Use of Ratios and Ratio Analysis

This report evaluates the profitability ratio of Sainsbury and Ocado based on the financial year 2020 and 2019. Net profit margin and return on assets are calculated and analyzed for both companies. The report concludes that both companies need to focus on increasing efficiency and productivity.

Use of Ratios and
Ratio Analysis

Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Calculate profitability ratios of Ocado and Sainsbury...........................................................3
CONCLUSION..........................................................................................................................4
REFERENCES...........................................................................................................................5

INTRODUCTION
Ratio analysis helps in comparing the operational efficiency of the firm (De los
Santos and et. al., 2020). In this report, the profitability ratio of Sainsbury and Ocado is
evaluated based on the financial year 2020 and 2019. The net profit margin and return on
assets is calculated and an analysis is done based on both the company’s performance.
MAIN BODY
Calculate profitability ratios of Ocado and Sainsbury.
Profitability ratios are the ratios which are used to determine the firm’s capability
and productivity in relation to the operating expenses, revenue, costs, equity, assets over a
period of time. Some of the profitability ratios which are to be calculated below are:
 Net Profit Margin: It is a financial ratio that calculates a company's profit margin as
a proportion of total revenue. It calculates how much net profit a company makes of
from the revenue.
Company Ocado Sainsbury
Year 2019 (-211.8 / 1756.6) *100 = -12.06% (152 / 28993) * 100 = 0.52%
Year 2020 (-69.6 / 2331.8) * 100 = -2.98% (-280 / 29048) * 100 = - 0.96%
Interpretation: The above calculated of the profit margin of both the companies, Ocado and
Sainsbury shows losses. Hence, Ocado has a loss of -2.98 and Sainsbury has a loss of -0.96%.
in the year 2020. Both the organisation need to amend its revenue and cost expenditure to
increase its productivity and enhance the profitability of the firm.
 Return on Assets: It is a profitability ratio that measures the net income generated by
total assets over a period of time by comparing net income to average total assets. To
put it another way, the return on assets ratio, or ROA, assesses how effectively a
corporation can manage its assets to generate profits over time (Coulon, 2020).
Company Ocado Sainsbury
Year 2019 (-211.8 / 2293.2) * 100 = -9.24% (152 / 27937) *100 = 0.54%
Year 2020 (-69.6 / 4028.2) * 100 = -1.73% (-280 / 25162) * 100 = - 1.11%
Net Profit Margin = (Net Profit / Net Sales) * 100
ROA = (Net profit / Total Assets) * 100

Interpretation: The above calculated ratio shows that the return on the total assets is negative
in year 2020. It means that both the firms are not working efficiently and need to take strict
action against the efficient and effective working of its activities. The Ocado has
comparatively is improved t performance from the previous year. But, Sainsbury has
decreased its efficiency.
CONCLUSION
The above analysis shows that the profitability ratio makes the investors as well as the
executive know about the solvent condition of the firm. It helps the financial analyst of take
decision whether to invest or not. It also gives the company’s management an overview of its
financial state. The Ocado and Sainsbury both the companies have not performed good in the
last financial year; it was due to Covid. But now it has to focus on increasing the efficiency
and productivity of the organisation.

REFERENCES
Books and Journals
De los Santos, Z.A and et. al., 2020. Tandem Use of Optical Sensing and Machine Learning
for the Determination of Absolute Configuration, Enantiomeric and Diastereomeric
Ratios, and Concentration of Chiral Samples. Angewandte Chemie. 132(6). pp.2461-
2469.
Coulon, Y., 2020. Profitability and Performance Ratios. In Rational Investing with
Ratios. (pp. 85-104). Palgraves Pivot, Cham.
Jones, P.M. and O’Steen, H., 2018. Time-varying correlations and Sharpe ratios during
quantitative easing. Studies in Nonlinear Dynamics & Econometrics. 22(1).
Luo, J and et. al., 2018. An improved grasshopper optimization algorithm with application to
financial stress prediction. Applied Mathematical Modelling. 64. pp.654-668.