NWF, Tesco, Sainsbury: A Financial & Strategic Performance Analysis

This case study provides a detailed analysis of NWF plc, Tesco plc, and Sainsbury plc, focusing on their strategic plans, financial performance, and investment opportunities. It evaluates the companies based on their financial and non-financial data from 2019 to 2021, using ratios like net profit margin, return on capital employed, and debt-equity ratio. The analysis ranks the companies based on these ratios, identifying NWF as the best performing company. The study also explores internal and external long-term sources of finance, with a focus on NWF's financing strategies and their impact on stakeholders. Desklib offers this and many other solved assignments.

Case study

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Strategic plan for three companies..............................................................................................3
1b: Critical evaluation of company’s performance on the basis of their three year’s latest
financial and non-financial data...................................................................................................5
1C: Best performing company and its positive investment opportunities for the private
investors:...................................................................................................................................10
2A: Internal and external long term sources of finance:.....................................................11
2b: long term source of finance which used by the NWF plc:.............................................12
CONCLUSION..............................................................................................................................12
REFERENCES................................................................................................................................1

INTRODUCTION
Management of every company needs to carry out both accounting and finance function
on a regular basis. However, there lies a difference between accounting and finance where the
former involves the process of recording, maintaining and reporting the financial information of
a company indicating clear picture company’s financial position at the end of financial period
while the latter involves management of investment and finances of the company. The present
report is based on NWF plc, Tesco plc and Sainsbury plc which are selected from food and
grocery retail industry of UK. In this report, strategic plans of three companies will be identified
along with critical evaluation of companies on the basis of their financial and non-financial data
for the latest three years that is 2019, 2020 and 2021. Accordingly, positive investment
opportunity in a best performing company will be recommended. In the second section of this
report, critical evaluation of best performing company’s sources of long & short term financing
available to it will be done and by selecting one of the long term source of finance, it would be
assessed in terms of affecting interests of several stakeholders.
MAIN BODY
Strategic plan for three companies
Strategic plan for NWF
Financial goals Measuring success
(KPIs)
Strategy
implementation
Impact on financial
sustainability or
profitability
To enhance market
share
Higher customer
satisfactory by 20%
along with growth in
revenue by 20%.
Greater involvement
of salesperson to
improvise customer
experience and buyer
process.
Greater profitability in
terms of operating and
net profit margin
leading to greater
value of the business
To reduce the
proportion of debt in
the overall capital
structure.
Reduction of financial
leverage ratio such as
D/E ratio by 50%.
By paying back the
outstanding debt
through issuing more
of equity shares.
This would reduce the
company’s financial
risk and profitability
to the extent of

compulsory interest
payment obligations.
Strategic plan for TESCO
Financial goals Measuring success
(KPIs)
Strategy
implementation
Impact on financial
sustainability or
profitability
Enhancing net
profitability by 15%
Net profit margin KPI
(10-20%)
Cost leadership to
reduce expenses
Impact on profitability
as having influence on
Profit and Loss
Account
Strategic plan for Sainsbury
Financial goals Measuring success
(KPIs)
Strategy
implementation
Impact on financial
sustainability or
profitability
To increase sales
revenue by 10%
Revenue growth KPI
by 20%
For this purpose
marketing strategy &
reducing cost to have
will be implemented
in effective manner so
that increase sales
Positive impact on
both statement of
Financial Position and
Profit and Loss
Account
To enhance
profitability by 15%
Net profit margin KPI
of 10-20%
This can be exerted
by having effective
price formulation
Favorable impact on
profitability
To increase market Customer satisfaction To execute feedback Greater sustainability

share by 30% & retention rate KPI
of 80%
mechanism for making
improvements
via having positive
influence on both
statements.
1b: Critical evaluation of company’s performance on the basis of their three year’s latest
financial and non-financial data
Particulars NWF Plc Tesco Plc J Sainsbury Plc.
2018 2019 2020 2018 2019 2020 2018 2019 2020
Profitability Ratio
Net Profit
margin (%)
1.28 1.01 1.29 2.10 2.07 1.5 1.09 0.64 0.52
Return on
capital
employed (%)
14.72 13.5 13.12 7.17 5.99 7.33 4.43 3.66 4.09
Liquidity Ratio
Current Ratio 1.01 0.97 0.94 0.71 0.60 0.73 0.76 0.64 0.63
Quick Ratio 0.93 0.9 0.87 0.59 0.47 0.6 0.59 0.47 0.49
Financial Leverage Ratio
Debt-equity
Ratio
2.19 2.17 2.4 0.79 1.28 2.94 0.33 0.96 1.04
Debt to capital
ratio
0.69 0.68 0.71 0.44 0.56 0.75 0.25 0.49 0.72
Efficiency Ratio
Asset turnover
ratio
4.32 4.50 3.95 1.27 1.26 1.24 1.36 1.16 1.04

