Managing Finance Final

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I. Executive Summary

The report is intended to assess the financial performance of two well-known

companies in the retail sector of the United Kingdom. The two firms are Sainsburys

and Tesco. This report shows the comparison between the two companies in 2011,

2012, and 2013. The analysis is established on the source of the ratio analysis, in

which the profitability ratios, liquidity ratios, efficiency ratios, gearing ratios, cash

flow ratios and Z-score analysis have been utilized.

The profitability ratios are used to compare in the two companies, in terms of net

profit margin, gross profit margin, return on equity and return on capital employed. It

has been found that Sainsburys is performing better than Tesco.

The liquidity ratios include the current ratio and quick ratio, during the analysis. It is

shown that Tesco outperformed Sainsburys in term of transforming assets into cash

and having sufficient short-term assets to cover immediate liabilities without selling

inventory.

The cash flow ratio includes the cash flow adequacy and quality of profits. This ratio

suggests that Sainsburys was in a better position, in which the organization had more

effective ability to meet its obligations and the capability to generate profit in form of

cash, compared to Tesco.

Regarding their Z score, Sainsburys had a better trend that is not likely to bankrupt

while Tesco had a trend that is likely to go bankrupt. Therefore, the old and new

investors and shareholders have impressed with Sainsburys other than Tesco.

Hence, it can be generalized that Sainsburys businesses and operations were more

effective and efficient than Tescos, except liquidity analysis, in the last three years.

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Table of Content

Executive Summary1

Introduction

Objective...3

Research Methodology..3-4

Communication and Information Technology.4

Finding Analysis and Interpretation

Profitability Ratios. ...4-7

Liquidity Ratios..7-9

Efficiency Ratios..9-11

Gearing Ratios11-12

Cash Flow Analysis12-14

Z-Score14-15

Study Identified16

Usefulness16

Conclusion and Recommendation16

Reflection....17

References.18-19

Appendices

Appendix 1.20-22

Appendix 2.23-27

Appendix 3.28-32

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II. Introduction

In United Kingdom, the retail sector is essential for the country economy, which has

profound impacts on the country as a whole. According to ESRC (2013), 20% of

United Kingdoms GDP is accounted by the retail sector. Particularly, Sainsburys

and ASDA are the two of renowned companies in the retail sector. This report deals

with the assessment of both companies performances in the last three years based on

ratio analysis.

To begin with, Sainsburys is one of the leading retail stores in the UK dealing with

general goods and groceries. Sainsburys was founded in 1869 by John James

Sainsbury and his wife, Mary Ann Sainsbury, in London. Since 1869, the company

has been expanded to 523 convenience stores and 583 supermarkets in the UK; more

importantly, Sainsburys has employed around 157,000 employees. The management

team of Sainsburys is run by three important people who are Mr. David Tyler, the

chairman, Mr. Justin King, the CEO, and Mr. John Roger, the CFO (J Sainsburys

PLC, 2014).

Besides Sainsburys, Tesco is a famous British multinational retailer which also deals

with general merchandise and groceries. Jack Cohen founded Tesco in 1919. Tesco

has been operating for almost 100 years, and it has expanded more branches

domestically and internationally. Regarding employment, Tesco has recruited almost

530,000 employees who are committed to the provision of best shopping experience

for their consumer and community as a whole (Tesco PLC, 2014).

Objectives

This report purposes to have a comprehensive evaluation over the business

performance and day-to-day operations; thus, the main objectives of this report are:

assess how they can outperform distinctively one another.

To give recommendation for both companies to have positive changes and attention

in their food supply chain.

Research Methodology

This report will assess performances of the two companies by using ratio analysis. To

be able to conduct this study, financial information, annual report, of both companies

will be utilized, extracted and calculated. The outcome of this report will be presented

in pounds currency.

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Format of answer:

1. Profitability Ratios in percentage

2. Liquidity Ratios

3. Efficiency Ratios for inventory turnover (days), and asset turnover (times)

4. Gearing Ratios

5. Cash Flow analysis

6. Z Score analysis

III. Communication and Information Technology

The application Microsoft word and Microsoft excel are crucial for this report. The

compilation of this report is done through Microsoft Word with the assist from

Microsoft Excel. By using Microsoft Excel, it is very beneficial for undertaking

calculation and graph.

