Ratio Evaluation of Tesco and Sainsbury: Portfolio 1

This report analyzes the ratio evaluation of Tesco and Sainsbury, including current ratio, quick ratio, net profit ratio, gross profit ratio, gearing ratio, P/E ratio, and more.

Portfolio 1 and Portfolio 2

Contents
PORTFOLIO 1.................................................................................................................................3
Ratio evaluation of both companies:......................................................................................3
Recommendations:...............................................................................................................12
Restrictions for consuming ratio breakdown for determining firms financial status...........12
PORTFOLIO 2...............................................................................................................................13
Investment appraisal methods for both project A and B:.....................................................13
b. Limits of implementing investment appraisal methods for future decision:....................16
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................18

INTRODUCTION
Finance refers to the management of the money, borrowing, lending, liabilities, capital
investments as well as other investment operations in management finance. The financial factor
involves mainly money accounting and financing procurement (Claessens and Yurtoglu, 2013).
Finance seems to be the central pillar of a company, because it offers knowledge and funds for
strategic management inside the business. The key aim of management financing would be to
decide how the business uses managerial accounting at multiple levels. That is whether the
organisation utilises established resources in its activities, the manager finance within a firm.
Any corporation pursued to obtain capital which finance helps to acquire and dispose of market
resources with the help of ratio analysis (Ratio analysis, 2020). Tesco Group and Sainsbury Plc
seem to be the firms selected for this analysis. In 1919 Tesco was formed and a retail-based
company founded and headquartered in 1869, it is a UK-based multinational grocery chain. This
report addresses concerns along with the analysis of those same proportions of these enterprises,
the flaws of the measures and the comparison charts of both companies. Moreover, the study also
addresses topics such as investment assessment money, limiting/reducing the proportion of
future decision-making.
PORTFOLIO 1
Ratio evaluation of both companies:
Particular Formula Sain
sbur
y
2018
2019
Tesco
2018 2019
Current
ratio
Current ratio= Current assets
Current liabilities
7857
/
1030
2 =
0.76
7581 / 11417
= 0.66
13600/ 19233
=0.71
12570/20980
=0.61
Quick ratio Quick ratio=Current assets−Invnetories
Current liabilities
6047
/
1030
2 =
0.59
5652/11417 =
0.50
11336/ 19233
= 0.57
9953/ 20680 =
0.48

Net profit
ratio
Net profit margin= Net profit
Salesrevenue ×100
1210
/
5749
3 =
2.10
1320/ 63911 =
2.07
309/ 28456 =
1.09
219/ 29007 =
0.75
Gross
profit ratio
Gross profit margin= Gross profit
Sales revenue ×100
1882
/284
56=
6.61
2007/ 29007 =
6.92
3352/ 57493 =
5.83
4144/ 63911 =
6.48
Gearing
ratio
Total debt / Capital employed 1459
0/
7411
=
1.97
15085/ 8456 =
1.78
34404/ 10480
= 3.28
34213 / 14834 =
2.31
P/E ratio P
E ratio= Share price
EPS
264.
9/
2.49
=106
.39
229.9 / 1.86 =
123.60
189.55/4.96 =
38.22
255.2/ 6.14 =
41.56
Earning
per share
ratio
Earning per share= Net profit
Number of shares
309/
65 =
4.75
219/ 54 = 4.06 1210/ 244 =
4.96
1320/ 215 = 6.14
Return on
capital
employed
ROCE= Operating profit
Equity+ Non−current liabilities ×100
518/
1169
9 =
4.43
601/ 12097 =
4.97
1566 / 25502 =
6.14
2639 / 28269 =
9.34
Average
stock
turnover
Cost of goods sold/ Average stock 2657
4/
1792
.5 =
14.8
3
27000/ 1869.5
= 14.44
54141/ 2282 =
23.73
59769/ 2440 =
24.50
Dividend
pay-out
ratio
Dividend per share/ Earning per
share
235 /
309
=
76.0
5
247/ 219 =
112.79
82/ 1210 =
6.78
357/ 1320 =
27.05
Evaluation
Capital employed = TA - TCL
Tesco

