Financial Performance Comparison: Tesco vs Sainsbury

This assignment presents a comparative analysis of the financial performance of two major UK supermarket chains, Tesco and Sainsbury. It examines their liquidity performance through activity ratios and provides a visual representation using graphs. The report concludes by comparing the overall financial health of both companies, highlighting Sainsbury's superior performance in certain areas despite challenges faced by both organizations.

FINANCIAL STATEMENT
ANALYSIS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Financial performance Analysis of Sainsbury and Tesco...........................................................1
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................15
Income statement of Tesco........................................................................................................15
Balance sheet of Tesco..............................................................................................................16
Income statement of Sainsbury.................................................................................................17
Balance sheet of Sainsbury.......................................................................................................17

INTRODUCTION
Present assessment, provides the analysis of financial statement of firms by using various
tools and techniques. Analysis is based on data collected and calculations, the information will
help the stakeholders in making decisions regarding their investment to the company. However,
in this report there will be discussions bade on the financial capacity of Tesco and Sainsbery
which in turn will be analysed and compared. These two companies are considered for the
purpose of analysis because both the companies are good competitors in consumer retail
industry. Hence, with the help of such financial tools the professionals of such organisation will
be benefited with making the appropriate decisions and plan strategies to enhance organisational
efficiency.
Financial performance Analysis of Sainsbury and Tesco
For the purpose of analysing financial statements of both the company, ratio analysis tool
has been considered. Selected ratios of both the companies have been calculated and compared
by the way of graphical representation.
Liquidity Ratios
Sainsbury Tesco
Ratios Formula 2015 2016 2017 2015 2016 2017
Current Assets 26.73 26.18 31.98 11958 14828 15417
Current
Liabilities 41.86 39.62 43.44 19810 19714 19405
Current Ratio
current assets /
current liabilities 0.64 0.66 0.74 0.6 0.75 0.79
Quick Assets 8.8 7.89 7.01 6.58 16.44 18.74
Acid test Ratio
quick assets/
current liabilities 0.21 0.20 0.16 0.42 0.59 0.66
1

Graphical presentation for Sainsbury
Current Ratio Acid test Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Graphical presentation for Tesco
Current Ratio Acid test Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Liquidity ratios are calculated to test the short term liquidity and solvency position of the
business. These ratios help the management in determining the efficiency of working capital
2
2015
2016
2017
2015
2016
2017

employed to the business (Boyas, and Teeter, 2017). 2:1 is the ideal current ratio and 1:1 is the
ideal quick ratio.
Current ratio of Sainsbury is low in all the three years though it is on an increasing trend.
Low ratio defines that there is under capitalization of resources. Company need to increase its
current assets to maintain a proper balance. However current ratio of Tesco is also low but in
comparison to Sainsbury it is high. Tesco is utilizing its resources better than Sainsbury.
Profitability Ratios
Sainsbury Tesco
Ratios Formula 2015 2016 2017 2015 2016 2017
Gross profit 1208 1456 1634 -2112 2854 2902
Sales 23775 23506 26224 62284 54433 55917
Net profit -166 471 377 -4325 1994 1966
Gross profit
ratio
Gross Profit / sales
revenue *100 5.08% 6.19% 6.23% -3.90% 5.30% 5.20%
Net profit ratio
Net Profit / sales revenue
*100 -0.69% 2.00% 1.44% -9.22% 0.25% -0.07%
Graphical presentation for Sainsbury
3

Gross profit ratio Net profit ratio
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Graphical presentation for Tesco
Gross profit ratio Net profit ratio
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
Profit earning capacity of the company is determined using profitability ratio. Calculation
of these ratios are based on either investments or sales.
Gross profit ratio of the company is increasing yearly but net profit ratio of the company
is not as good as its GPR. Company has also gone through loss in 2015, though the company is
4
2015
2016
2017
2015
2016
2017

improving but the profit of the company is also declined in 2017 in comparison to 2016. While
when comparing to Tesco, profit earning capacity of Tesco is not sound and it is showing a
negative trend.
Financial Performance Ratios
Sainsbury Tesco
Ratios Formula 2015 2016 2017 2015 2016 2017
Capital employed 17113.4 7212.86 7495.03 7071 8626 6438
Return on Capital
Employed
Net Profit / Capital
employed -0.97 6.530 5.030 -23.54 2.15 1.67
Return on Assets -1 2.810 2.050 -12.17 0.31 -0.09
Graphical presentation for Sainsbury
Capital employed Return on Capital Employed Return on Assets
-50
0
50
100
150
200
Graphical presentation for Tesco
5
2015
2016
2017