In addition, the use of databases from reliable sources like Yahoo Finance and

Companys annual report is absolutely indispensible for this report. It caters a basis of

knowledge to present an acute figure and to allocate the reliable sources to persuade

people.

IV. Findings Analysis and Interpretation

1. Profitability ratios

Profitability ratio indicates the profitability position of the companies. Profitability

ratio will cover the return on capital employed (ROCE), net profit margin (NPM) and

gross profit margin (GPM) (See table 1)

Table 1

TESCO Sainsbury's

PROFITABILTY RATIOS 2011 2012 2013 2011 2012 2013

Return on Equity (%) 15.97% 15.76% 0.74% 11.80% 10.62% 10.71%

Return on Capital Employed

(%) 13.18% 13.72% 11.50% 10.10% 9.68% 9.21%

Net Profit Margin (%) 4.39% 4.39% 0.19% 3.03% 2.68% 2.63%

Gross Profit Margin (%) 8.48% 8.44% 7.07% 5.50% 5.43% 5.48%

Return on Equity

Return on Equity indicates the return that a company makes from shareholders

investment.

Return on Equity (ROE)= (Net Income/ Equity) * 100. (Dyson, 2010)

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Graph 1

The return on equity of Tesco for the last three years decreased sharply; specifically,

in 2013, the company ROE dropped significantly to below 1%. In addition, in 2013,

Sainsburys was able to pick up a slight increase of its return on equity compared to

the decrease in 2011 and 2012. By this, it can be implied that Tescos shareholders

may have loss their confidence over their investment, while shareholders of

Sainsburys had more confidence over their investment.


Return on Capital Employed is used to indicate how well an organization uses its

long-term investments to generate income. The ROCE ratio can help the company to

succeed its future profitability, so this can measure the companys success or failure,

which depends on its target ROCE that it has set (McLaney and Atrill, 2012)

Return on Capital Employed= (PBIT/ Capital Employed) * 100. (Dyson, 2010)

Graph 2

2011 2012 2013

Sainbury's 11.80% 10.62% 10.71%

TESCO 15.97% 15.76% 0.74%

0.00%

5.00%

10.00%

15.00%

20.00%ROE

2011 2012 2013

Sainbury's 10.10% 9.68% 9.21%

TESCO 13.18% 13.72% 11.50%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

ROCE

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Due to the greater market share, Tesco had a better performance compared to

Sainsburys in the last three year. Regardless the increase of Tescos ROCE in 2012,

Tesco was seen not be able to stabilize its ROCE while Sainsburys performed

equally well to alleviate its profit every year. Overall, it can be understood,

Sainsburys was able to use its long-term investments effectively to generate more

income compared to Tesco.

Net Profit Margin

Net profit margin measures how much out of every pound of sales a company keeps

earning which means that a 4% profit margin of company shows that company has a

net income of 0.04 pound. Net Profit Margin = (Net Income/ Sale Revenue) * 100

Particularly, the below graph illustrates that Tescos profit margin was higher than

Sainsburys in 2011 and 2012. However, between 2012 and 2013, there was a

significant plunge of Tescos profit margin from 4.39% to 0.19%. In addition,

Sainsburys profit margin had declined steadily from 2011 to 2013, respectively from

3.03% to 2.63%. Thus, it can be understood that Sainsburys had a better performance

in term of generating net income compared to Tescos performance for the last three

years.

Graph 3

Gross Profit Margin

The gross profit margin show the earnings of the organization after considering the

cost incurred by the firm in producing goods and services.

Gross Profit Margin (GPM) = (Gross profit/ Sale Revenue) * 100. (Dyson, 2010)

2011 2012 2013

Sainbury's 3.03% 2.68% 2.63%

TESCO 4.39% 4.39% 0.19%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

Net Profit Margin

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Graph 4

Regarding the gross profit margin, it can be evaluated from the graph that from 2011

to 2013, Sainsburys had a better performance. Even though, Tesco had higher

percentage of gross profit margin, but statistically, it shows that the gross profit

margin declined continuously. However, Sainsburys percentage of gross profit

margin was not as good as Tesco, but it can be seen that Sainsburys used to

experience a growth of gross profit margin between 2011 and 2012. As a result, while

Sainsburys was experiencing its turning point to growth after a small drop in 2012, it

still managed to perform better in 2013.

