Business and Financial Performance: An Analysis of Tesco and Sainsbury

This report presents a comparative analysis of the business and financial performance of Tesco and Sainsbury, two leading retail organizations in the UK. It employs a quantitative approach and positivism philosophy, utilizing secondary data from annual reports spanning five years (2011-2015). The study aims to compare the financial health of both companies, provide insights for potential investors, and offer valuable information to stakeholders regarding return on equity and dividends. Ratio analysis is used to assess financial performance, revealing Sainsbury's superior efficiency compared to Tesco. The report delves into the significance of financial performance for stakeholders, explains ratio analysis and its classifications, and addresses research questions concerning shareholder investment efficiency, monetary risk exposure, and resource utilization, ultimately offering recommendations for improved financial performance.

''An analysis and evaluation of the business and financial performance of
Tesco as compared to Sainsbury ''

Acknowledgement
I would like to thank my supervisor who has helped in throughout competing this
dissertation. The continuous support from my guide and his/ her efforts helped me in learning,
overwhelming immense knowledge and motivated me. I would also like to thank my family and
friends for their support and faint in me.

ABSTRACT
The measurement of financial performance of business gives a deeper insight into the use
of financial resources by business. The UK retail industry is highly growing and attractive
sector, therefore, investors are willing to invest in retailing organization. The study aims to make
a comparative analysis into the business as well as financial performance of Tesco and
Sainsbury, both are leading retail organization in the UK. A quantitative approach is selected for
the investigation to which a positivism philosophy is adopted. The data for the present study
have been collected from secondary sources including books, journals, articles, research papers
and online stuffs. To assess the financial performance of Tesco and Sainsbury, annual reports
prepared by the both the companies for last 5 years are used to gather financial information.
Ratio analysis is used to carry out the accurate financial analysis in which Sainsbury is found
more efficient as compared to Tesco in terms of financial performance.

Table of Contents
Acknowledgement...........................................................................................................................2
ABSTRACT....................................................................................................................................3
CHAPTER 1- INTRODUCTION....................................................................................................6
1.1 Background............................................................................................................................6
1.2 Rationale of investigation......................................................................................................6
1.3 Aims and objectives...............................................................................................................7
1.4 Significance of the proposed research study.........................................................................7
CHAPTER 2: LITERATURE REVIEW.........................................................................................8
2.1 Introduction............................................................................................................................8
2.2 Significance of the business and financial performance to the stakeholders.........................8
2.3 Ratio Analysis and significance.............................................................................................9
2.4 Classification of the ratios...................................................................................................10
2.5 Limitations of the ratio analysis..........................................................................................10
CHAPTER 3-RESEARCH METHODOLOGY............................................................................12
3.1 Research philosophy............................................................................................................12
3.2 Research approach...............................................................................................................12
3.3 Research design...................................................................................................................12
3.4 Data collection.....................................................................................................................13
3.5 Data Analysis.......................................................................................................................13
3.6 Ethical and accessibility issues............................................................................................13
CHAPTER 4- DATA ANALYSIS................................................................................................15
CHAPTER 5 CONCLUSION AND RECOMMENDATION......................................................24
REFERENCES..............................................................................................................................26
Appendix 1.....................................................................................................................................28
Appendix 1.....................................................................................................................................29

CHAPTER 1- INTRODUCTION
1.1 Background
Financial performance is denoted as a subjective measure of how an organizations is
using or can use assets to generate revenues as well as profitability (Rao, 2011.). The
measurement of financial performance of business gives a deeper insight into the use of financial
resources by business. The stakeholders (both internal and external) seek for assessing the
financial performance of companies so as to make financial decisions such as investments,
expansion. Including this, management of companies keen to know financial health and
performance of the firm to find out smooth business. Ratio analysis is a tool used to easily
understand the financial performance of a corporate entity, further m it helps in measuring the
return which investors will get through investing money in the business operations of respective
organization. In the present competitive scenario, financial performance analysis is used to find
out how competitive the form and in the market and how they can improve their performance to
remain successful. The retail industry of the United Kingdom has become competitive in terms
of sales performance and profit generation, however, it becomes important to compare the
financial performance to assess the effectiveness of retail in firms in generating revenues and
profits (UK Retail Stats and Facts, 2016). The dissertation herewith aims at comparing the
financial performance of two leading retail organization of the UK named as Tesco and
Sainsbury. Through this investigation, a deeper insight to the existing financial position of both
the firms have been quoted.
1.2 Rationale of investigation
The UK retail industry is highly growing and attractive sector, therefore, investors are
willing to invest in retailing organization. Tesco and Sainsbury Plc. both have gained a
significant market image however, a huge competition is witnessed in terms of improved
business practices and financial performance (UK Retail Stats and Facts, 2016). From the
investor’s point of view, financial strong company is a sources from where better returns can be
raised. Sainsbury Plc. is a the major competitor of Tesco , however, the questions is that which
firm is financially strong , hence, the study will attempts to make an analysis and evaluation
into business and financial performance of Tesco and Sainsbury. The rationale behind present
investigation is to analysis the financial information of both the companies so that various

