Financial Analysis of Sainsbury Group PLC and Tesco Group PLC

This report presents a comprehensive financial analysis of two major Asian manufacturing food units, specifically focusing on Sainsbury Group PLC and Tesco Group PLC. The analysis encompasses the preparation, review, and evaluation of financial accounts and statements to facilitate sound economic decision-making. It includes a detailed examination of ratio analysis (profitability, liquidity, solvency, efficiency, and investment ratios), horizontal analysis, and vertical analysis for both companies. The report also critically assesses the significance of working capital management for both Tesco and Sainsbury, highlighting its impact on operational efficiency and financial stability. Furthermore, it provides a critical analysis of the annual cash flow statements of both companies over the past two years, with the findings intended to inform and support the decision-making processes within the organizations. The analysis covers the interpretation of various financial metrics, including revenues, gross profits, net income, and balance sheet components, providing a comparative overview of the financial health and performance of both companies.

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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Financial analysis....................................................................................................................1
2. Outlining significance of the working capital for both the organization................................1
3. Critical analysis of cash flow report of both the companies...................................................2
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
The financial analysis includes preparation, review and analysis of financial accounts and
statements for executing better economic decisions. Procedure of determining strength and
weaknesses in context of finance through establishing of different strategic relationship in
between balance sheet items, profit and loss account and other statements. The analysis in
finance is associated with simplify the financial data of a financial statement. This report will
cover details which will highlight about large Asian Manufacturing Food units. The report will
lay emphasis on two big corporates that is Sainsbury group plc and Tesco group. Vertical,
horizontal statement will be prepared for both the companies along with detailed ratio analysis of
the two will be undertaken. The report will also highlight about analysing the importance of
working capital for Tesco and Sainsbury plc to execute decision making. Along with this, the
report will critically analyse the annual cash flow statements for both the companies over the last
two years. The finding will also be assist in context of process of decision making.
1. Financial analysis
Ratio analysis- It is the quantitative methods that is been used by the firm for gaining
insight within the liquidity, efficiency, profitability and the operational performance by making
the comparison of the information that is contained in the financial statements (Ramiah, V. and
et.al., 2016). This tool is used for establishing the trend analysis within different company.
Horizontal analysis- It refers to the method that focuses on the assessing the financial
statement in order to compare the historical data, accounting periods, line items and the ratio
over the number of periods. It is also known as the base-year assessment.
Vertical analysis- It means the proportional analysis where each and every line item of
the financial report is been listed as the percentage of the another item. It is the tool that makes
the comparison easy of one entity with that of another (Li, D. and Wu, W., 2017). It is been used
in for assessing the picture relating to finding out that whether the performance of an
organization is improving or been deteriorating.
Ratio Analysis:

Interpretation:
Profitability ratio:
The profitability ratio depicts the level of profits earned by a company in an accounting
year and this reveal the increase or decrease in the income of business over a period of time
which is facilitated by the GP and NP ratio. The GP ratio for Sainsbury is seen to fluctuate
between 6-7 for past 4 years which means there is no increase by more than 1% in the profits of
company and also that company have maintained its position at current level of profits the net
For Tesco it can be seen that it have raised from 5% to almost near 6.5 % in same frame. This
means that the profitability of Tesco have increased in these 4 years rather Sainsbury have
managed to operate more or lee no the same level of profits with minor fluctuations.
Liquidity ratio:
The liquidity ratio defines the ability of a company to meet its immediate the cash expenses
which are required to be paid in the near future. The current ratio of Sainsbury for the 4 years it
seems to have to be at 0.5 with minor fluctuations but with no major changes in quick ratio. For

