is well but the
operational efficiency of the business is not up to the mark. The comparison shows how
Morrisons is earning profits, their revenue is sufficient to meet the costs and make a high level of
profit. Hence for Sainsbury it is recommended that the company should focus on how they can
reduce its cost of sales as the profit is really less compared to its revenue. Company should find
more cost saving ways of production and providing services to the customers in order to increase
the profit of the business. The company's dependence on debt is also really high which creates a
potential threat to the existence of the business. The company should try to reduce its
dependency on debts and raise more capital in form of shares.
PART C
Usage of Investment Appraisal technique
Investment Appraisal refers to an analysis that is done by the investors to consider different
factors and strategically determine the profitability of an investment (Assenso-Okofo, Ali, and
Ahmed, 2020). This helps the investors in decision making related to investment.
Calculation of Payback period, Accounting rate of return and net
present value with critical analysis of the results following
recommendations.
Payback Period: This is a capital budgeting techniques which ascertains the time period
required to recuperate the initial value of investment. Following are the calculations of payback
period of the two projects.

Year A B
Projected cash
flow (£m)
Cumulative cash
flow (£m)
Projected cash
flow (£m)
Cumulative cash
flow (£m)
0 -103 -103 -115 -115
1 10 -93 60 -55
2 30 -63 40 -15
3 50 -13 60 45
4 65 52 5 50
Payback period = the period upto n-1 + cumulative cash flow in n-1 year / cash flow during
the n year, where n is the year in which cumulative cash flow turned positive
Payback period of project A = 3 + 13 / 65
= 3 + 0.2
= 3.2 Years
Payback period of investing in project A is 3 years and 2 months approximately.
Payback period of project B = 2 + 15 / 60
= 2 + 0.25
=2 years and 3 months
Payback period of investing in B is 2 years and 3 months approximately.
Analysis: As described above, payback period which is less is considered more appropriate for
the business to choose as the initial cost of investment will be gained earlier compared to
different projects. In the scenario, it can be seen that project B has lesser payback period than
project A. If the company takes this technique into the consideration then Project B is a more
viable investment to go for. The company would gain back its initial investment in the project in
just 2 years and 3 months which is 9 months earlier than project A.
Accounting rate of return (ARR) : It refers to the percentage of return which is
forecasted from an investment plan or assets compared to the initial cost of investment (Eng,
and et.al., 2019). Following are the calculation of ARR of the two projects.
ARR = Average Annual cash flow / Average Investment

ARR of project A = { ( 10 + 30 + 50 + 65 ) / 4 } / (103 / 4 )
= 38.75 / 25.75
= 1.50
ARR of project B = { ( 60 + 40 + 60 + 5 ) / 4 } / ( 115 / 4 )
= 41.25 / 28.75
= 1.43
Analysis: As discussed above, accounting rate of return shows the rate of return that an
investment project will produce if a company chooses the project. From the above calculation it
can be seen that Project A has greater rate of return as compared to B. Even though the
difference is not much, the company may want to choose that project which has more rate of
return than other. Hence, project A is more viable for the company according to ARR technique.
Net Present Value (NPV) : It is another investment appraisal technique which helps the
investors decide the future cash flows at the current value of investment (Outa, Eisenberg, and
Ozili, 2017). Following are the calculation of NPV for the two projects.
Calculation of NPV for Project A
Cash flows of project (£m) PV factor Cash flows*PV factor (£m)
10 0.'919 9.19
30 0.'845 25.35
50 0.'777 38.85
65 0.'715 46.48
TOTAL 119.87
NPV = PV cash flow – Initial investment
= 119.87 – 103 = £ 16.87 m
Calculation of NPV for Project B
Cash flow of project (£m) PV factor Cash flows*PV factor (£m)
60 0.'919 55.14
40 0.'845 33.8