decision makers can be assist with effective insights in financial health to facilitate effective
decision making.
1.3 Aims and objectives
Aim
The study aims to make a comparative analysis into the business as well as financial
performance of Tesco and Sainsbury.
Objective
 To make comparison of the financial health of Tesco with its competitor, Sainsbury
 To provide information to the potential investors about the financial performance of
Tesco and Sainsbury
 To offer valuable information to several stakeholders about return on equity, dividend,
etc.
 To help investors and shareholder in making suitable decision on investments and
provide assistance to them in making effective decisions.
Research questions
Q.1 How efficient Tesco and Sainsbury are in using shareholders’ investment?
Q.2 To which extent, Tesco and Sainsbury stakeholders are open to monetary risk?
Q.3 Which Company is utilizing its financial resources to their optimum level?
Q.4 Will Tesco and Sainsbury are able to attain success in the upcoming years or in future?
1.4 Significance of the proposed research study
The herewith investigation is significant for retailing industry, academicians, researchers
as well as the management of both Tesco and Sainsbury. The academicians are going to get
insights into the use of ratio analysis and its interpretations. The investigation is going to analysis
the financial position of Tesco and Sainsbury in last 5 year (2011-2015) which have hardly done
in previous studies. The information pertaining to financial performance of retail sectors will
allow researchers to identify the significance of ratio analysis and financial performance
companies in retail industry. In addition to that, investors and shareholder are going to be
assisted with effective decision on investments and the findings of this study will provide

assistance to them in making effective decisions. The comparison of the financial performance of
Tesco with its competitor, Sainsbury is going to be carried out in this investigation which will
provide information to the potential investors about the financial performance of Tesco and
Sainsbury so they can make decisions. The management of Tesco and Sainsbury are going to be
recommended with the ways to improve financial performance.

CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Literature review is the most crucial section of the investigation which carries a review
into academic theories and aspects related to the topic of study (Robson and McCartan, 2016).
The section is important to assess the findings and previous studies which can support the
present investigation. Review of literature includes summary of findings of previous authors
who have conducted range of investigations into the study topic. The section herewith deals with
the secondary information in relation to financial performance analysis which has been carried
by various authors in their studies. To complete the present investigation various themes such as
the significance of the financial performance to the stakeholders, definition and meaning of ratio
analysis along with its significance. Furthermore, this section represent classification of the
ratios, its importance and limitations of the ratio analysis.
2.2 Significance of the business and financial performance to the stakeholders
According to Vogel (2014) financial performance is referred to the degree to which
financial objectives are being or have been attained within an organization. In a border sense,
financial performance is a way to measure how an organization is managing its financial
resources to manage the risk of business. The measurement of financial performance is a major
criteria to assess financial risk management. To the view point of Ahrendsen and Katchova
(2012) financial performance is measured to find the results of a firm's policies and operations in
monetary terms. The measurement of overall financial health of an organization which is given
within a specified period of time is referred as the financial performance. This is further evident
as the most effectual measure which carried a deeper insights into the optimum utilization of
financial resources within a company (Financial Performance - Understanding its Concepts and
Importance, 2016). The performance of company which is judged in a financial terms indicates
profitability as well as liquidity of the same and carries out the ways in which it can be improved
(Fridson and Alvarez, 2011).

According to Fridson, and Alvarezn (2011) the major significance of assessing financial
performance is that finance manager can make suitable business as well as investment decisions.
Furthermore, Rao (2011) stated that the accurate financial performance analysis allows company
to meet the information need of various stakeholders such as management, employees, financial
institution, government and shareholders etc
As per the investigation carried out by Delen, Kuzey and Uyar (2013) organizations aims
at assessing the financial performance of business for the purpose to know the growth in terms of
sales and profitability aspect. Hence, financials performance is carried out to the growth of
business. On the critical note, Brigham and Ehrhardt, (2013) revealed the fact that by making
comparisons of current performance with the previous, business cannot accurately judge
financial performance because, market conditions like as inflation or deflation have influence on
firms growth and performance.
According to Healy and Palepu (2012) shareholders and investors are interested in
knowing the financial performance of companies so as to make profitable investment decisions.
To a contrary note Hill, Perry and Andes (2011) argued that shareholders can decide on suitable
investment decision only through comparing current performance with the rivals because on a
competitive business arena shareholders have number of options in which they can easily make
investment. Furthermore, Rao (2011) explained that suppliers and financial institutions are also
interested in knowing financial performance of individuals so that they can decide to lend money
to the business such as trade supplier and banks. Here, people, include who provide funds to the
company in the basis of its creditworthiness. The significance of knowing financial performance
of such entities’ is to know that to what extent business entity is able to repay the amount of loan
in given time frame. The financial institutes are highly concerned about the time in which they
will get their money. The banks and financial institutes need such information so as to decide
creditworthiness of business. Hence, financial performance offers an assistance to the
stakeholders for designing the most profitable decisions about future finances situation and
growth.

