A Comparative Financial Performance Analysis: Tesco vs. Sainsbury

This report presents a comparative analysis of the financial and business performance of Tesco and Sainsbury, two leading retail organizations in the UK. The study employs a positivism philosophy and a deductive approach, utilizing both primary and secondary data sources, with a focus on quantitative data analysis techniques, particularly ratio analysis. The research investigates the financial health of both companies over a five-year period, examining key metrics such as profitability, liquidity, efficiency, and solvency. The findings indicate that Sainsbury demonstrates superior financial and business performance compared to Tesco. The report includes an executive summary, abstract, table of contents, introduction, background of research, research methodology, data collection and presentation, analysis and discussion, conclusion and recommendation, a reflective statement, and references. The report highlights the significance of financial performance to stakeholders, the use of ratio analysis, and the limitations of such analysis. Based on the findings, the report recommends corrective measures for Tesco to improve its sales and profitability. The report is a valuable resource for academics, researchers, investors, and the management of both companies, providing insights into the retail industry and the application of financial analysis techniques.

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

Executive summary
The competition among businesses in retail sector has become so intense that it is not
easy for firms to attract more customers and retain their old ones. For this purpose, it is required
by organizations to analyze, evaluate their financial and business performance at regular
intervals. In the present dissertation comparison between the financial performance of Tesco and
Sainsbury has been carried out.
It can be stated that positivism philosophy and deductive approach is used to carry out
research on the above mentioned topic. The information has been collected from both primary
and secondary sources. Furthermore, quantitative technique of data analysis is used to carry out
evaluation of information collected.
The results of study highlight that the financial and business performance of Sainsbury is
very good as compared to Tesco. Along with this, it can be recommended that the company is
required to take corrective measure for improving sales and profits.

Acknowledgment
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
Acknowledgment.............................................................................................................................3
ABSTRACT.....................................................................................................................................4
Table of Contents...........................................................................................................................5
INTRODUCTION...........................................................................................................................1
Main Body.......................................................................................................................................1
1.1 Background............................................................................................................................1
1.2 Rationale of investigation......................................................................................................1
1.3 Significance of the proposed research study..........................................................................1
BACKGROUND OF RESEARCH.................................................................................................3
2.1 Introduction............................................................................................................................3
2.2 Significance of the business and financial performance to the stakeholders.........................3
2.3 Ratio Analysis and significance.............................................................................................4
2.4 Classification of the ratios.....................................................................................................4
2.5 Limitations of the ratio analysis.............................................................................................5
Aims and objectives.........................................................................................................................6
RESEARCH METHODOLOGY.....................................................................................................7
3.1 Research philosophy..............................................................................................................7
3.2 Research approach.................................................................................................................7
3.3 Research design.....................................................................................................................7

3.4 Data collection.......................................................................................................................8
3.5 Data Analysis.........................................................................................................................8
3.6 Ethical and accessibility issues..............................................................................................8
DATA COLLECTION AND PRESENTATION............................................................................9
ANALYSIS AND DISCUSSION...................................................................................................9
CONCLUSION AND RECOMMENDATION.............................................................................16
REFLECTIVE STATEMENT.......................................................................................................19
REFERENCES..............................................................................................................................20
Appendix 1.....................................................................................................................................22
Appendix 2.....................................................................................................................................23

