Management Finance: Performance Analysis of Tesco and Sainsbury

Management Finance

Contents
TASK 1............................................................................................................................................3
a. Calculate 10 financial ratios as given below for two years (2018 and 2019):....................3
b. Analyse performance, financial position and investment potential of both companies:....4
c. Provide recommendations:.................................................................................................6
d. Limitations of relying on financial ratios...........................................................................6
TASK 2............................................................................................................................................8
a. Investment appraisal techniques:........................................................................................8
b. Limitations of using investment appraisal techniques in long term decision making:.....11
REFERENCES..............................................................................................................................13

INTRODUCTION
Management finance is perceived as a subset of finance that administrators use to
accumulate and distribute strategically their fiscal funds for company procedures. This is
beneficial for producing demand for the business. This report was formulated to explain this
theory. It was broken into two sections. The very first part is compared to the financial success
calculation by financial ratios of Sainsbury Plc and Tesco Plc. In the retail industry, both Tesco
as well as Sainsbury conduct their businesses. This study determines which company is
favourable for investors. The significance and drawbacks of investment evaluation technologies
were systematically established in the second part.
TASK 1
a. Calculate 10 financial ratios as given below for two years (2018 and 2019):
Tesco PLC Sainsbury PLC
2018 2019 2018 2019
Current Ratio
Current Assets 13726000 12668000 7857000 7550000
Current Liabilities 19238000 20680000 10302000 11849000
Current Ratio = Current Assets / Current Liabilities 0.713484 0.612573 0.762667443 0.637185
Quick Ratio
Quick Asset 11463000 10051000 7857000 7550000
Current Liabilities 19238000 20680000 10302000 11849000
Quick Ratio = Quick Assets / Current Liabilities 0.595852 0.486025 0.762667443 0.637185
Net Profit Margin
Net Profit 1206000 1322000 291000 168000
Sales 57491000 63911000 28456000 29007000
Net Profit Margin = Net Profit / Sales *100 2.09772 2.068502 1.022631431 0.579171
Gross Profit Margin
Gross Profit 3350000 4144000 544000 620000

Sales 57491000 63911000 28456000 29007000
Gross Profit Margin = Gross Profit / Sales *100 5.826999 6.484017 1.911723362 2.137415
Gearing ratios
Long term Liabilities 15144000 13509000 2552000 7607000
Capital Employed 10480000 14858000 7411000 7782000
Gearing Ratio = Long term Liabilities / CE * 100 144.5038 90.92072 34.44 97.75
P/E ratio
Price 197.4 255.1 260 229.2
Earning per Share 0.44 0.39 12.54 6.79
PE Ratio = Price / EPS 448.6364 654.1026 20.73365231 33.75552
Earnings per share
Total net profit 1206000 1322000 291000 168000
Total no. of outstanding shares 2731000 3253000 243700 245700
EPS = Net Profit / Total no. outstanding shares 0.441596 0.406394 1.194091096 0.683761
Return on capital employed
EBIT 1564000 2077000 544000 620000
CE 10480000 14858000 7411000 7782000
ROCE = EBIT / CE 14.92366 13.979 7.340439887 7.967104
Average inventories turnover period
Net Sales 57491000 63911000 28456000 29007000
Average inventories 2282000 2440000 1792500 1869500
Average inventories turnover period = Net Sales /
Average Inventory
25.19325 26.19303 15.87503487 15.51591