2.3 Ratio Analysis and significance
To the view point of Chang (2011) ratio analysis is an effective method to obtain a quick
indication of a firm's financial performance. The author further revealed it as a quantitative
analysis of the information provided in financial statements so as to know financial health of a
company. To conduct an effective ratio analysis the information included in financial statements
such as balance sheet, income statement and the cash flow statement is used. Using such
analysis, the relation can be expressed in percentage or quotient terms. It can be said that ratios
are simple to calculate and easy to understand. Brigham and Ehrhardt (2013) explained that ratio
analysis is used to evaluate the business position of a firm by the means of profitability, liquidity,
solvency and efficiency. The significance of ratios analysis is in finding out the ways to improve
the business performance by comparing it with inter firms or intra firms, in means comparing
performance with internal performance and competitor’s performance. Furthermore it is useful
in presenting the numerical data available into financial statements in a simpler and easier forms.
Ratio analysis is considered a useful tool to show the numerical relationships based on the
statements.
2.4 Classification of the ratios
Ratio analysis is an effective tool which carries the financial analysis into different forms
so as to know the financial health of a company is a different aspect (Healy and Palepu, 2012).
The ratios have been classified into various segments which are as follows:
Profitability Ratios: The profitability ratio analysis is a kind of ratios analysis which is
carried out to know how business is earning profits through effective use of financial resources.
Delen, Kuzey and Uyar, (2013) found profitability ratios to be used to know a constant
improvement in sales and profitability of business and is significantly carries out to measure the
efficiency of the company related to utilization of resources in earning profits.
Liquidity ratios – This is an effective kind of ratio analysis which is used to carry out the
efficiency of firm in paying short term financial obligations. The business acts the adequacy of
the current and liquid assets. However Rao (2011) revealed that liquidity ratio is frequently used
to know short term solvency position of business. This ratio is majorly used by creditors such as
banks, suppliers to decide whether firms have adequate liquid cash to meet their obligations.
Efficiency/ Activity ratios – Efficiency ratio, which is also called as activity ratio used for
generating revenues through transforming the production into sales. As per Kuada (2012) ratio

defines how frequently the assets and inventories are being converted into the sales and how
efficient a firm in using its assets.
Solvency ratios – The solvency ratio is a measurement of potentials of a corporate entity
to survive for a long period of time. This is a very important ratio for stakeholders and creditors
to decide on their investments in companies. Using this ratio, it becomes easy to examine the
capital structure of company.
2.5 Limitations of the ratio analysis
The major limitation of ratios analysis is that being a quantitative analysis tool, it ignores
qualitative analysis of business performance. To the view point of Chang (2011) the limitation of
ratio analysis is that appropriate standards of analysis cannot be determined due to ratio analysis.
The major conclusions derived from this analysis tool sometimes does not meet the standards of
companies. However, in the present investigation the companies are dealing in the same industry
hence, this limitation does not hamper present research objectives. Delen, Kuzey and Uyar,
(2013) explained that comparison becomes difficult in case when two companies are
significantly different in size, scale and nature, because, the judgment becomes very difficult for
the information users. Many of the times, ratios give false results, if they are calculated from
incorrect accounting data. In Tesco and Salisbury’s financial information there must be some
issuers relating to accounting data which might hampers the effectiveness of ratio analysis. In
respect to the present investigation, it can be an issue of carrying ratio analysis. In view of the
accounting issues that Tesco has had in the relatively recent past further hamper the ratio
analysis and their findings (Annual Report and Financial Statements Tesco. 2016). Furthermore
Rao (2011) explained that ratio analysis is based on past data, therefore, it does not provide
complete information for future forecasting. Due to historical figures, it becomes difficult to
evaluate current and accurate performance, hence no indication about the existing and future
problems is a limitation of ratio analysis. The ratios sometimes argued to be not appropriates
because, they do not provide appropriate answers to the financial issues. However, it can be said
that issues of judgment always arises along with identifying the importance which should be
given to the numbers. Nonetheless, ratios can be misleading, if these are calculated using false or
window-dressed accounting information.

