THE MANAGE FINANCIAL PERFORMANCE

Running head: MANAGE FINANCIAL PERFORMANCE
Manage Financial Performance
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MANAGE FINANCIAL PERFORMANCE1
Table of Contents
Introduction......................................................................................................................................2
Financial Ratio Analysis: Profitability Ratio:..................................................................................2
Financial Ratio Analysis: Liquidity Ratio.......................................................................................5
Financial Ratio Analysis: Efficiency Ratio.....................................................................................6
Financial Ratio Analysis: Gearing Ratio.........................................................................................8
Conclusion and Recommendations..................................................................................................9
References......................................................................................................................................10
Appendix A: Financial Ratio Analysis..........................................................................................12
Appendix B: Vertical Statement Analysis of Sainsbury................................................................13
Appendix C: Vertical Statement Analysis: TESCO Company......................................................17
Appendix D: Horizontal Statement Analysis: Sainsbury Plc........................................................22
Appendix E: Horizontal Statement Analysis: TESCO Company..................................................26
Appendix F: Sainsbury Key Ratio.................................................................................................30

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To: Board of Directors of Sainsbury PLC
From: Reporting Accountant
Date: 30th December 2019.
Introduction
The financial analysis of the Sainsbury Plc has been done for a sum of last five years whereby
relevant changes in the financials of the Company has been well accounted and taken into
consideration. The key competitors of the company include TESCO, both the analyzed company
operates as a multinational grocery company operating in the retail industry. The financial
analysis for the Sainsbury Company in particular would be done using ratio analysis whereby
liquidity, profitability, efficiency and activity ratios would be analyzed for the company in
particular (Guo and Wang 2019).
Financial Ratio Analysis: Profitability Ratio:
Table 1: Profitability Ratio

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Profitability aspects of the company has been well analysed with the help of the key ratio’s like
Return on Shareholder’s fund, Return on Capital Employed, EBIT Margin, Net Profit & Gross
Profit Ratio has been well taken into consideration. The decrease in the profitability aspects of
the company has been considerably due to increase in the cost of sales or operating expenses
incurred. On the other hand, the net profit margin of the company also has shown a considerable
decrease which has been cyclical (Adewuyi 2016). It is important to note that the profitability
aspects of the company has been a bit volatile in the period 2015-2017 and the same were due to
high cost of sales incurred in this period at the same increase in administrative and operating
expenses of the company were considerably to high which in turn degraded the profitability
aspects of the company. On the other hand, the competitor benchmark which is Tesco Company
has shown a well consistent performance in terms of maintain their profitability and in turn
improving the profitability aspects of the company in the trend period of five years.
3/9/2019 3/10/2018 3/11/2017 3/12/2016 3/14/2015 3/15/2014 3/16/2013 Tesco
-5.00
0.00
5.00
10.00
15.00
20.00
Profitability Ratio
Return on Shareholders Funds (%) Return on Capital Employed (%)
Return on Total Assets (%) Profit margin (%)
Gross margin (%)
The gross profitability of the company has seen a slight improvement in the year 2017-2019 but
the same has been slightly volatile due to higher percentage increase in the cost of sales of the
company in contrast to the increase in the revenue of the company.

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The net profitability of the Sainsbury Company on the other hand, has been a bit volatile due to
higher cash outflows which the company has experienced in response to the cash inflow incurred
by the company. The net profitability reported by the company was around 3.38% in the year
2013, which has well decreased to around 0.82% in the year 2019. On the other hand TESCO
had a margin of about 2.62% which has been well consistent.
The fall in the net profitability of the company also lead to the fall in the return generated on the
shareholder’s equity fund for the company for the period 2013-2019. The ROE for the Sainsbury
Company was around 13.74% in the year 2013, which has well decreased to around 3.08%. On
the other hand, TESCO had a ROE of about 11.27% which is considerably much higher than
Sainsbury.
Return on total asset marking the efficiency of the management of the company in well
maintaining the assets of the company. The return generated by the company by utilizing the
assets has been around 6.21% in the year 2013, which has decreased to around 1.15% in the year
2019.
Return on Capital Employed reflecting the total return generated by the company on the total
asset deployed has been around 8.23% in the year 2013 which has fallen down to around 1.15%
in the year 2015. The fall in the return can be well contributed to the fact that the profitability of
the company has well fallen and this has been particularly due to the increase in the operational
expenses of the company.
Appendix C, Vertical Analysis of the Sainsbury Company has been well conducted with the help
of the Comprehensive Income statement of the company. The analysis has been done in
particular for the purpose of analyzing the cash flows whereby tangible assets or fixed asset of