INTRODUCTION
Main Body
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 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 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
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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.
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BACKGROUND OF RESEARCH
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.
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. 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
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
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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.
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 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 However Rao (2011) revealed that
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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).
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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?
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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
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
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
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.
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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.
3.5 Data Analysis
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 into 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).
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DATA COLLECTION AND PRESENTATION
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.
ANALYSIS AND DISCUSSION
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
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 (Operating Profit/ Net (10.10) 4.14 3.38 6.54 6.25
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Ratio Sales) *100
Net Profit Ratio
(Net Profit/ Net Sales)
*100 (11.13) 1.53 0.19 4.40 4.38
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 rationale behind such quote is the increased profitability ratios
of Sainsbury as compared to Tesco in last five years. The profits for Tesco however found
increased in all last years, but the expenses were also included. 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).
For example, Administrative expenses of Sainsbury increased from (444) to (1,132)
between the year 2014-2015. On the other hand, Tesco’s operating expenses were 2,695 Million
in 2015 which has increased 1,657 in 2016 and reached till 1,852 Million. 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. The expenses in 2015 were
2,695 Million which has declined in 2016 and reached till 1,852 Million (Morning star, 2016). In
the recent previous years, all the profitability ratios for Tesco were negative, indicating that
company has earned huge losses due to poor operational performance and is not able to maintain
profitability, on the other hand, Sainsbury is quite well in profitability aspect as operational
performance is well going (Annual Report and Financial Statements Tesco. 2016).
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Dividend paid
Ratios 2015 2014 2013 2012 2011
Tesco 0.37 0.40 0.41 0.42 0.33
Sainsbury 0.15 0.17 0.16 0.17 0.17
Figure 1 Dividend forecast for Tesco
(Source: Financial Times: TESCO PLC, 2016)
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Figure 2 Dividend forecast for Sainsbury
(Source: Financial Times: SAINSBURY PLC, 2016)
The recent information carried out by financial time represents that in 2016 Sainsbury’s
paid dividends have been decreased by 8.33% for 2016 which is now .12. There has been
identified fluctuations in Dividend paid by Sainsbury in all last 5 year, it is going to be decrease
in upcoming fiscal year, a decrease of 12.40%. However, Tesco’s evident has been declined at
the maximum points. However, no significant information was available for Tesco dividend.
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Figure 3 Growth rates of Tesco
(Source: Financial Times: TESCO PLC, 2016)
13

Figure 4 Growth rates of Sainsbury
(Source: Financial Times: SAINSBURY PLC, 2016)
For Tesco Plc. growth in dividends per share is evident fell -100.00% however, earnings
per share has rose by 103.97%. But the company ranks below in terms of earnings per share
growth ranks for industry average relative to its peers. The growth if dividends per share fell -
8.33% but the earning per share growth rose by 358.82%. Both dividend per share and earnings
per share has ranked in-line with the industry average.
Comparison between Liquidity ratios of Tesco and Sainsbury
Sainsbury
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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
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
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 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 able to meet its short term financial obligations in an
efficient way. The business does not have sufficient cash 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 as Tesco has
15

adopted strategy to maintain higher working capital so as to avoid the risk of refinancing from
short-term sources of finance, on the other hand, Sainsbury has maintained the level of working
capital and current assets too high (Annual Report and Financial Statements Sainsbury. 2016).
Quick Ratio, on the other hand, is an indicator of company's short-term liquidity which is
significantly used to measure the ability to use its quick assets such as cash and cash equivalents,
marketable securities and accounts receivable to pay the current liabilities of business. The quick
ratio of Sainsbury is continuously decreasing even it was negative in the last previous years.
However, such ratio for Tesco is improved from last years. 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 a systematic approach to improve liquidity performance in which it has kept too much cash
on hand and it is capable of meeting current financial obligations with the available quick funds
on hand.
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
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 COGS/Inventory 20.00 16.65 7.84 16.26 17.67
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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. However, both the companies are
consistent in the way of defining assets and inventory and business models is sufficiently similar
as both are operating in same industry. 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
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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
Tesco
Ratios Formula 2015 2014 2013 2012 2011 Ratios
Debt Equity Ratio Debt/ Equity 1.11 0.63 0.60 0.56 0.35
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)
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Figure 5 Performance in share market of Tesco
(Source: Financial Times: TESCO PLC, 2016)
Figure 6 Performance in share market of Sainsbury
(Source: Financial Times: SAINSBURY PLC, 2016)
The graphs above represents the forecasting of financial performance of Tesco and
Sainsbury in terms of share buying, selling r holding. According to the investigations, most of
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the Tesco‘s shareholders are advised to hold their position in the company as the company is
going to outperform in the market. However, investment analysts have advices Sainsbury plc’s
investors to hold their position in the company, however, previous forecast indicated that
company is going to advised that the company would underperform J Sainsbury plc.
Risk and return analysis of Tesco and Sainsbury
The risk sand return analysis is an effective tool to compare financial position of companies.
However, risk analysis is to be done on the basis of Beta which is denoted as a measure of a
stock’s volatility in respect to the market. The value of Beta can varies from -1 to 1, and on the
basis of beta value individual stocks are ranked as per the value which they derive from the
market.
Figure 7 Value of Beta for J Sainsbury Plc.
(Source: Financial Times: SAINSBURY PLC, 2016)
The diagram above represents the value of Beta for JA Sainsbury Plc., which is .68,
hence, it is less than 1, on the basis of beta value, it can be said that price movements of
Sainsbury’s shares are less than the market fluctuations. The values further shows lower risk for
investors in relation to trade in company’s stocks. On the other hand, it can be further said that
lower rate of beta also denotes that less volatility and lower risk leads to lower overall returns.
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Figure 8 Value of Beta for Tesco Plc.
(Source: Financial Times: TESCO PLC, 2016)
From the above diagram, it can be seen that value of Beta for Tesco Plc., is.81, which is
almost near to 1, indicating that price movements of Tesco’s shares are moderate in relation to
market fluctuations. However, the value is still low for Tesco which denotes moderate risk for
investors for trading in stocks of Tesco. Due to moderate risk, Tesco is considered as safe bets in
a volatile market, but good returns can be expected from the investments.
From the analysis of risk and return, it can be noted that both the firms are dealing with
same markets however, Tesco has higher beta value, hence, it is expected that company is taking
more risk as compared to Sainsbury, it means more chances are there in respect with earning
good returns and there are huge growth opportunities. However, expected growth also includes
uncertainty and risk.
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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.
Tesco and Sainsbury are effectively using shareholders’ investment
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.
Tesco and Sainsbury stakeholders are open to monetary risk
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.
22