CHAPTER 3-RESEARCH METHODOLOGY
Research methodology is the most crucial section of the investigation which includes
tools and tactics used for accomplishing the research objectives (Robson and McCartan, 2016).
Here, the section includes research philosophy, research approach, research design along with
data collection and analysis tactics. The use of each and every method is backed with suitable
justification.
3.1 Research philosophy
Interpretative and positivism are two main research philosophies used in the research
world that governs a specify way to collect data and conduct analysis to solve a research
problem. Positivism philosophy supports quantitative approach under which objectives are
achieved using an in-depth analysis (Bryman and Bell, 2015). On the other hand, interpretivism
philosophy is suitable to qualitative approach. Here, for the present investigation financial
performance of Tesco and Sainsbury, is going to be assessed which indicates a quantitative
approach, hence positivism philosophy is justifiable (Creswell, 2013). The rationale behind
opting positivism philosophy is the specific nature of study that molds that researcher mind
towards analyzing each financial value and carrying out valid findings.
3.2 Research approach
Research approach is significantly used to find out the way in which the investigation
will be carried out, it may be general to specific, or specific to general. Two major research
approaches are inductive and deductive (Flick, 2011). For the present investigation, deductive
approach is used so as to assess the financial performance of Tesco and Sainsbury, to make
comparisons. Reason behind using such approach is the specific nature of study in which Tesco
and Sainsbury are chosen. Along with this, data are quantitative in nature which needs to be
specifically analyzed hence, the use of deductive approach is backed with a suitable justification
(Zikmund and et.al., 2012).
3.3 Research design
Research design in general phenomena is called as a blue print of study, which is used to
conduct an investigation into a right direction. Descriptive and exploratory are major research
designs that cab be employed in study (Collis and Hussey, 2013). In respect to the present

investigation, exploratory research design is used so as to make a valid comparison of financial
performance of both the companies. The rationale behind using exploratory research design is
to reach out to the specific solutions of research problem while explaining specific reasons for
current financial performance.
3.4 Data collection
Data collection is the most crucial section of investigation which attempts to collect data
using range of sources. Two main methods of data collection are primary and secondary, in
which primary methods includes the collection of data for the first time, on the other hand,
secondary data collection is a method in which data are gathered from available research stuff
(Olsen, 2011). For present investigation, data are collected form secondary sources including
books, journals, articles, research papers and online stuffs. However, to assess the financial
performance of Tesco and Sainsbury, annual reports prepared by the both the companies for last
5 two years (2011-2015) are accessed to get financial data. The selection of secondary sources of
data collection is appropriate as it is helpful in collecting the information which is required
(Collis and Hussey, 2013).
3.5 Data Analysis
Data analysis is crucial for making valid outcomes from the information which is
collected using data collection. The use of data analysis tactic is based on the type of
investigation undertaken by research (Zikmund and et.al.,2012). Here, the present investigation
is of quantitative nature and to assess the, ratio analysis tactic of financial analysis is carried out
to make valid finding from financial data. The rationale behind using ratio analysis is to explain
financial information in an easier way. To carry out the analysis various tools such as MS excel
is used.
3.6 Ethical and accessibility issues
During the investigation researcher is required to give proper attention to the ethical
accessibility issues which might be. To address such issue, the data are collected from
appropriate secondary sources (such as books, journals, articles, research papers and online
stuffs including information about Tesco and Sainsbury’s performance and use of ratio analysis)
and the information is properly citied with the right author (Kuada, 2012). In addition to that, the
issue of plagiarism is addressed throughout the investigation. To collect secondary information,

online websites are used however, most of the sites were restricted or required long procedure for
logged in. Hence, lack of authenticate websites is the major problem faced during the data
collection. The issue is relatively overcome while gathering data from the annual reports and
website of the Tesco and Sainsbury. Further, permission is being taken by researcher before
accessing the sites. In this manner, latest and appropriate data have been gathered for the present
study.