2018 2019
44735 – 19233 = 25502 48949 – 20680 = 28269
Sainsbury
2018 2019
22001 – 10302 = 11699 23514 – 11417 = 12097
Analysis: The study of the proportion will reveal the importance of Tesco as well as Sainsbury's
sustainability situation, financial security and performance (Claessens, 2015). The table above
displays 2018 through 2019 annual ratios which will allow hep to classify the financial condition
of the firms for this time. In this respect, the report is a partial and systematic assessment of the
various ratios:
Current ratio:
Interpretation: Tesco Corporation's existing averages of respectively 0.71 and 0.61 are also
increased over both 2018 to 2019, compared with 0.76 and 0.64 in Sainsbury for such 2
years. The proportion from both companies has increased, but the productivity of Sainsbury,
through larger existing ratios, is compared them with Tesco group with such a smaller
liquidity position.
Quick Ratio:

Interpretation: This ratio represents so many financial cash and show the relation between fast
resources and corporate obligations. Speedy investments or those who are quickly translated into
cash, as they show only money funds as well as bank balances that subtract stocks and
prepayments from relatively short term resources total (Cohen, 2018). The higher the number of
firms who repay off simple terms obligations, the profitability and good financial health they
earn. The rapid ratio of 0,57 and 0,48 announced by Tesco for 2018 through 2019, compared by
0,59 but also 0,50 for such a time. In addition, the positive development in businesses quick
percentages that reveals that both firms have advanced in their cash financial condition in present
time. Sainsbury's rapid proportions are comparatively much higher than those of Tesco.
Gross profit ratio:

Interpretation: The operating income ratio indicates how effective the organisation is already in
profit production from core business. This indicates the connection between profits and
operating margins. The Tesco Group's overall profitability levels are around 5.82%
throughout 2018 but 6.48% through 2019, whereas the Sainsbury Gross profit figures are
also at 6.61% through 6.92% throughout 2018 as well as 2019. Investigation shows that
Sainsbury is much more efficient than Tesco with a higher gross profit share, by increasing
sales itself from primary jobs that are beneficial for the business growth.
Net Profit/margin ratio:
Interpretation: In terms of viability, the competitiveness of both industries can be measured
accurately by net income proportions as well as the net profit proportions of corporations. Net
profits represent the relation between revenue/sales and net profits of the firm. Since all
spending, depreciation number and taxation have been cut, the net profit sums reflect profit stay.
The share of Sainsbury's net earnings were about 1.09% as well as around 0.75% throughout the
periods 2018 as well as 2019, reflecting a steady growth, although the share of net earnings was
2.10% as well as 2.07% in 2018 and 2019. The overall product performance of both companies
has improved, but the Tesco Company’s profitability over Sainsbury is higher, because
productivity will be much stronger than competitive company (Donovan, 2012).
P/E ratio:

Interpretation: The profitability (PE) shows what the buyers will compensate for the capital
markets of the firm. Increasing profits indicate an overvaluation among stock shares, while lower
profits indicate lower trading volumes than return on equity. In this point, the company's
willingness to much more benefit relies on the company's stock price information through Tesco-
plc as well as Sainsbury Business. The PE limits of Tesco follow approximately. Thus, 38.22 and
also some 41.56 showed a decline in 2018 through 2019, while the PE prices of Sainsbury were
with 106.39 to 123.9 in 2018 and 2019 accordingly, suggesting a gradual decline at PE point.
This shows because Sainsbury Company provides its investors with a return on each investment
they purchase and a fairer valuation for the shares of Sainsbury (Hall, 2015).
Capital gearing ratio:
Interpretation: This ratio gave some insight into the company's financial framework that is
calculated by the division by extended liabilities of the shareholders' total investment funds. The
gearing calculation shows the real financial leverage of the firm. This ratio of the group is 2,31