Capital
employed
turnover ratio
8.49 9.44 6.68 2.24 1.78 1.88 2.43 1.79 1.82
Inventory
Turnover ratio
105.33 118.2 143.4 23.70 24.46 24.73 14.83 14.29 15.58
Market Test Ratio
Earnings Per
share
0.16 0.14 0.18 0.12 0.14 0.09 0.13 0.08 0.06
Non-financial Ratio (Per employee ratio)
Operating
revenue per
employee
0.57 0.63 0.65 0.13 0.14 0.15 152.25 161.23 169.15
Shareholders
fund per
employees
0.04 0.045 0.05 0.02 0.03 0.031 39.65 43.26 45.35
Profitability ratio- with the help of this net profit margin ratio and return on capital
employed, company is able to assess the ability of business to generate earnings relative to its
operating costs and shareholders’ equity respectively (Pando, San-Jose and Sicilia, 2019). The
investors nowadays calculate this ratio to know about the income generating ability of the firm.
1. Net profit margin- by evaluating the net profit margin, the firm is able to measure and
know about how much profit is generated by them. With the help of net profit margin
calculation, the company is able to manage profitability and support investors in order to know
about whether overhead costs and operating costs are being contained or not. Tesco is having
highest net profit margin as compared to other two companies indicating its effectiveness in
carrying out operations which leads to generating greater profit on sales generated during the
financial period. NWF is on the second while Sainsbury is on the third position in terms of
generating NPM indicating their relative effectiveness in generating sales and profits
accordingly.

2. Return on capital employed- with the calculation of ROCE the company can know
about its efficiency and profitability. By calculating this financial ratio the firm is able to know
about how much income is being generated for each money which is invested by them (Sihotang
and Munir, 2021). If the ROCE of the firm is high them it is said that the company is focusing on
its growth and it is a good sign of successful business in the competitive world. By evaluating the
ROCE of all three companies it has been noted that NWF Plc has a higher percentage of ROCE
which indicates that the firm is more effective at generating profitability from its existing assets
and using proper resources. While on the other side, Tesco Plc and J Sainsbury Plc has low
ROCE as compared to NWF Plc so, they are required to focus on making efficient use of capital.
Liquidity ratio- with the help of liquidity ratio calculation, company is able to know about its
ability to pay debt obligations.
1. Current ratio- by calculating the current ratio, the firm is able to measure about its
capacity and ability to pay due which can be short term in nature (Musallam, 2018). The good
current ratio indicates that the firm can meet its obligations which can be beneficial for their
financial health. By evaluating the above calculation it has been noted that current ratio of all
three companies for all years is low, as must be between 1.5 to 3. Worst liquidity position was
identified for Sainsbury, however NWF still having close to or greater than 1 liquidity ratio
indicating their ability to meet short term obligations.
2. Quick ratio- by calculating the above mentioned financial ratio that is quick ratio it has
been identified that all three companies Tesco Plc, NWF Plc and J Sainsbury Plc has less than 1
quick ratio. However, an ideal quick ratio is 1 which indicates business’s ability to immediately
meet its current obligations as and when they arise. Above all, NWF is having comparatively
better liquidity position as compared to Tesco and Sainsbury in term of quick ratio.
Financial leverage ratio- with the help of this ratio, investors of the company can easily able to
know about the risk involves in a monetary transaction of the firm. In addition to this, they can
find out the credibility of the firm and also make important decision on the basis of that.
1. Debt equity ratio- it has been said that if the debt equity ratio of the company is lower
than it is better for the company's performance. Tesco plc and J sainsbury plc have a low debt
equity ratio which is beneficial for them as it has lower risk of losing its assets. While on the