2. Liquidity Ratio

Liquidity Ratio is a ratio that indicates the ability of an organization to meet the short-

term liabilities (Dyson, 2010). It describes how fast an organization can convert their

assets into cash in order to meet the debt. According to Siddiquie (2006), there are

two types of ratios, which are current ratio and quick ratio or acid test ratio.

Table 2

2011 2012 2013

Sainbury's 5.50% 5.43% 5.48%

TESCO 8.48% 8.44% 7.07%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

Gross Profit Margin

TESCO Sainsbury's

LIQUIDITY RATIOS 2011 2012 2013 2011 2012 2013

Current Ratio 64.51% 64.17% 65.66% 58.50% 64.80% 61.44%

Acid/Quick Ratio 48.68% 45.48% 45.94% 30.90% 34.89% 29.76%

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Current Ratio

The current ratio signifies the capabilities of the company to transform its assets into

cash (McLaney and Atrill, 2012).

Current Ratio = Current Assets/ Current liabilities. (Dyson, 2010)

Graph 5

In term of the ability to convert assets into cash, it can be seen that Tesco performed

better between 2011 and 2012. In detail, Tesco had experienced a decrease in between

2011 and 2012; positively, the company was able to increase its current ratio back in

2012 to 2013. However, for Sainsburys from 2011 to 2012, there was a sharp

increase of the company current ratio, which signifies how the ability of the company

to transformer its asset into cash. Holistically, both companies current ratio had

experienced an increase for the last year. In nutshell, it can be understood that both

companies performed well in term of converting their assets into cash, but Tesco was

the outstanding one.

Acid Test Ratio

Acid test ratio or quick ratio is an indicator that defines whether a company has

sufficient short-term assets to cover its immediate liabilities without selling inventory.

Acid test ratio = (Current assets Inventories) / Current liabilities. (Dyson, 2010)

Graph 6

2011 2012 2013

Sainsbury's 58.50% 64.80% 61.44%

TESCO 64.51% 64.17% 65.66%

54.00%

56.00%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

Current Ratio

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Referring to the graph above, it can be evaluated that Tesco was in better position

compared to Sainsburys, which denotes that Tesco had enough short-term asset and

did not need to sell its inventory to cover the immediate liabilities. Conversely,

holistically, from 2011 to 2013, both companies had a slight decrease in their quick

ratio.

3. Efficiency Ratio

The efficiency ratio is a ratio that helps firms to understand how efficient their

company is in term of utilizing their assets, and also, it helps explaining how well the

company is managed with the assets. Interestingly, the efficiency ratio is divided into

two types which are inventory turnover days and asset turnover day (Mayes and

Shank, 2011).

Table 3

Inventory Turnover

2011 2012 2013

Sainsbury's 30.90% 34.89% 29.76%

TESCO 46.68% 45.48% 45.94%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Quick Ratio

TESCO Sainsburys

EFFICIENCY RATIOS 2011 2012 2013 2011 2012 2013

Inventory Turnover 21 22 22 15 16 16

Asset Turnover 1.28 1.26 1.29 1.85 1.81 1.84

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The inventory turnover is measured by days, which explains the duration that needed

to transform the companys inventories into sales. In this regards, the less number of

the days, the better performance of the firm is.

Inventory Turnover (days) = (Inventory / Cost of sales) * 365 (Dyson, 2010)

Graph 7

In particular, the graph shows that in the last three years Sainsburys could be able to

convert its inventories into cash within only 15 to 16 days. Conversely, in the last

three years, Tesco took longer time to transform its inventory into cash, which it took

around 21 to 23 days. As a result, Sainsburys performed very well on its inventory

management which allowed Sainsburys to be in a better position in term of inventory

management compared to Tesco.

Assets Turnover

The assets turnover ratio is used to define how well the company deploys its assets.