throughout the 2019 year as well 3,28 mostly in 2018 year, while the rotational speeds of
Sainsbury were currently 1,97% and 1,78% simultaneously (2018 and 2019). Tesco seems to
have a greater share of the mortgage / loan load as compared with the Sainsbury due to greater
brand value in marketplace. As a consideration, the liquidity efficiency with Sainsbury appears
stronger than that of Tesco.
Return on capital employed ratio:
Interpretation: It applies to how much the organisation receives along with its capital
requirements. The higher the return on business investment capital, the higher the efficiency of
its equity and the better the profitability of the company in a respective time frames. Tesco Plc's
ROCE is roughly 6.14 as well as 9.34, while Sainsbury's always around which is 2018-19, 4.43
through 4.97. ROCE is declining across both businesses. Higher ROCE proportions recorded by
Tesco are more successful in yielding the total investment resources
Inventory turnover ratios:
Interpretation: This ratio of inventory turnover indicates how much the firm turned its
inventory to profits for just a given timeframe. That explains well how businesses treat certain

stock products. What does it say? Tesco's percentage is roughly. The Sainsbury company is
14.83(2018) as well as 14.44 respectively 23.73(2018) but mostly 24.50 (2019). (2019). This
ensures that it really is easier (faster) for Sainsbury to convert its inventory levels into
profitability than for Tesco. Although that Tesco-plc company proportion has declined in 2019, it
points out that the company has dramatically increased its ability to translate its inventory levels
into profitability.
Dividend pay-out ratio:
Interpretation: It determines the total cash flow of the company towards its owners in
comparison to that same shareholders’ equity by the individual organisations. It examines the
combined effect earned by the employer to the shareholders as well as the rate of growth,
reinvestment and redemption of debt, marketable securities and other such. This calculation
calculates the amount of taxes paid out to owners. Sainsbury Division payment is 76.05 (2018)
as well as 112.79 (2019) relative to 6.78 (2018) but also 27.05 Division payments from Tesco
(2019). This indicates that perhaps the Sainsbury group is much more value customers also as
person offering its owners more returns than Tesco's.
Earnings per share ratio:

Interpretation: This calculation represents how often the company makes profit from any of its
shares. The comparatively positive relationship is expected increasing inventory value since this
customers pay better also for ownership of the profits so the company gets more benefit in terms
of the stock market. EPS of Tesco was 6.14, 2019, although 4.96, in 2018, while EPS was
4.75,2018, and also 4.97 in 2019, of Sainsbury. The EPS percentages from both firms appear to
have been increased in recent time because of profitable business return to the current customers
which are lifeline of these organisations. EPS is higher than those of the Sainsbury group, which
ensures that the Sainsbury Company is much more positioned to supply the owners with profits.
From the above overall discussion it is founded that the combined results analysis of both
organisations shows that the short-term profitability and monetary sustainability forecast of
Sainsbury's company is better than among Tesco plc. While the Tesco Firm's overall profitability
rating is far more successful than Sainsbury. The debt-funding of the borrowings / lengthy period
is higher than the Sainsbury proportion (Jamali and Karam, 2018). In terms of capital spending
and operational returns, the Sainsbury EPS, particularly paid out rates, for current and future
investors is much more convincing, as the company have desirable proportion / ranges than that
of the Tesco group (About Tesco, 2020). Sainsbury's strong inventory holding proportion against
Tesco suggests which Sainsbury has probably done better in converting its product supplies into
revenue/turns. Sainsbury's actual earnings comparison indicates a slightly better liquidity
position than Tesco plc for Sainsbury. Tesco Plc is far better towards Sainsbury's gross net as
well as total efficiency score. Tesco debts are larger than other competitive company. The EPS