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 is adopted by both the companies. Beta values for JA Sainsbury Plc. And Tesco Pl
are .68 and .81 respectively indicating that Sainsbury takes lower risk and prices are less volatile
top market fluctuations, on the other hand Tesco’s shares are moderate in relation to market
fluctuations. However, Tesco is considered as safe for investment as beta value is .81 shows
moderate risk for investors simultaneously, it provides good returns on investments. 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.
Hence, Sainsbury is more significantly open to monetary risk as compared to Tesco.
Sainsbury is utilizing its financial resources to their optimum level
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.
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.
23

 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.
 It can be also recommended that Tesco can make use of new and modern marketing tools
in order to increase its sales and profits. Here, the brand can carry out its marketing on
social media such as Facebook and Twitter. The retailer may be required to develop its
official page on Facebook or can open account of Twitter from where it can communicate
with its customers. Information about new products, services, offers and schemes can be
easily informed to mass media with the help of above mentioned tools.
 In order to enhance its financial and business performance, it can be recommended that
Tesco should now focus on carrying out extensive market research. The rationale behind
this is that such kind of researches will support in getting aware about the need and
demand of customers in the market. On the basis of information collected, the brand can
24

make some changes in existing product and services. This will create sense of satisfaction
among customers and will also result in attracting more customers. Furthermore,
adequate market research will also support Tesco in obtaining information about the
strategies and action plan which has been adopted by major competitors.
 The investors are recommended that they have to assess beta analysis which allows
investor to understand if the price of stocks are more or less volatile than the market. The
investors are recommended to invest in Tesco Plc. as Beta value is .81, means on less risk
investors can gain good returns which enhance the portfolio performance.
25

REFLECTIVE STATEMENT
This dissertation has supported me in getting insight into the overall business and
financial performance of brands such as Tesco and Sainsbury. With the help of this research, I
have gained knowledge in various areas which will contribute in my future growth and
development. For example by carrying out secondary research in literature review, I have gained
knowledge about the sources from which data can be collected. Along with this, it has also made
me aware of the effective methodologies which can be adopted for carrying out research on any
topic under investigation.
The present dissertation has also supported to acquire knowledge about different tools
and techniques of data analysis and their practical applicability. It has also enhanced my
knowledge regarding the applicability of different financial formulas in order to arrive at a valid
conclusion.
26

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29

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
Efficiency Ratios
Net Sales
23775
23949 23303 22294 21102
Total Assets
5,539
16540 12695 12340 11399
30

Total Assets
Turnover Ratio Net Sales/ Total Assets
4.29
1.45 1.84 1.81 1.85
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 2
Ratio analysis of Tesco from 2011-2015
Ratios Formula
2015
2014 2013 2012
2011
Profitabilit
y 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
(Gross
Profit/ Net
(3.87) 6.31 6.31 8.44 8.30
31