Managerial Finance: Analysis of Tesco and Sainsbury Plc

Managerial Finance
(Portfolio Tesco and
Sainsbury Plc)

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
PORTFOLIO 1................................................................................................................................1
a. Calculation of financial ratios for Tesco and Sainsbury..........................................................1
b. Analysis of performance, financial position and investment potential of both the companies
on the basis of charts for the performance...................................................................................3
c. Recommendations for the company which is performing poorly..........................................10
d. Discussion of limitation of relying on financial ratios..........................................................10
PORTFOLIO 2..............................................................................................................................11
a. Use of appropriate investment appraisal techniques to advise the senior management to
adopt one of the two alternatives...............................................................................................11
b. Discussion of limitations of using investment appraisal techniques in long-term decision
making.......................................................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
Managerial finance could be defined as the funding which is required by managers for the
purpose of carrying out all the operational activities of business in systematic manner. If the
businesses will not be able to carry out operations properly with the help of finance, then it may
leave negative impact upon functionality of business. In order to sustain in the market, it is very
important for all the businesses to make sure that they are focused with managing finance
systematically (AlKulaib, Al-Jassar and Al-Saad, 2016). Present report is based upon analysis of
performance of Sainsbury and Tesco which are two different organisations that are operating
business under retail industry and these are competitors of each other. There are two different
portfolios are discussed in this report. First one is based upon financial ratios so that actual
performance of business could be determined. Second portfolio is focused with capital
investment appraisal which can help the entities to make right decision for making investment in
future.
PORTFOLIO 1
a. Calculation of financial ratios for Tesco and Sainsbury
Ratio analysis: It could be defined as the procedure which is followed by businesses for
the purpose of analysing that the business is able to perform in the predetermined manner or not.
If the correct decisions will not be formulated for the business, then it may leave negative
impacts upon functionality of business. While planning to analyse the actual performance of
Sainsbury and Tesco following accounting ratios were calculated. With the help of them the
position and performance of the enterprises could be determined (Cai, Li and Cai, 2019). The
calculation of all the ratios for the organisation is as follows:
Ratios Formula Tesco Sainsbury
Particulars 2018 2019 2018 2019
Current ratio
Current assets
Current assets / current liabilities
13600 12570 7857 7581
Current liabili-
ties 19233 20680 10302 11417
Results 0.71 0.61 0.76 0.66
Quick ratio
Quick assets
Quick assets / current liabilities
11336 9953 6047 5652
Current liabili- 19233 20680 10302 11417
1

ties
Results 0.59 0.48 0.59 0.50
Net profit margin
Net profit
Net profit / revenues * 100
1210 1320 309 219
Revenues 57493 63911 28456 29007
Results 2.10 2.07 1.09 0.75
Gross profit margin
Gross profit
Gross profit / Revenues * 100
3352 4144 1882 2007
Revenues 57493 63911 28456 29007
Results 5.83 6.48 6.61 6.92
Gearing ratio
Debts
Debts / Equity
34404 34213 14590 15085
Equity 10480 14834 7411 8456
Results 3.28 2.31 1.97 1.78
Price earnings ratio
Share price
Share price / EPS
189.55 255.2 264.9 229.9
Earnings per
share 4.96 6.14 2.49 1.86
Results 38.22 41.56 106.39 123.60
Earnings per share
Total earnings
Total earnings / outstanding shares
1210 1320 309 219
Outstanding
shares 244 215 65 54
Results 4.96 6.14 4.75 4.06
Return on capital employed
Operating
profit
Operating profit / capital employed
* 100
1566 2639 518 601
Capital em-
ployed 25502 28269 11699 12097
Results 6.14 9.34 4.43 4.97
Average inventories turnover ratio
Cost of goods
sold
Cost of goods sold / average inven-
tories
54141 59769 26574 27000
Average inven-
tory 2282 2440 1792.5 1869.5
Results 23.73 24.50 14.83 14.44
2