The amount of sales or revenues generated per pound of assets. Generally, the higher

the ratio, the better it is, since it denotes that company is making more revenues per

pound of asset (McLaney and Atrill, 2012). The given figure describes that

Sainsburys ability to utilize its assets was more effective than Tescos. Both

companies assets turnover ratios were fairly consistent for the last three years, which

was good for the two companies, but Sainsburys was the exceptional one.

Asset Turnover = Sale revenue / Total assets (Dyson, 2010)

Graph 8

2011 2012 2013

Sainsburys 15 16 16

TESCO 21 22 22

0

5

10

15

20

25

Inventory Turnover

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4. Gearing Ratio

Gearing ratio is a financial ratio that measures the financial leverage, signifying the

degree to which a firm's activities are funded by owner's funds versus creditor's funds

(McLaney and Atrill, 2012). In this case, the higher a company's degree of leverage,

the more the company is considered to be risky because the company must continue

to service its debt regardless of how bad its sales are. In this context, there are two

ratios is to be considered, the gearing ratio and the interest cover.

Table 4

TESCO Sainsbury's

GEARING RATIOS 2011 2012 2013 2011 2012 2013

Gearing ratio (%) 60% 57% 62% 52% 54% 53%

Interest cover 7.46 9.25 6.91 7.36 7.07 6.78

Gearing Ratio

Gearing Ration = Long term Debt + Preference Shares / Equity * 100 (Dyson, 2010)

Graph 9

In

2011 2012 2013

Sainsburys 1.85 1.81 1.84

TESCO 1.28 1.26 1.29

0.00

0.50

1.00

1.50

2.00

Asset Turnover

2011 2012 2013

Sainsbury's 52% 54% 53%

TESCO 60% 57% 62%

45%

50%

55%

60%

65%

Gearing Ratio

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term of gearing ratio, the graph shows that Sainsburys had lower percentage than

Tesco in the last three years, which denotes that Tesco was considered to be more

risky. Between 2011 and 2013, Tescos gearing ratio was higher than Sainsburys by

almost 10%, which signified that Sainsburys was in a better position regarding the

financial leverage.

Interest Cover

The interest cover measures the amount of availability of operating profit for covering

interest payable (McLaney and Atrill, 2012). Also, Mclaney and Atrill (2012) stated

that the lower level of operating profit coverage, the higher the risk to lender and

shareholder.

Interest Cover = Operating profit / Interest Expense. (Dyson, 2010)

Graph 10

According to the graph, it can be seen that Sainsburys had the lower rate of interest

cover from years to years compared to Tesco. For Tesco, positively in 2012, there was

a significant remark that the companys interest cover was around 2 times higher than

2011. Since Tesco could hardly main its interest cover rate, while Sainsburys could,

Sainsburys is deem to be better position for last three years.

5. Cash Flow Analysis

The capability of an organization to meet the payment obligations and other fixed

expenses is called the cash flow ratio. Mainly, there are two important ratios to be

2011 2012 2013

Sainsbury's 7.36 7.07 6.78

TESCO 7.46 9.25 6.91

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

Interest Cover

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estimated, the cash flow adequacy and quality of profits (Kieso, Weygandt and

Warfield, 2011).

Table 5

TESCO Sainsbury's

Cash Flow ratios 2011 2012 2013 2011 2012 2013

Cash Flow Adequacy 0.24 0.23 0.15 0.29 0.34 0.17

Quality of Profits 1.22 1.16 0.92 1.00 1.20 1.11

Cash-Flow Adequacy

The cash flow adequacy ratio is an indication of the organizations ability to meet its

obligations, such as, dividend payments, payment of debt and capital expenses from

the cash generated from operating activities.

Cash Flow adequacy = Net Cash-Flow from the operating activities / Creditors due

within one year.

Graph 11

Referring to the graph, it shows that Sainsburys performed better than Tesco for the

last three years. Between 2011 and 2012, Sainsburys ability to meet its liabilities

from operating cash was positive, while Tescos cash flow adequacy experienced a

slight reduction. Significantly, between 2012 and 2013, it is noticeable that both

companies, especially Sainsburys, experienced a dramatic fall. However, despite the

a sharp of Sainsburys cash flow adequacy, Sainsburys was still able to operate more

efficient compared to Tesco.