other hand, NWF plc has more than 2 which means the firm needs to focus on its debts as they
have higher risk of losing its assets as compared to other two companies.
2. Debt to capital ratio- if the company has low debt to capital then it is said that it is not
risky for the business operations (Kadim, Sunardi and Husain, 2020). By evaluating the
calculation of debt to capital ratio, it has been identified that Tesco and Sainsbury’s have lower
debt to capital ratio as against NWF plc due to having lower and higher amount of debt in their
capital structure respectively. Higher ratio means less availability of assets backing up the
amount that has been borrowed externally.
Market test ratio- with the help of this calculation the investors of the company can easily
estimate the attractiveness of a potential investment. By calculating earning per share, they can
know about existing investment is suitable or not and get an idea of its valuation (Ptak-
Chmielewska and Matuszyk, 2018). With the help of this ratio, investors can make important
decisions related to investments. NWF is having highest EPS out of the three company indicating
company’s ability in generating profits with respect to the share price. Higher EPS means greater
profitability of the company and thus, results in investors paying more for the company’s share
or vice versa.
Efficiency ratio- This ratio of all the companies stats that the businesses is making effective use
of its capital resources.
Assets turnover ratio: This ratio indicates business’s efficiency in generating sales by utilizing
its assets. Accordingly, NWF is found out to be highly efficient in utilizing its assets towards
generating sales as compared to Tesco and Sainsbury. Therefore, the profitability of the company
is also higher.
Capital employed turnover ratio: On evaluating this ratio, it has been identified that again NWF
is highly efficient in utilizing its capital while Tesco and Sainsbury being on 2nd and 3rd position
respectively in terms of efficient capital utilization. Due to this, NWF is having greater ROCE as
compared to other companies.
Inventory turnover ratio: This ratio indicates company’s ability in turning its inventory into
sales during a given period. NWF having higher ratio indicates its ability in generating strong
sales as compared to the level of inventory it held. On the other hand, Tesco and Sainsbury have
lower ratio indicating weaker sales or excess inventory conditions.

Revenue per employees of Sainsbury plc is more effective as compared to other two companies
that is Tesco plc and NWF plc as it is able to generate more sales per employees employed
within the organization. Also, Shareholders fund per employee of Sainsbury Plc is also more
effective than Tesco and NWF.
Rankings on the basis of Financial and Non-financial ratios
Ratios/ Name of the company NWF plc Tesco plc J Sainsbury plc
Profitability ratio Net Profit margin 2 1 3
Return on capital
employed
1 2 3
Liquidity ratio Current ratio 1 2 3
Quick ratio 1 2 3
Financial
Leverage ratio
Debt-equity ratio 2 3 1
Debt to capital
ratio
3 2 1
Efficiency ratio Asset turnover
ratio
1 2 3
Capital employed
turnover ratio
1 2 3
Inventory
Turnover ratio
1 2 3
Market Test ratio Earnings per share 1 2 3

Non-financial
ratio (per
employee)
Operating revenue
per employee
2 3 1
Shareholders fund
per employee
2 3 1
On the basis of above chart showing ranking for each companies based on their respective
financial and non-financial ratios, it has been determined that NWF is the best performing
company who have secured highest number of 1st ranks while Tesco is a second best performing
company due to securing highest number of 2nd rank. The third best performing company is
identified as J Sainsbury with the highest number of 3rd ranks secured (Guo and Wang, 2019).
1C: Best performing company and its positive investment opportunities for the private
investors:
NWF was identified as a best performing company on the basis of rankings provided to its
for different aspects of its financial and non-financial performance. It is being a positive
investment opportunity for a private investor in the current competitive market due to the
following reasons:
 NWF has the highest ROCE which indicates its ability in generating returns for its
shareholders by efficiently using the amount of capital available to it. Every
shareholder demands for greater return, thus NWF indicates positive investment
opportunity out of the three companies.
 Companies liquidity position is also better as compared to other two companies
indicating its ability in making dividend payments in the form of cash as and when
they are declared (Herman Ruslim, 2019).
 Furthermore, on analysing efficiency, NWF is found to be highly efficient among
the three companies in terms of generating sales through utilising its assets, capital
and inventory and accordingly, indicates better growth and profitability prospects
in the future.
 At last, NWF have the highest EPS indicating its greater profitability as compared
to other two companies and also it shows that investors would pay more for the
company’s share in the future due to its greater profitability. Accordingly, provides
for opportunity to appreciate the amount of capital investment.

2A: Internal and external long term sources of finance:
The long term source of finance refers to the financing by loan or borrowing more than
one year such as long term loans, equity shares, leases and bonds. The long term of financing is
done for the expanding of business or to finance the strategic capital project for the business in
the future years and it is generally of high amount. Example investment in mortgage more than
10 years. There are various type of long term sources of financing used by NWF being the best
performing company among the three which are equity capital, preference capital, debentures,
term loans, and retained earnings (Shrotriya, 2019).
Equity capital: the equity capital raised by the public or private routes. The company mainly
raised funds from the market through the IPO for private investor's to take sustain in the
company. They have no preferential rights in the company dividends as well as carry the high
risk. In the equity capital, equity share holders may bear a risk because the rate of return are
expected by the equity shareholders are greater than the debt holder.
Preference capitals: preference capital is the part of the company's net worth which helps in
increasing the creditworthiness and it can carry the preferential rights over the equity
shareholders in the based on receiving dividends at a fixed rate.
Long term loans: the long term goals refer that bank can give loans generally for more than one
year which are mostly secured loans offered by banks in the forms of land and buildings,
machinery and other fixed assets. It is the easiest and flexible source of finance which provided
by banks to meet the long term sources for the company or businesses. The bank carry a fixed
rate of interest in the loan as well as structure the repayments schedule in the instalments that are
based on company cash flows (Golghandashti and AGHABABAEI, 2018).
Retained earnings: the company's use the long term source of finance in the term of retained
earning to gain a company future capital needs. It is available without any interest repayment
burden and safely use for the business expansion and growth without any debt burden. It can
directly impact the equity share valuation and part of the net worth.
Debentures: debentures can raise by the public or private placement. They can take debt IPO
route where subscribing public got the allowing certificates and company creditors. If company
want raise fund from privately then they can approach the debt investors in the market and
borrow high interest rates.

