Analyzing Financial Health and Performance of Tesco, Sainsbury and Morrison’s Plc

Accounting and Finance for Managers

Table of Contents
INTRODUCTION...........................................................................................................................3
SECTION A.....................................................................................................................................3
a. Analyzing financial health and performance of Tesco, Sainsbury and Morrison’s Plc...........3
b. Writing a memo to managing director regarding the performance of firm along with the
recommendations.......................................................................................................................10
c. Outlining the limitations of financial ratios...........................................................................11
SECTION B...................................................................................................................................12
a. Using net present value technique to assess whether three year contract is profitable or not
...................................................................................................................................................12
b. Explaining approach of taxation in appraisal........................................................................14
c. Discussing the techniques that can be used for the evaluation of project..............................14
d. Stating the other factors that need to consider while taking final decision...........................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Accounting and finance management are vital for the organizational growth and success.
In the business organization, manager places high level emphasis on maintaining accounting
records and information which in turn helps preparing suitable statements. Hence, by making
analysis of financial statements through the means of ratio analysis both internal and external
stakeholders can take suitable decision. This report is based on three major retail or supermarket
stores such as Tesco, Sainsbury’s and Morrison Plc. All these retail stores are listed on the
recognized stock exchange of UK and known for delivering high quality products. The present
report will light on the extent to which financial condition of company is sound over others. It
will develop understanding regarding the investment appraisal techniques and its significance in
the decision making aspect.
SECTION A
a. Analyzing financial health and performance of Tesco, Sainsbury and Morrison’s Plc
Profitability analysis
 Gross margin ratio: It has been assessed from ratio analysis that GP margin of Tesco
decreased over the years and accounts for 6.31% respectively. Besides this, from 2010 to
2014 GP ratio. Due to sale revenue and high direct expenses Morrison fluctuated. In
2014, gross profit ratio of Morrison’s Plc was 6.07%. In comparison to this, Sainsbury’s
GP margin was 5.79% in 2014. Due to the existence of more competition business units
failed to generate more sales and profit. Hence, by considering such aspects, it can be
stated that GP margin of all such business units were not good.

 Operating profit ratio: Outcome of ratio analysis shows that declining trend took place in
the operating margin of Tesco Plc. In 2012, operating margin was account for 6.54%,
whereas in 2014 such ratio implies for 4.14%. From 2010 to 2013 operating profit margin
of Morrison’s was lied between the ranges of 5.24% to 5.89%. On the contrary to this,
such ratio was negative .54% which entails that business unit sales has been failed to
manage general administration expenses. In comparison to Tesco and Morrison’s Plc,
operating ratio of Sainsbury’s Plc accounts for 4.21%. Hence, by considering such trend
or performance level it can be stated that operating margin of Tesco and Sainsbury’s Plc
was good.