60 0.'777 46.62
5 0.'715 3.58
TOTAL 139.14
NPV = PV cash flow – Initial investment
= 139.14 – 115 = £ 24.14 m
Analysis: From the above discussion it is clear that how NPV is an important aspect in the field
of decision making for investment. The company will choose that investment proposal which has
greater NPV. From the above calculations it can be ascertained that Project B has greater NPV
than project A. The future cash flows from Project B makes it more viable and advantageous for
the company to invest in. Project A has slightly lesser NPV which makes it a bit far fetched
investment. If company chooses NPV as the decision making technique than project B is the
viable project for investment.
Recommendation: The above calculations and analysis gives some clarity about the investment
appraisal projects that are present with the company. The techniques above judges these two
investment projects and which one is more beneficial according to different factors. From the
above discussion it is recommended that the company should invest in project B. Even though
Project B has a greater Accounting rate of return, the difference from project A is not much. The
Payback period and Net present value of project B are in much more positive manner than that of
project A. If the company invests in project B, they will receive a greater value of return and in
lesser time period than that of project A. Hence, it is recommended that the company invests in
Project B.
Advantages and Shortcomings of the different techniques of
Investment appraisal
Payback Period
Advantages Shortcomings
 It is a really simple process as it does
not require any calculations of rate.
 It can help the businesses reinvest
 This technique neglects all the other
factors that there might influence the

better after giving insights about the
time in which the business will earn
back initial cost of investment
(Karakurum-Ozdemir, Kokkizil, and
Uysal, 2019).
 It can help small businesses as these
businesses have limited funds so this
technique can help them understand the
opportunities that would enhance their
profits.
investment decisions.
 This technique does not focus on the
time value of the investments. It only
focuses on short term cash flow and
how the business can earn max return
in less time.
 It does not ascertains the overall profit
that would be attained by the business
(Bhargava, Bafna and Shabarisha,
2018).
Accounting Rate of Return
Advantages Shortcomings
 It does not require need of special
reports as it is based on cash inflows
and initial investment of the project.
 It is easy to calculate and understood
simply.
 As this technique is based on profit, it
ascertain the profitability of the
business.
 This technique ignores the time value
of money.
 This does not take into consideration
the cash flow from the investment.
 It also does not consider the terminal
value of the project (Hassan and
Marimuthu, 2018).
Net Present Value
Advantages Shortcomings
 This technique is a good measure of
profitability as it shows the capacity of
projects of earning in a defined time.
 It considers all the cash flows from the
project unlike Payback period.
 The NPV calculations does not take
into consideration the sunk cost figures.
 The comparison can not be done of two
project which have different sizes.

 This technique takes into consideration
the cost of capital and other risk factors
that are present with the business
project (Lanier, Wempe, and Swink,
2019).
 Ascertaining NPV will not boost the
earnings or any return on equity of the
business.
The Non-financial factors: These factors refers to the factors of working in an environment.
The business environment other than the economical factors. Political, social, legal,
technological factors also influences a decision making practice of a company (Manurung, and
Rizki, 2019). These factors usually help the business at last when they are near to making a
decision or these can the be the first stage that business ascertains before forming up projects.
CONCLUSION
From the above mentioned detailed report it can be concluded that financial management is an
important management tool which is used by the strategic managers of the business to influence
the financial position and fiscal needs that the business requires for its operations. The report
revolves around Sainsbury, a food retail business listed in the London Stock Exchange.
Sainsbury was incorporated in the year 1869 as a partnership firm. The business was later
converted into a private limited company and later in 1973 the company went public attracting
great amount for its shares. The main competitors of the business are Tesco, Morrisons, ASDA
in the UK markets. The second part of the report highlights a detailed analysis of the different
ratios of business for the past five year's financial data. This analysis is done using the financial
data of Sainsbury and the analysis is also done in comparison to one of its competitor. The
competitor chosen for this report is Morrisons. The third part of the report carries out the
calculations of different tools used in investment appraisal. These tools helps the business
determine which investment proposal is beneficial for the business and which has other
limitations. The payback period of Project B is lesser which means that project B holds the
power to pay back the initial investment of the project in a lesser time than project A. The ARR
of project A is better than project B. The NPV of project B is much more than that of project A.
Hence the recommendation made to Sainsbury is that they should invest in Project B as they
satisfy the two tools with greater extent than project A.

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