2b: long term source of finance which used by the NWF plc:
The source of finance used by NWF plc is retained earnings. NWF plc reinvest a certain
percentage of the end of the year profit for the improvements and expansion of the business. The
money to be reinvested is decided on the basis of profit made by the company. With the heko of
efficient financial strategy only, NWF plc have reached the position it is enjoying in the market.
Considering retained earnings as a sources of long term finance, NWF resorts to not distributing
the entire amount of profit after tax among its shareholders and thus retains the same for the
purpose of utilising it in the future (Fischer and et.al., 2019). As of 2020, the balance sheet of the
company shows a balance of £38 million in retaining earnings as against the balance in the same
account of £ 34 million within the balance sheet of the company prepared in 2019. Retained
earnings of NWF plc can be defined as the reinvestments in the corporation’s profit after
dividends have been paid out. Thus, retained earnings shows that amount of company’s profit
made during the year which is set out for future funding needs of the business. It is shown as a
part of company’s equity which can be used to finance the purchase of new equipment, expenses
associated with research and development and marketing in order to create greater value for the
business. NWF being a growing company tend to retain more of their earnings than more
matured industries.
CONCLUSION
By summing up above report it has been concluded that all the three companies have
effective financial performance. But, by using KPI company can determine the financial
performance easily and with the help of ratio analysis, it has been identified that NWF plc has
good performance as compared to the other three companies. This in turn reflected that the
performance of the company is high as compared to others. Further, the report also concluded
that from the range of long term source of finance, NWF select retained earning source that
provide effective outcome and meet the overall aim and objectives of a company in an effective
manner.

REFERENCES
Books and journals
Fischer, A.M., and et.al., 2019. Current account adjustment and retained earnings. Journal of
international money and finance, 94, pp.246-259.
Golghandashti, M. and AGHABABAEI, M.E., 2018. The sources of finance impacts on the
Growth of SMEs: case of Tehran Stock Exchange.
Guo, L. and Wang, Z., 2019. Ratio analysis of J Sainsbury plc financial performance between
2015 and 2018 in comparison with Tesco and Morrisons. American Journal of Industrial
and Business Management.9(2). pp.325-341.
Herman Ruslim, M., 2019. The effect of financial ratio on company value with inflation as a
moderation variable. Jurnal Akuntansi. 23(1). pp.34-46.
Oxford Analytica, 2020. Russia will pursue Sberbank sale in modified form. Emerald Expert
Briefings, (oxan-db).
Shrotriya, D.V., 2019. Internal sources of finance for business organizations. International
Journal of Research and Analytical Reviews.6(2). pp.933-940.
Surjandari, D.A., and et.al., 2019. Analysis of determinants of financial and non-financial
aspects for the fund adequacy ratio (FAR) at pension fund institutions. The Indonesian
Accounting Review.9(2). pp.181-193.
Tashanova, D., and et.al.,2020. Investment opportunities and strategies in an era of coronavirus
pandemic. Available at SSRN 3567445.
Yemi, A.E. and Seriki, A.I., 2018. Retained Earnings and Firms' Market Value: Nigeria
Experience. The Business & Management Review, 9(3), pp.482-496.
Pando, V., San-Jose, L. A. and Sicilia, J., 2019. Profitability ratio maximization in an inventory
model with stock-dependent demand rate and non-linear holding cost. Applied
Mathematical Modelling. 66. pp.643-661.
Ptak-Chmielewska, A. and Matuszyk, A., 2018. The importance of financial and non-financial
ratios in SMEs bankruptcy prediction. Bank i kredyt. 49(1). pp.45-62.
Sihotang, A. S. and Munir, A., 2021. Analysis of the profitability ratio effect, market value ratio,
and coal prices to stock prices of coal companies. Journal of Management and
Leadership. 4(1). pp.29-44.
1

Kadim, A., Sunardi, N. and Husain, T., 2020. The modeling firm's value based on financial
ratios, intellectual capital and dividend policy. Accounting. 6(5). pp.859-870.
Musallam, S. R., 2018. Exploring the relationship between financial ratios and market stock
returns. Eurasian Journal of Business and Economics. 11(21). pp.101-116.
2