Managing Financial Resources for Tesco and Sainsbury's: A Financial Review and Ratio Analysis

Managing Financial
Resources
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Table of content
Table of Contents
Introduction......................................................................................................................................3
FINANCIAL REVIEW OF THE ORGANISATIONS...................................................................3
RATIO ANALYSIS.........................................................................................................................3
INVESTMENT DECISIONS..........................................................................................................4
CONCLUSION................................................................................................................................4
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Introduction
Managing the financial resources is a concept wherein the complicated issues in context
of financial planning along with the financial control are determined and resolved. The financial
resource management includes measurement of the performance on the basis of the cost analysis
along with the method of improving the profitability as well as techniques for financial
monitoring (Korzh, Mostenska and Bilan, 2017). The report revolves around the management of
the two organisation i.e. Tesco and Sainsbury's. Both of them are retail sector organisations.
Tesco is a multinational organisation that deals in groceries and general products. It is a UK
based retail sector organisation that has its headquarters at Welwyn Garden City, England. The
retail sector organisation was founded by jack Cohen in the year 1919 (Kolomytseva,
Medvedeva and Kolomiets, 2019). Sainsbury's is a UK based supermarket chain which was
founded in the year 1869. The organisation was founded by John James Sainsbury and the
headquarters of the organisation is established at London.
FINANCIAL REVIEW OF THE ORGANISATIONS
Financial Review of Tesco
In the financial year 2020 the annual revenue of Tesco amounted to nearly 53 billion
British pounds in the region of United Kingdom. There has been an increase in the revenue of the
organisation in comparison to the prior financial year of nearly one billion pounds. The profit of
Sainsbury's in the United Kingdom along with the return on investment has decreased to nearly
18.5 Million [Hand Greaves and Leadsdown, 2021].
Financial Review of Sainsbury's
Sainsbury's has achieved the low gearing score of 21.62% in the year 2018 that has
further decreased to 11.23% in the year 2019 which has been analysed as the impact of reduction
upon the business strategy to reduce the net debt. It has further witnessed the enhanced ability to
generate cash within the business in order to cover the interest along with the financial stability
of the business [Hand Greaves and Leadsdown, 2021].
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RATIO ANALYSIS
Ratio analysis is basically defined as the concept of processing and ascertaining the
financial ratios that are further used in order to indicate the ongoing financial performance of the
organisation. There are several kinds of ratios like liquidity, profitability, turnover, solvency and
earnings ratios that can be calculated in order to ascertain the financial performance of the
organisation. The ratio analysis of Tesco and Sainsbury's have been performed below
(Kavussanos, Visvikis and Alexopoulos, 2017).
There are several types of ratios have been discussed below.
Liquidity ratio- Liquidity ratio is the ratio that tends to measure the short term and long term
obligations of the organisation. There are several kinds of liquidity ratios that have been
discussed below (Merianos and Gotsis, 2018).
 Current ratio= Current assets/ Current liabilities
 Quick ratio= Quick assets/ Current liabilities
(Quick assets = Current assets – Inventories)
Leverage ratio- Leverage ratio is the ratio that is used in order to measure the amount of capital
that is derived from debt. The several forms of leverage ratios have been discussed below.
 Debt Ratio= Total liabilities/ Total assets
 debt to Equity ratio= Total liabilities/ shareholder's equity
 Interest coverage ratio= Operating income/ Interest expenses
Efficiency ratio- Efficiency ratio are the ratios that helps to measure the utilisation of the assets
and resources within the organisation. Several efficiency ratios have been discussed below (Filin
And et.al., 2020).
 Assets turnover ratio= Net sales/ Average total assets
 Inventory turnover ratio= Cost of goods sold/ Average inventory
Profitability ratio- Profitability ratio is the ratio that helps in measuring the ability of the
organisation to generate income and revenue. The several kinds of inventory ratio have been
discussed below (Zachosova, Herasymenko and Shevchenko, 2018).
 Gross margin ratio= Gross profit/ Net sales
 Operating Margin ratio= Operating income/ Net sales
Ratio analysis of Tesco
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