as well as the Business rewards are perhaps more attractive and efficient from the standpoint of
the consumer for the present production of the stock market for the customer/shareholder when
the business has much more appropriate measurements than Tesco Plc. Sainsbury's perfect
average storage times equate Tesco and saw Sainsbury's superior performance.
Recommendations:
Sainsbury Plc: The key issue for businesses that influenced about their Return on equity ( roe
and EPS proportions is to reduce net efficiency such that company is mainly advises to decrease
its overall financial expenses and increase profitability through innovative advertising plans and
strategies (About Sainsbury, 2020) Terms and conditions, discounts, promotions and rewards to
draw more consumers should be offered for this business. For the organisation to focus solely on
its high levels of efficiency including net profitability, it is mainly vital. The organisation should
optimize its ultimate business taxes and concentrate its energies on rising sales through effective
advertising and marketing strategies.
Tesco Plc: Initially, as the business ratio is relatively low, the Business should develop attempts
to increase the shareholders equity balance. The new payable must be reprogrammed for this
business and based on the handling of job resources. In addition, in contrast with Marks and
spencer, Sainsbury and all other supermarket companies poor gross margin for the Group
suggests that such main sales activities be improved and running expenses lowered to a higher
degree of gross productivity. In order to achieve improved principles concerning requirements,
Tesco is most advised that reliance on long term loans be minimised. In addition, the total
current assets ratio for Tesco is higher, and it is therefore recommend to the organisation that it
concentrate on the production process (Kaygusuz, 2012).
Restrictions for consuming ratio breakdown for determining firms financial status.
1. Historical: The results of documentary evidence are used to validate all data/figures.
Throughout the meantime, it is just not important to obtain the very same results. Mostly
in long term, information will be changed.
2. Past and Actual Costs: information through financial statements obtained at present costs,
whereas information may be listed at fair values on the financial statements.
3. Inflation: the annual inflation will be not equal and over period whether it was moved
over even a length of time. For eg, with an inflation rate of 100 percent annually, sales
tend to only have increased in future years.

4. Modified accountability procedures: Business transactions are reported through historical
data-based accounting practises and evaluations; the firm can modify those accounting
practises during the upcoming years to record financial problems records that might
impact the proportion calculation (Prahalad, 2012).
5. Unique usage constrained: No value can be articulated at any specified ratio. Mostly as
measure, multiple returns are employed to describe a single equation. Perhaps the
calculation of multiple ratios would raise vulnerability instead of allowing the customer
to achieve his final maximum.
6. Complete lack of acceptable standards: There are almost no specific guidelines or
specifications for different ratios. It acknowledges and imposes only situational or logical
requirements among all proportion. Various meanings of percentages are also available.
7. Financial statement fraud- The organisation reveals information about ratio measurement
of financial statements. The company team will use this insight to enhance the effect of
their individual outcomes. An understanding of the proportion however does not
demonstrate the actual reality of the commodity accurately, because it does not show the
inaccuracy of the evaluation details are represented. It is therefore necessary for analysts,
when taking actions, to be conscious of certain alternative techniques of manipulation
and therefore to perform careful analysis.
8. Evaluation and filing time delay: Records and detailed operating income should really be
approved at the close of the cash flow statement even by financial statements. At the
conclusion of the annual review, this balance sheet shall be published. That takes
approximately 6 months and approximately nine months. Thus the calculating and
arranging the ratios inside the organisation (Scoones, Leach and Newell, 2015).
PORTFOLIO 2
Investment appraisal methods for both project A and B:
Net Profits
Proje
ct A
Proje
ct B
Plant
1
Plant
2
2020
4500
0
1000
0
2021
4500
0
1500
0
2022 4500 2500

0 0
2023
3500
0
5500
0
2024
3500
0
6500
0
2025
2500
0
5000
0
Residual Value 0 8000
2300
00
2280
00
Net Investment
1100
00
1100
00
Analysis throughout the NPVs of each of these projects indicates that now
the Project-A has more NPVs than Project-B is very sustainable.

Payback Period:
Plant 1 Cumulative cash flows
Investment -110000 -110000
2020 45000 -65000
2021 45000 -20000
2022 45000
2023 35000
2024 35000
2025 25000
Residual Value 0
Payback Period = 2 year + (20000/45000*12)
2 year and 5.33 months
ARR: Evaluation of the Payback time indicates that perhaps a
Project A business would be charged for less than a Project B.
This means that Project A of the business will recover its
overall net expenditure more effectively and rapidly.
Plant 1
2020 45000
2021 45000
2022 45000
2023 35000
2024 35000
2025 25000
Average Profit 38333.33
Investment = (110000 + 0)/2 55000