CHAPTER 4- DATA ANALYSIS
The most crucial section of the investigation is of data analysis which carries out an in-
depth analysis into the data collected from range of sources. Here, in the present investigation
shows the ratios analysis of Tesco and Sainsbury for last 5 years ranging from year 2011 to2015
and a relative comparison between financial performances of both the retail giants in the UK.
For conducting a ratio analysis MS tool is used which is further presented with the help of tables
and charts. This chapter is crucial to attain the aim of research which is of comparing the
financial health of Tesco with its competitor, Sainsbury.
Comparison between profitability ratios of Tesco and Sainsbury
Sainsbury
Ratios Formula 2015 2014 2013 2012 2011
Gross Profit Ratio
(Gross Profit/ Net Sales)
*100 5.08 5.75 5.48 5.43 5.50
Operating Profit
Ratio
(Operating Profit/ Net
Sales) *100 0.34 4.21 3.81 3.92 4.03
Net Profit Ratio
(Net Profit/ Net Sales)
*100 (0.30) 2.99 2.63 2.68 3.03

2015 2014 2013 2012 2011
-1
0
1
2
3
4
5
6
7
5.08 5.75 5.48 5.43 5.5
0.34
4.21 3.81 3.92 4.03
-0.3
2.99 2.63 2.68 3.03
Changes in Sainsbury's profitability in last 5
years
Gross Profit Ratio Operating Profit Ratio Net Profit Ratio
Tesco
Ratios Formula 2015 2014 2013 2012 2011
Gross Profit Ratio
(Gross Profit/ Net
Sales) *100 (3.87) 6.31 6.31 8.44 8.30
Operating Profit
Ratio
(Operating Profit/ Net
Sales) *100 (10.10) 4.14 3.38 6.54 6.25
Net Profit Ratio
(Net Profit/ Net Sales)
*100 (11.13) 1.53 0.19 4.40 4.38

2015 2014 2013 2012 2011
-15
-10
-5
0
5
10
-3.87
6.31 6.31 8.44 8.3
-10.1
4.14 3.38
6.54 6.25
-11.13
1.53 0.19
4.4 4.38
Changes in Tesco's profitability in last 5
years
Gross Profit Ratio Operating Profit Ratio Net Profit Ratio
The profitability performance of a firm is judged through making an in-depth
analysis in profitability ratio. From the calculation shown in above table. It can be said that gross
profits for both the companies are continuously decreasing. However, the gross profit ratio for
Sainsbury are quite fluctuating in comparison to Tesco. The current year performance of both the
companies in term of profitability is negative as both are earning losses. In 2015, Tesco has
earned losses as net profitability ratio is -11.13% and for Sainsbury, it is 0.30% (Annual Report
and Financial Statements Sainsbury. 2016). However, it can be said that the profitability
performance of Sainsbury is quite sound as compared to Tesco (Annual Report and Financial
Statements Sainsbury. 2016). The financial data indicated that sales of Tesco has been decreased
from previous years, which is a major reason of declining profits. On the other hand, sales of
Sainsbury is constantly increasing. Both the organizations are evident with issues related to
increased expenses (both direct and indirect) in 2015 which lead to declining profits (Annual
Report and Financial Statements Tesco. 2016). The direct expenses of Tesco are witnessed to be
too high, but a slight improvement is seen in present times, as company is efficient in rising
profits form core business activities. In the recent previous years, all the profitability ratios for
Tesco were negative, indicating that company has earned huge losses and is not able to maintain
profitability, on the other hand, Sainsbury is quite well in profitability aspect.

Comparison between Liquidity ratios of Tesco and Sainsbury
Sainsbury
Ratios Formula 2015 2014 2013 2012 2011
Current Ratio
Current Assets / current
Liabilities (0.64) 0.36 0.61 0.65 0.58
Quick Ratio
(Cu. Assets - Cl.
Stock)/Cu. Liabilities (0.49) 0.28 0.29 0.35 0.30
2015 2014 2013 2012 2011
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
-0.64
0.36
0.61 0.65 0.58
-0.49
0.28 0.29 0.35 0.3
Changes in Sainsbury 's liquidity performace in
last 5 years
Current Ratio Quick Ratio
Tesco
Ratios Formula 2015 2014 2013 2012 2011
Current Ratio
Current Assets / current
Liabilities 0.60 0.65 0.67 0.64 0.65
Quick Ratio
(Cu. Assets - Cl.
Stock)/Cu. Liabilities 0.45 0.47 0.25 0.46 0.21