2011 2012 2013

Sainsbury's 0.29 0.34 0.17

TESCO 0.24 0.23 0.15

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Cash Flow Adequacy

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Quality of profit

The quality of profit signifies the amount of profit generated by the organization in

form of cash.

Quality of profit = Net Cash-Flow from the operating activities / Operating profit

Graph 12

The above graph shows that over the last three years, Sainsburys performed better in

term of increasing its net income while it could reduce its operating expense, tax and

interest expense. From 2011 to 2013, Tescos quality of profit declined gradually until

got outperformed by Sainsburys in 2013. To recap, Tescos quality of profit for the

last three years was outperformed by Sainsburys efficiency of surging the net

income.

6. Z-Score Analysis

The Z-score utilizes financial ratios in order to decide the chances of an organization

to get bankrupt. Altman revived Z score in 2000, and he developed the model based

on five financial ratios (McLaney and Atrill, 2012).

The five ratios are symbolized as X1, X2, X3, X4 and X5 and are shown below:

X1 = (Current assets Current liabilities) / Total assets

This compares the size of the company with the amount of liquid assets.

X2 = Retained earnings / Total assets

This estimates the affect of earnings on the profit of the organization.

2011 2012 2013

Sainsbury's 1.00 1.20 1.11

TESCO 1.22 1.16 0.92

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Quality of Profit

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X3 = Profit before Interest and Tax / Total assets

This evaluates the efficiency of the organization regardless of its tax and interest.

X4 = (Market value of the shares X Number of shares) / Total liability

This signifies the instability in the equity.

X5 = Sales / Total assets

This assesses the efficiency of firms regarding the generation of revenue.

The formula for Z score is

Z-score = 0.717X1 + 0.847X2 + 3.107X3 + 0.420X4 + 0.998X5 (Altman, 2000) cited

in (Mclaney and Atrill, 2012).

According to Alman, cited in Mclaney and Atrill (2012), implies that the lower the Z-

score, the higher is the chance of failure; particularly, a company whose score is

below 1.23 tends to fail. Meanwhile, a company whose Z score is greater than 4.41

tends not to fail.

Table 6

TESCO Sainsbury's

Z-Score 2011 2012 2013 2011 2012 2013

Z-score 1.63 1.61 1.58 2.29 2.25 2.28

Specifically, the graph below shows that Tescos Z-score decreased over for the last

three years, which implies that the company has higher chance to go bankrupt even

though the Z score did not go below 1.23. Sainsburys, however, was perceived to

perform better in the last three years. This can draw the implication that Sainsburys is

not likely go to bankrupt compared to Tesco.

Graph 13

2011 2012 2013

Sainsbury's 2.29 2.25 2.28

TESCO 1.63 1.61 1.58

0.00

0.50

1.00

1.50

2.00

2.50

Z Score

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Study Identified

Generally, through 2011 until 2013, Sainsburys performances outweighed and

outperformed Tescos performances in most areas except liquidity. First of all,

Sainsburys had a better position in term of effectiveness of profitability. Secondly,

Sainsburys efficiency ratio is more efficient that Tescos. Thirdly, and lastly, it had a

better capability of paying back to suppliers in the gearing ratio, and the very

predictably survival Z score over Tesco through all years.

Usefulness

This report provides benefit to shareholders by allowing them to make a better

conclusion through the comparative analysis of financial ratio between Sainsburys

and Tesco. Regarding competitors, they can take advantages of this analysis to enter

into the market and expand market share; yet, suppliers can pay more devotion to the

risk of supply of its product to Tesco and Sainsburys. Also, the two companies can

use the analysis to discovery the critical grounds behind their loss and contributed

factors behind their growth. Last but not least, financial institutions can make an

assessment whether or not to grant loans to the companies.

V. Conclusion and Recommendation

To recapitulate, for the last three years, it can be evaluated that Sainsburys

outperformed Tesco in 3 areas of ratios-profitability, efficiency and gearing ratio-and

Z score, except liquidity ratio. To improve the liquidity ratio, Sainsburys should

liquid its cash more effectively in term of the ability of converting assets into cash and

the ability to cover liabilities without selling inventories. Particularly, the companys

current asset, current debt, and inventory have to be assessed and balanced. On the

other hand, Tesco should pay more attention on most of the aspects that had affected

the ratios and Z score, especially.