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the company comprised of almost 84.92% of the total assets reported which has decreased to
around 66.39% in the year 2019. On the other hand, TESCO has maintained the proportion
between non-current asset to current asset to 75:25 ratio.
The profitability ratios analyzed for the Tesco Company has been well analyzed which states
from the above analysis that the Sainsbury Company must take crucial steps in well improving
the profitability position of the company. Controlling expenses and increasing the revenue base
by diversifying the product base can be the best available option for the management.
Financial Ratio Analysis: Liquidity Ratio
Liquidity Ratio would be better analyzed with the help of the current and quick ratio for the
company which will show the coverage of current assets with respect to current liability stated.
The current ratio has improved from the company in the trend period analyzed whereby the
company has shown a considerable improvement but the same is well below the industry
standard level which is around 2 times (Zentes, Morschett and Schramm-Klein 2017). It is
important that the company improve the current assets with respect to the current liabilities that
has been presented in the financials of the company for the stated year. Improvement in current
ratio or liquidity position of the company will be helping the company in well maintain the

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business operations of the company. The quick ratio of the company has been around 0.49 times
in the year 2013, which has almost remained the same in the year 2019 to around 0.50 times. On
the other hand, when comparing the same from the competitor’s ratio the current ratio of the
Tesco Company has been comparatively lower than Sainsbury Company (Lukić 2016).
3/9/2019
3/10/2018
3/11/2017
3/12/2016
3/14/2015
3/15/2014
3/16/2013
Tesco
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
Liquidity Ratio
Current ratio (x) Liquidity ratio (x)
Financial Ratio Analysis: Efficiency Ratio

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3/9/2019
3/10/2018
3/11/2017
3/12/2016
3/14/2015
3/15/2014
3/16/2013
Tesco
0.00
40.00
80.00
120.00
160.00
200.00
Efficiency Ratio
Net Assets Turnover (x) Fixed Assets Turnover (x) Interest Cover (x)
Stock Turnover (x) Debtors Turnover (x) Debtor Collection (days)
Creditors Payment (days)
Efficiency Ratios
Net Assets Turnover (x) 2.83 2.43 2.35 2.29 2.47 2.45 2.43 2.25
Fixed Assets Turnover (x) 2.11 2.01 1.95 1.88 1.98 1.97 2.16 1.76
Interest Cover (x) 3.41 3.92 4.70 4.28 0.60 6.65 6.55 4.12
Stock Turnover (x) 16.40 15.72 14.77 24.28 23.85 23.83 23.61 24.42
Debtors Turnover (x) 8.37 8.18 9.39 13.12 13.99 14.47 182.05 106.87
Debtor Collection (days) 43.62 44.60 38.86 27.81 26.10 25.22 2.00 3.42
Creditors Payment (days) 98.71 96.44 91.44 79.32 84.19 28.13 29.89 32.84
Efficiency of the company has been well measured with the help of the net asset turnover
and fixed asset turnover ratio of the company. The asset turnover ratio indicating the amount of
sales that has been done by the company by utilizing the total asset that has been deployed is
around 2.43 times in the year, which has increased to around 2.83 times in the year 2019. The
increase in the ratio has been probably due to increase in the sales of the company in contrast to
the assets that has been deployed by the company (Sorrentino et al., 2018).
The fixed asset turnover ratio on the other hand is also much better of Sainsbury Company than
Tesco Company marking the efficiency of the management of the company in well generating
sales with the amount of assets that has been deployed (Sainsbury 2019).