2015 2014 2013 2012 2011
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.6 0.65 0.67 0.64 0.65
0.45 0.47
0.25
0.46
0.21
Changes in Tesco 's liquidity performace in last 5
years
Current Ratio Quick Ratio
Liquidity performance of an organization is a measurement of the ability of a firm to
meet its short-term obligations or how capable a firm in paying its current liabilities when they
fall due. Here, in the above table, short-term financial solvency of Tesco and Sainsbury is
explained with the help of liquidity ratios such as current and quick ratio. Current ratio for
Salisbury is quite fluctuating in all the years, as it is declining continuously and reached to a
negative level in 2015 (Morning star, 2016). It reflects that Sainsbury is not above to meet its
short term financial obligations in an efficient way. The business does not have sufficient cash
and cash equalint to pay current liabilities when they fall due (Annual Report and Financial
Statements Sainsbury. 2016). On the other hand, current ratio of Tesco is declined from past year
as in 2011, it was .65 and 2015 noted to be at .60. However, it can be said that liquidity
performance of Sainsbury is not sound as compared to Tesco (Annual Report and Financial
Statements Tesco. 2016). Hence, the relationship between current assets of Tesco and its current
liabilities. Further, the analysis, also indicated that the liquidity performance of Tesco is
improved from previous years because, management of the cited company has used more
conservative approach to working capital management (Annual Report and Financial Statements
Sainsbury. 2016). On the basis on comparative analysis, it can be said that Tesco is capable of
meeting short term financial obligation which supports it is maintaining good relations with
suppliers and trade creditors, nonetheless, Sainsbury has to adopt an systematic approach to
improve liquidity performance.
Comparison between efficiency ratios of Tesco and Sainsbury

Sainsbury
Ratios Formula 2015 2014 2013 2012 2011
Total Assets
Turnover Ratio Net Sales/ Total Assets 4.29 1.45 1.84 1.81 1.85
Inventory Turnover
ratio COGS/Inventory 22.63 22.45 22.32 22.48 24.56
2015 2014 2013 2012 2011
0
5
10
15
20
25
30
4.29 1.45 1.84 1.81 1.85
22.63 22.45 22.32 22.48 24.56
Changes in Sainsbury 's financal efficiency in last 5
years
Total Assets Turnover Ratio Inventory Turnover ratio
Tesco
Ratios Formula 2015 2014 2013 2012 2011
Total Assets
Turnover Ratio
Net Sales/ Total
Assets 4.76 4.08 4.95 4.97 4.65
Inventory Turnover
ratio COGS/Inventory 20.00 16.65 7.84 16.26 17.67

2015 2014 2013 2012 2011
0
5
10
15
20
25
4.76 4.08 4.95 4.97 4.65
20
16.65
7.84
16.26 17.67
Changes in Tesco’s financial efficiency in
last 5 years
Total Assets Turnover Ratio Inventory Turnover ratio
The main motive of calculating efficiency ratios is of analyzing the extent to which a
corporate entity is using its assets and inventories in generating sales. The calculation of efficient
ratio supports firms in identifying how business is profitable in using its assets. Asset turnover
ratio is a measurement of company’s ability to generate sales with an effective use of inventories
of assets. This ratio for Sainsbury is quite fluctuating indicating that the company is quite
efficient in assets management (Annual Report and Financial Statements Sainsbury. 2016). On
the other hand, assets turnover ratio for Tesco is also fluctuating but is higher as compared to
Sainsbury, thus, Tesco is well efficient in using its assets to earn revenues. In the years 2015, the
asset turnover ratio for Tesco was higher them Sainsbury indicating that during the period Tesco
has effectively used its assets for generating higher revenues. Hence, higher the assets turnover
ratio which is 4.76 is favorable for the business as compared to Sainsbury which is 4.29 (Annual
Report and Financial Statements Sainsbury. 2016).
Inventory turnover ratio, is used to calculate how frequently company is selling and
replacing its inventory. The ratio is calculated by cost of goods sold by average inventory during
an accounting period. The inventory turnover ratio for Salisbury is higher as compared to Tesco
indicating that the business is quite efficient in replacing inventory which reduces cost of
handing inventory. The ratios for Sainsbury last five years ranging from 2011 times 2015 are
24.56, 22.48, 22.32, 22.45and 22.63 respectively (Annual Report and Financial Statements

Tesco. 2016). On the other hand, asset turnover ratio for Tesco are fluctuating and are low as
compared to Sainsbury in all the years, indicating that the company is not as efficient in
managing its assets and inventories as compared to Sainsbury. The inventory turnover ratio for
Tesco for last five years from 2011 times 2015 are 17.67time, 16.26, 7.84, 16.65 and 20 times
(Annual Report and Financial Statements Tesco. 2016). On the basis of above analysis, it can be
said that Sainsbury is more efficient in managing inventories of business, Tesco on the other
hand is efficient in managing assets of the business.
Comparison between Gearing ratios of Tesco and Sainsbury
Sainsbury
Ratios Formula 2015 2014 2013 2012 2011
Debt Equity Ratio Debt/ Equity 0.74 0.37 0.46 0.46 0.43
2015 2014 2013 2012 2011
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8 0.74
0.37
0.46 0.46 0.43
Debt to equity ratio for Sainsbury for last 5
years
Tesco
Ratios Formula 2015 2014 2013 2012 2011 Ratios
Debt Equity Ratio Debt/ Equity 1.11 0.63 0.60 0.56 0.35