For further research, each companys cost of sale that is not cost effective and

operative should be taken into consideration to define why the cost of sale is not

effective; hence, it provides fewer opportunities for new entrants.

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VI. Reflection

After having been through the whole terms, Managing Finance is one of the

interesting subjects that caught my attention the most. In the process of the course,

personally, I found that it had several strengths and weaknesses, which need to be

discussed.

To begin with, the vital strength of the course is that it was very relevant to the main

course I was taking. In this regards, the course provides very valuable lessons which

are absolutely practical for students, particularly me. Moreover, it helped showing

how important financial management is and how financial management affects

companies around the world. Particularly, the course helped distinguishing concisely

between financial accounting and management accounting. Personally, I am very

satisfied with the outcomes of this course since it allows me to have obtained a lot of

analytical and critical skills regarding financial analysis.

On the other hand, I found that attendance issue and assessment method were the

main weaknesses of this course. Unlike the UK educational system, my country,

Cambodia, educational system places attendance to be first priority of the course,

since attendance is one of the criteria that evaluates students assessment. Having

been brought up in that educational system, I feel that attendance is very important to

keep track of students. During the course, managing finance, attendance issue and

assessment method were seemed to be related which caused problems. In this regard,

the assessment was based on only one coursework which could be done by just only

studying one chapter or two. By this means, some students took other classes of the

course for granted after they had learnt the first one or two chapters of the course.

Therefore, with problematic of both attendance issue and assessment method, I felt

that it was quite discouraging and demotivating for students.

Besides, the strengths and weaknesses of the course, I would like to give a reflection

toward the coursework. First of all, I deem the coursework to be very analytical,

critical and especially practical. To me, the coursework provides an in-depth

analytical skill, which is very practical for the working environment. Second of all,

particularly, when I tried to collect data and do the calculation, it was a bit

bewildering; but with the determination and efforts, I managed to complete the

calculation and analysis. At the mean time, Microsoft Excel has helped facilitating me

doing the coursework.

Last but not least, the course is considered to be absolutely useful and practical for the

real working environment. I believe that in the future the module can be even more

effective by adding more extra sessions in assignment help as I have found most of

the students had a hardship in doing the calculation, finding figures from the financial

statements, and understanding each financial term.

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VII. References

Dyson, J.R. (2010) Accounting for Non-Accounting Students [online]. Harlow:

Financial Times Prentice Hall. [Accessed 02 March 2014].

Economic and Social Research Council, (2014) ESRC Retail Sector Initiative 2013.

Available from: http://www.esrc.ac.uk/funding-and-guidance/funding-

opportunities/16967/retail-sector-initiative21-aug.aspx [Accessed 10 March 2014].

J Sainsburys (2011) Annual Report and Financial Statements 2011 [Online]. J

Sainsburys plc. Available from:

http://www.jsainsbury.co.uk/media/171813/ar2011_report.pdf [Accessed 07 March

2014].



http://www.jsainsbury.co.uk/media/649393/j_sainsbury_ara_2012.pdf [Accessed 07

March 2014]



http://www.jsainsbury.co.uk/media/1616189/sainsburys_ara.pdf [Accessed 07 March

2014].

J Sainsbury PLC, (2014) History [online]. Available from: http://www.j-

sainsbury.co.uk/about-us/sainsburys-story/ [Accessed 07 March 2014].

Kieso, J., Weygandt, J. and Warfield, T.D. (2011) Intermediate accounting [online].

New Jersey: John Wiley & Sons. [Accessed 10 March 2014].

McLaney, E.J. and Atrill, P. (2012) Accounting: An Introduction [online]. Harlow:

Pearson. [Accessed 07 March 2014].

Mayes, T. and Shank, T. (2011) Financial analysis with Microsoft Excel.

Connecticut: Cengage Learning.

Siddiqui, S.A. (2006) Managerial economics and financial analysis. New Delhi: New

Age International

Tesco (2011) Annual Report 2011 [Online]. Tesco plc. Available from:

http://www.tescoplc.com/media/417/tesco_annual_report_2011.pdf [Accessed 08

March 2014].