the Tesco it can be seen there is fall in the quick ratio which means there is fall in current asset or
an increase in both current asset and current liability where rise in CL is more than CA of the
business. For the current assets Sainsbury have managed to operate at same level which means
there is no fall in its past ratio but for Tesco a fall is seen in current ratio as well by almost 0.10.
Solvency ratio:
The solvency ratio defines the level of solvency depicting the debt financing in the
capital structure of a company as compare to the equity finance. For Sainsbury it can be seen
that the ratio have fallen down from .35 to 0.12 which means the debt financing of the
company have reduced and company is forwarding towards relying more on equity finance
rather than more on the debt financing. For Tesco the same scenarios is there where the debt
equity ratio have fallen down to 1.23 to 0.38 which means earlier the debt in the capital structure
were more than equity sources but now the company is also taking steps to increase equity
financing and decreasing debts in forms and loans and borrowings from banks and other
financial institutions.
Efficiency ratio:
The efficiency ratio defines the ability of the firm in utilizing the sources of the firms in
order to generate the profits for business. With higher utilisation the profits are higher. The
inventory turnover ratio of the Sainsbury have fallen down to 22 to 14 in past 4 years which
means company have reduced to keep the inventory more which states that there is a control
over the inventory carrying and holding cost for the company. For Tesco it can be seen that it
have increased from 19 to almost 24 which states the fact that the holding of inventory have
increased. The assets turn over ratio of Sainsbury have not much change while for Tesco it have
increased by 0.12 which means the Sainsbury is utilising its asset with lesser capacity while
Tesco have increased its efforts in utilization of tis asset for enhancing profits.
For fixed asset turnover ratio of the Sainsbury has increased while for Tesco it have
increased with same pace. This means both the organisation are trying to take optimal use of
their fixed asset in order to generate more of profits for business.
Investment ratio:

The investment ratio defines the ability of the company in giving return to their investors
who have invested money in their business through equity or debt financing which are given to
them in form of dividend and earning per share. For Sainsbury there is fall in the earing per
share and for Tesco the figures are fluctuating as with a positive EPS it become negative in
2017 but again it raised to .44 in 2018, which means the earing level for Tesco is quite
fluctuating while Sainsbury is operating at positive figures but EPS is decreasing. For Dividend
per share it can be stated that Sainsbury is operating at same level of dividend which are given to
shareholders while Tesco have not given any dividend to its shareholder till 2017 but in 2108 it
have given a dividend of just 0.03 it shareholder which means the profitable condition for Tesco
for tis investors is not so good.
Horizontal Analysis
Interpretation:
The revenues of Tesco have increased to 2.73% in 2017 and with a minor increase it
have researched to 2.81% in 2018. This means the profits of company are more or less operating
at same level. The gross profits have not changed much which is due to increase in the cost of

revenue with a hike in sale. There is fall in the net income of the company which means that the
expenses of the company are increasing with a faster pace as compared to the increase in the
revenues of organisation.
Balance sheet of Tesco :
Interpretation:
There is an increase in the total current asset of the company which states that there is
rise in the current and not current asset of the business. The rise in the total current asset is high
for starting years but gets lower in the latter years. This means the growth is controlled by the
company as per the time. The total current liability have increased with a faster pace and the non
current liability have increased and decreased too in time of 4 years. This give an over all falling
effect to the total liabilities of the company which means organisation have maintained a control
over the obligation of company.

Interpretation:
The balance sheet of the organisation depicts the fact that there is fall in the current asset
holding but an increase in the non current holding which have increased the figures of total asset
for organisation. The current liability of organisation have increased while increase in the
equity of the company as well. This means company is relying more of the equity rather then
long term debts and the current liquidity position of company can be stated to be good as there
is fall in the current asset and current liabilities have increased.

Interpretation:
The percentage change in the sales figures show a rise in the revenues of Sainsbury with
a lower pace but still is increase is there. The cost of production to generate that level of sales
have been at same level which directly effects the profitability of the company. This means that
the gross profits are increasing with increasing in sale revenues. Also the net profits are also
increasing for Sainsbury which means that with increasing the sales for the company the
expenses are also controlled to operate at incremental level and generate more profits.

Interpretation:
The figures in the income statement of the company reveals the fact that revenues of the
company have increased with a increase in the cost of production as well. This did not effected
the rising of gross profits of the company this means the cost of production have been controlled
by the organisation in order to generate high profits with increased sales and leered cost of
manufacturing. The net profits of the organisation have seen ups and down in past 4 years where
from the loss position it have arose to a profit making condition in same time frame of 4 years.