2015 2014 2013 2012 2011 Ratios
0
0.2
0.4
0.6
0.8
1
1.2 1.11
0.63 0.6 0.56
0.35
Gearing ratios of Tesco for last 5 years
Debt to equity ratio is a financial ratio which is used for finding out the solvency
performance of a company and measuring how company is efficient balancing debt and equity.
The ratio is helpful in identifying the percentage of business financing and it indicates a relative
claims of creditors (Outsiders) and owners (Interest) against a company. The debt to equity ratio
for Tesco is fluctuating in all the years. On the other hand, Tesco’s debt equity ratio is increased
in last years. The continual increase in indicating a straight strategy of financing in a relative
proportion of debt and equity in financial assets (Annual Report and Financial Statements Tesco.
2016). The debt equity ratio for Tesco in 2015 was 1.11 whereas for Sainsbury it is .74 indicating
that that Tesco is using more creditor financing or bank loans as compared to Sainsbury. In
relation to Sainsbury Plc, it can be said that firm is using more equity financing as compared to
debt which is a major reason of smooth financial performance (Annual Report and Financial
Statements Sainsbury. 2016). The financial position of business is slightly increased as compared
to previous year, however, for business financing Tesco is more depended on creditor financing
or bank loans, however, Sainsbury uses more equality financing. However. Sainsbury has
further maintained an effective balance between equity (Morning star, 2016)

CHAPTER 5 CONCLUSION AND RECOMMENDATION
The chapter herewith is the last section of an investigation which was aimed to conduct
and financial performance analysis for two leading retail giants of the United Kingdom named as
Tesco and Sainsbury. The major aim of an investigation was of comparing the financial
performance of Tesco and Sainsbury to have a deeper insight to the existing financial position so
as to assist various decision makers in having effective insights in financial health to facilitate
their effective decision making. On the basis of profitability analysis, it could be said that the
financial performance Sainsbury is quite sound as compared to Tesco. The profits for Sainsbury
have been improved in last 5 years however, in 2015, Sainsbury has gained losses, but, it
performance is good than Tesco. From an in-depth analysis, it has been found that sales of Tesco
is declined in the recent part years which has caused to declining profits. The sales of Sainsbury
is constantly increasing, however, expenses (both direct and indirect) are continuously
increasing. The performance of both the firms was not good in the year 2015 due to raising
expense, but Tesco is efficient in rising profits form core business activities. On the basis of
profitability performance, Sainsbury is quite well and is efficient in garbing the attention of
existing as well as potential customers.
On the basis of liquidity analysis, it has been witnessed that Sainsbury is not efficient in
paying short term financial performance in comparison to Tesco. The current and quick ratio of
Tesco is indicating that that the business is efficient in paying short term financial obligations in
an efficient manner. The more conservative approach to working capital management. On the
basis on comparative analysis, it can be said that Tesco is capable of meeting short term financial
obligation which supports it is maintaining good relations with suppliers and trade creditors,
nonetheless, Sainsbury has to adopt an systematic approach to improve liquidity performance.
On the basis of liquidity analysis, it can be said Tesco is utilizing its financial resources to their
optimum level and is effectively meeting day to day financial needs. The efficiency ratio of
Tesco and Sainsbury is indicating that Tesco is effective in inventory management, on the other
hand, Tesco has a well-managed approach of assets management in the organization. Sainsbury
is quite frequent in selling and replacing its inventory which further reduces inventory cost of
business. Salisbury is with higher inventory ratio as compared to Tesco indicating that the
business is quite efficient in replacing inventory which reduces cost of handing inventory.

Hence, it can be said that Sainsbury is more efficient in managing inventories of business, on the
other hand, Tesco is efficiently managing its assets of the business. The analysis into solvency
of gearing performance, it has been noted that Sainsbury is quite well in balancing equity and
debt financing, it can be further said that Tesco depends more on creditor financing, on the other
hand, Sainsbury uses equity financing for raising funds. However. Sainsbury has further
maintained an effective balance between equity. Overall, it can be said that performance of
Sainsbury is good as compared to Tesco. The information is helpful for investors and
shareholder in making suitable decision on investments in Sainsbury as compared to Tesco.
Recommendation
 The analysis made herewith into profitability performance of Tesco and Sainsbury is
indicating that Tesco has to focus on improving sales for which it can use range of
tactics. It can be in the form of sales promotions and there must be marketing campaigns
to attract customers, hence, sales can be improved.
 The continual increased expenses for both the firms are raising a serious threat of decline
in profit however, increased expenses are to be further taken care of so as to increase
profits in near future. Tesco has to use effective strategies for minimizing direct cost of
business.
 The potential investors and shareholders are recommended to invest in Sainsbury Plc, as
the profitability of company is good and has future potentials to pay good amount of
dividend and returns in near future.
 Tesco is using a more conservative approach to working capital management which
results into improving its ability to pay short term financial performance. The suppliers
and trade creditors of Tesco can easily relay on business as it is quite capable of
meeting short term financial obligation which supports it is maintaining good relations
with suppliers and trade creditors. On the other hand, Sainsbury plc is recommended to
adopt an effective approach for working capital management so that liquidity
performance can be improved.
 The approach of Sainsbury, to raise funds from equity sources is quite well going and
benefiting company too in raising good amount of returns for shareholders. On the basis