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http://www.tescoplc.com/files/pdf/reports/tesco_annual_report_2012.pdf [Accessed

08 March 2014].


http://files.thegroup.net/library/tesco/annualreport2013/pdfs/tesco_annual_report_201

3.pdf [Accessed 08 March 2013].

Tesco PLC, (2014) History [online]. Available from:

http://www.Tescoplc.com/index.asp [Accessed 05 March 2014].

Yahoo Finance, (2013a) Tesco PLC (TSCO.L). Available from:

http://finance.yahoo.com/q/hp?s=TSCO.L+Historical+Prices [Accessed 15 March

2014].

Yahoo Finance, (2013b) Tesco PLC (TSCO.L). Available from:

http://finance.yahoo.com/q/is?s=TSCO.L+Income+Statement&annual [Accessed 15

March 2014].

Yahoo Finance, (2013c) Tesco PLC (TSCO.L). Available from:

http://finance.yahoo.com/q/bs?s=TSCO.L+Balance+Sheet&annual [Accessed 15

March 2014].

Yahoo Finance, (2013d) Tesco PLC (TSCO.L). Available from:

http://finance.yahoo.com/q/cf?s=TSCO.L+Cash+Flow&annual [Accessed 15 March

2014].

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VIII. Appendices

Appendix 1: Ratio Analysis for Sainsburys and Tesco

A. Profitability

B. Liquidity

TESCO Sainsbury's

PROFITABILTY RATIOS 2011 2012 2013 2011 2012 2013

Return on Equity

Net Income 2,655,000 2,806,000 124,000 640,000 598,000 614,000

Shareholder's Equity 16,623,000 17,801,000 16,661,000 5,424,000 5,629,000 5,734,000

Return on Equity (%) 15.97% 15.76% 0.74% 11.80% 10.62% 10.71%


PBIT 3,467,000 3,803,000 3,074,000 854,000 891,000 882,000

Capital employed 26,312,000 27,712,000 26,729,000 8,457,000 9,204,000 9,580,000

Return on Capital Employed (%)

13.18% 13.72% 11.50% 10.10% 9.68% 9.21%

Net profit Margin

Net Income 2,655,000 2,806,000 124,000 640,000 598,000 614,000

Sales Revenue 60,455,000 63,916,000 64,826,000 21,102,000 22,294,000 23,303,000

Net Profit Margin (%) 4.39% 4.39% 0.19% 3.03% 2.68% 2.63%

Gross Profit Margin

Gross Profit 5,125,000 5,397,000 4,089,000 1,160,000 1,211,000 1,277,000

Sales Revenue 60,455,000 63,916,000 64,826,000 21,102,000 22,294,000 23,303,000

Gross Profit Margin (%) 8.48% 8.44% 6.31% 5.50% 5.43% 5.48%

TESCO Sainsbury's

LIQUIDITY RATIOS 2011 2012 2013 2011 2012 2013

Current ratio

Current Assets 11,438,000 12,353,000 12,465,000 1,721,000 2,032,000 1,914,000

Current Liabilities 17,731,000 19,249,000 18,985,000 2,942,000 3,136,000 3,115,000

Current Ratio 64.51% 64.17% 65.66% 58.50% 64.80% 61.44%

Acid/Quick Ratio

Current assets 11,438,000 12,353,000 12,465,000 1,721,000 2,032,000 1,914,000

Inventories 3,162,000 3,598,000 3,744,000 812,000 938,000 987,000


Acid/Quick Ratio 0.47 0.45 0.46 0.31 0.35 0.30

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C. Efficiency Ratio

D. Gearing Ratio

E. Cash Flow

TESCO Sainsbury's

EFFICIENCY RATIOS 2011 2012 2013 2011 2012 2013

Inventory days

Inventory 3,162,000 3,598,000 3,744,000 812,000 938,000 987,000

Cost of sales 55,330,000 58,519,000 60,737,000 19,942,000 21,083,000 22,026,000

Inventory Turnover (Days)