Capital employed Return on Capital Employed Return on Assets
-40
-20
0
20
40
60
80
100
As the name suggests financial performance ratio indicates the financial performance of
the company. Return on capital employed and return on assets indicates the optimum utilisation
of resources of the organisation by management (Goldmann 2017). Financial performance of
Sainsbury is more sound than Tesco. It can be said that the resources of Sainsbury are being
utilized more properly than that of Tesco.
Solvency Ratios
Sainsbury Tesco
Ratios Formula 2015 2016 2017 2015 2016 2017
Shareholders Equity 33.49 37.5 34.82 15.99 19.65 14.04
Long term Debt 14.13 12.1 9.75 23.79 24.2 20.35
Debt-equity ratio
Shareholders equity /
long term debt 2.37 3.10 3.57 0.67 0.81 0.69
Graphical presentation for Sainsbury
6
2015
2016
2017

Shareholders Equity Long term Debt Debt-equity ratio
0
5
10
15
20
25
30
35
40
Graphical presentation for Tesco
Shareholders Equity Long term Debt Debt-equity ratio
0
5
10
15
20
25
30
Solvency ratio determines the interest and loan amount repaying capacity of the
company. Solvency ratio indicates that is the organisation is capable to meet its long term
obligations. 2:1 is the ideal debt equity ratio.
Debt equity ratio of Sainsbury is high than the ideal ratio that means that the company is
having enough equity than required to meet its long term obligations. On the other hand debt
7
2015
2016
2017
2015
2016
2017

equity ratio of Tesco is lower than the ideal ratio that means Tesco need to raise more equity in
order to meet its long term obligations.
Activity Ratios
Sainsbury Tesco
Ratios 2015 2016 2017 2015 2016 2017
Total Asset Turnover Ratio 1.44 1.4 1.43 1.32 1.24 1.24
Fixed Assets Turnover Ratio 2.44 2.42 2.65 2.77 2.84 3.11
Inventory Turnover Ratio 22.54 22.44 17.93 19.71 19.15 22.41
Graphical presentation for Sainsbury
Total Asset Turnover Ratio
Fixed Assets Turnover Ratio
Inventory Turnover Ratio
0
5
10
15
20
25
2015
2016
2017
Graphical presentation for Tesco
8

Total Asset Turnover RatioFixed Assets Turnover RatioInventory Turnover Ratio
0
5
10
15
20
25
Activity ratios are determined to know the performance of the organisation. These ratios
are also known as turnover ratios because most of the ratios under this category are based on
turnover (Kaur, Aggarwal, and Gupta, 2017). These ratios show the investment of the company
in particular type of assets and how quick the company is able to convert its assets in cash.
Financial statements of Tesco
9
2015
2016
2017

CONCLUSION
From the above report it has been concluded that the liquidity performance of Tesco is
better than that of Sainsbury. However, overall financial performance of Sainsbury is better than
Tesco. Though financial performance of both the chosen company is not up to the mark, but
when comparing both, it can be said that Sainsbury is performing well in terms of Tesco. The
10

above report also provides the graphical representation of the company's financial performance.
Financial statements of both the companies has also been attached.
11

REFERENCES
Books and Journals
Boyas, E. and Teeter, R., 2017. Teaching Financial Ratio Analysis using XBRL. Developments
in Business Simulation and Experiential Learning. 44(1).
Goldmann, K., 2017. Financial Liquidity and Profitability Management in Practice of Polish
Business. In Financial Environment and Business Development. (pp. 103-112). Springer
International Publishing.
Kaur, M., Aggarwal, N. and Gupta, M., 2017. An Investigation into Returns from Financial
Statement Analysis among High Book-to-Market Stocks. Indian Journal of Economics
and Development. 13(2). pp.353-358.
Online
Financial and key ratios of Sainsbury, 2017. [Online]. Available
through :<financials.morningstar.com/income-statement/is.html?
t=JSNSF&region=usa&culture=en-US>. [Accessed on 23rd October 2017]
Financial and key ratios of Tesco, 2017.[Online]. Available through
:<http://financials.morningstar.com/ratios/r.html?
t=TSCDF&region=USA&culture=en_US>. [Accessed on 23rd October 2017].
12

APPENDIX
Income statement of Tesco
13

Balance sheet of Tesco
14

Income statement of Sainsbury
Balance sheet of Sainsbury
15