ARR = 38333.33 / 55000 *100
69.70%
1000
0
Abovementioned equations indicate that Project-A will create greater production in relation to
Project-B throughout the formulas of ARR for business Processes.
A review of all financial analysis strategies reveals that while in contrast to Project B, Project A
is much more feasible for corporations (Accounting and Finance for Non-Specialists, 2020).
b. Limits of implementing investment appraisal methods for future decision:
NPV: The Company’s projection of potential income or losses on an investment initiative is
illustrated with its company present value. Some of the NPV disadvantages are:
1. No specific collection of guidance on calculating an actual profit/rate percentage the
overall calculation of NPV relies on underestimation of anticipated cash flows by using
appropriate running costs by their dominant prices.
2. In measuring this number there are no criteria. This factor is given in the choice of
businesses, and often NPV is wrong, which may lead to a misplay rate.
Payback Period: If financial position is projected to be stable, the average approach will have a
coherent concept of payback period (Riggirozzi and Tussie, 2012). Fortunately, the payback
method would be quite wide unless the company is expected to be a resounding achievement and
in immediate future. The main drawbacks are described here:
1. It does not consider the impact capital contributed after net earnings: several of the
initiatives which could see largest amount of cash only when net profit is complete.
These firms will see higher financial gains than shorter repayment scenarios.

2. Ignore the viability of the plan, which again is not because it is successful and if the
project has a fast payback period. Expenses would not produce any return until
investment returns stop or decrease markedly by the process of repayment.
ARR: The exact amount of funds or cash reserves, which are an important aspect of a business
administration, is not taken into account. The main weaknesses of the ARR structure are as
follows:
1. There is a shortage of effort and cash for ARR. The key drawback of the study reported
method in choosing alternate financial uses is that even the account goal component is
ignored.
2. There are various methods to estimating ARR. Companies need to make sure which they
constantly calculate ARR when using a particular asset comparison method (Rolnik,
2013).
CONCLUSION
It was reported according to the above current research that certain business and
financial planning are a mixture of management control. This facilitates the execution and
monitoring of consumer policies in order to work effectively. Performance is built by careful
control of spending and efficient distribution of minimal materials.

REFERENCES
Books and Journals
Claessens, S. and Yurtoglu, B. B., 2013. Corporate governance in emerging markets: A
survey. Emerging markets review, 15, pp.1-33.
Claessens, S., 2015. An overview of macroprudential policy tools. Annual Review of Financial
Economics, 7, pp.397-422.
Cohen, R. B., 2018. 12 The new international division of labor, multinational corporations and
urban hierarchy. Urbanization and urban planning in capitalist society, 7.
Donovan, K., 2012. Mobile money for financial inclusion. Information and Communications for
development, 61(1), pp.61-73.
Hall, P. A., 2015. Varieties of capitalism. Emerging Trends in the Social and Behavioral
Sciences: An Interdisciplinary, Searchable, and Linkable Resource, pp.1-15.
Jamali, D. and Karam, C., 2018. Corporate social responsibility in developing countries as an
emerging field of study. International Journal of Management Reviews, 20(1), pp.32-61.
Kaygusuz, K., 2012. Energy for sustainable development: A case of developing
countries. Renewable and Sustainable Energy Reviews, 16(2), pp.1116-1126.
Prahalad, C. K., 2012. Bottom of the Pyramid as a Source of Breakthrough Innovations. Journal
of product innovation management, 29(1), pp.6-12.
Riggirozzi, P. and Tussie, D., 2012. The rise of post-hegemonic regionalism in Latin America.
In The rise of post-hegemonic regionalism (pp. 1-16). Springer, Dordrecht.
Rolnik, R., 2013. Late neoliberalism: the financialization of homeownership and housing
rights. International journal of urban and regional research, 37(3), pp.1058-1066.
Scoones, I., Leach, M. and Newell, P. eds., 2015. The politics of green transformations.
Routledge.
Online
Ratio analysis. 2020. Available through: <https://www.accaglobal.com/uk/en/search.html?
q=ratio+analysis&q1=uk&x1=country>
Accounting and Finance for Non-Specialists. 2020. Available through:
<http://dl.icdst.org/pdfs/files1/e57a13f4d05c906c4a28509f48b78ccc.pdf>
About Sainsbury. 2020. Available through:
<https://www.about.sainsburys.co.uk/~/media/Files/S/Sainsburys/documents/reports-and-
presentations/annual-reports/sainsburys-ar2019.pdf>
About Tesco. 2020. Available through:
< https://www.tescoplc.com/media/476423/tesco_ar_2019.pdf>.