21 22 22 15 16 16

Asset Turnover

Sales Revenue 60,455,000 63,916,000 64,826,000 21,102,000 22,294,000 23,303,000

Total assets 47,206,000 50,781,000 50,129,000 11,399,000 12,340,000 12,695,000

Asset Turnover (Times) 1.28 1.26 1.29 1.85 1.81 1.84

TESCO Sainsbury's

GEARING RATIOS

2011 2012 2013 2011 2012 2013

Gearing ratio

Long term debt 9,595,000 9,777,000 9,946,000 2,285,000 2,494,000 2,482,000

Preferences shares

402,000 402,000 403,000 535,000 538,000 541,000

Equity 16,623,000 17,801,000 16,661,000 5,424,000 5,629,000 5,734,000

Gearing ratio (%) 60% 57% 62% 52% 54% 53%

Interest cover

EBIT 3,467,000 3,803,000 3,074,000 854,000 891,000 882,000

Interest Expense 465,000 411,000 445,000 116,000 126,000 130,000

Interest cover 7.46 9.25 6.91 7.36 7.07 6.78

TESCO Sainsbury's

Cash Flow ratios 2011 2012 2013 2011 2012 2013

Cash Flow Adequacy

Net Cash flow from operating activities

4,239,000 4,408,000 2,837,000 854,000 1,067,000 981,000

Creditors due in one year 17,731,000 19,249,000 18,985,000

2,942,000 3,136,000 5,872,000

Cash Flow Adequacy 0.24 0.23 0.15 0.29 0.34 0.17

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F. Z- Score

Quality of Profits

Net Cash flow from operating activities

4,239,000 4,408,000 2,837,000 854,000 1,067,000 981,000

Operating profit 3,467,000 3,803,000 3,074,000 854,000 891,000 882,000

Quality of Profits 1.22 1.16 0.92 1.00 1.20 1.11

TESCO Sainsbury's

Z-Score 2,011 2,012 2,013 2,011 2,012 2,013

X1

Current Assets 12,039,000 12,863,000 13,096,000 1,721,000 2,032,000 1,914,000


Total assets 47,206,000 50,781,000 50,129,000

11,399,000

12,340,000

12,695,000

X1 -0.12 -0.13 -0.12 -0.11 -0.09 -0.09

X2

Retained earnings

11,171,000 12,164,000 10,535,000 3,374,000 3,715,000 4,060,000

Total assets 47,206,000 50,781,000 50,129,000

11,399,000

12,340,000

12,695,000

X2 0.24 0.24 0.21 0.30 0.30 0.32

X3

Operating Profit 3,467,000 3,803,000 3,074,000 851,000 887,000 887,000

Total assets 47,206,000 50,781,000 50,129,000

11,399,000

12,340,000

12,695,000

X3 0.07 0.07 0.06 0.07 0.07 0.07

X4

Market Capitalization

402,000 402,000 403,000 535,000 538,000 541,000

Total Liability 30,583,000 32,980,000 33,468,000 5,975,000 6,711,000 6,961,000

X4 0.01 0.01 0.01 0.09 0.08 0.08

X5

Sales 60,455,000 63,916,000 64,826,000

21,102,000

22,294,000

23,303,000

Total assets 47,206,000 50,781,000 50,129,000

11,399,000

12,340,000

12,695,000

X5 1.28 1.26 1.29 1.85 1.81 1.84

Z-score 1.63 1.61 1.58 2.29 2.25 2.28

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Appendix 2 : Financial statements of Tesco Plc from 2011 to 2013

Tesco Plc: Income Statement from 2011 to 2013

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Tesco Plc: Balance Sheet from 2011 to 2013

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Tesco Plc: Cash Flow from 2011 to 2013

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Balance sheet of TESCO Plc from 2010 to 2011

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Balance sheet of TESCO Plc from 2012 to 2013.

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Appendix 3 : Financial statements of Sainsburys from 2011 to 2013

Balance Sheet of Sainsburys from 2011 to 2012

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Balance Sheet of Sainsburys from 2012 to 2013

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Sainsburys Balance Sheet 2011-2013

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Sainsburys Income Statement 2011-2013

Sainsburys Cash Flow 2011-2013

Documents

Managing Finance Final