of analysis, shareholders and investors are recommended for investing in Sainsbury as
company has maintained an effective balance between equity and debt.

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Appendix 1
Ratio analysis of Sainsbury from 2011-2015
Ratios Formula 2015 2014 2013 2012 2011
Profitability ratios
Gross profit 1,208 1377 1277 1211 1160
Operating profit
81
1009 887 874 851
Net profit
-72
716 614 598 640
Net Sales
23,775
23949 23303 22294 21102
Gross Profit Ratio
(Gross Profit/ Net Sales)
*100
5.08
5.75 5.48 5.43 5.50
Operating Profit
Ratio
(Operating Profit/ Net
Sales) *100
0.34
4.21 3.81 3.92 4.03
Net Profit Ratio
(Net Profit/ Net Sales)
*100
(0.30)
2.99 2.63 2.68 3.03
Liquidity ratios
Current Assets
4,421
4362 1901 2032 1708
Current Liabilities
-6,923
12171 3115 3136 2942
Closing Stock
997
1005 987 938 812
Current Ratio
Current Assets / current
Liabilities
(0.64)
0.36 0.61 0.65 0.58
Quick Ratio
(Cu. Assets - Cl.
Stock)/Cu. Liabilities
(0.49)
0.28 0.29 0.35 0.30
Effciency Ratios
Net Sales
23775
23949 23303 22294 21102
Total Assets
5,539
16540 12695 12340 11399
Total Assets Net Sales/ Total Assets 4.29 1.45 1.84 1.81 1.85

Turnover Ratio
Cost of goods sold
22,567
22562 22026 21083 19942
Inventory
997
1005 987 938 812
Inventory Turnover
ratio COGS/Inventory
22.63
22.45 22.32 22.48 24.56
Gearing ratios
Debt
4,075
2250 2617 2617 2339
Equity
5,539
6005 5733 5629 5424
Debt Equity Ratio Debt/ Equity
0.74
0.37 0.46 0.46 0.43
Appendix 1
Ratio analysis of Tesco from 2011-2015
Ratios Formula
2015
2014 2013 2012
2011
Profitability ratios
Gross profit -2,203 4010 4089 5397 5,060
Operating profit
-5,750
2631 2188 4182
3,811
Net profit
-6,334
970 120 2814
2,671
Net Sales
56,925
63557 64826 63916
60,931
Gross Profit Ratio
(Gross Profit/ Net
Sales) *100
(3.87)
6.31 6.31 8.44
8.30

Operating Profit
Ratio
(Operating Profit/ Net
Sales) *100
(10.10)
4.14 3.38 6.54
6.25
Net Profit Ratio
(Net Profit/ Net Sales)
*100
(11.13)
1.53 0.19 4.40
4.38
Liquidity ratios
Current Assets
11,819
13085 12465 12353
11,438
Current Liabilities
19,714
20206 18703 19180
17,731
Closing Stock
2,957
3576 7744 3598
7744
Current Ratio
Current Assets /
current Liabilities
0.60
0.65 0.67 0.64
0.65
Quick Ratio
(Cu. Assets - Cl.
Stock)/Cu. Liabilities
0.45
0.47 0.25 0.46
0.21
Effciency Ratios
Net Sales
56925
63557 64826 63916
60931
Total Assets
11,958
15572 13096 12863
13096
Total Assets
Turnover Ratio
Net Sales/ Total
Assets
4.76
4.08 4.95 4.97
4.65
Cost of goods sold
59,128
59547 60737 58519
55,871
Inventory
2957
3576 7744 3598
3,162
Inventory Turnover
ratio COGS/Inventory
20.00
16.65 7.84 16.26
17.67
Gearing ratios

Debt
7,852
9303 10068 9911
5,862
Equity
7,071
14772 16661 17801
16,623
Debt Equity Ratio Debt/ Equity
1.11
0.63 0.60 0.56
0.35