Tesco Financial Analysis.docx

FINDINGS AND ANALYSIS

4.1 Presentation of data and Analysis

In this section the financial ratios of the company are presented in the form of tables and graphs.

Four types of financial ratios are calculated. These are profitability ratios, liquidity ratios,

leverage ratios and efficiency ratios.

4.1.1 Profitability Ratios

To analyze the profitability of Sainsbury six ratios are calculated for last five years financial data

of the company. The ratios calculated are Gross profit margin, operating profit margin, net profit

margin, return on shareholder’s equity, return on total assets, and earnings per share. These ratios

are discussed in the following lines.

Gross Profit Margin

Gross profit margin is calculated by dividing gross profit with the total sales and multiplying by

100. Gross profit determines the total profits gained by the company in order to meet the

operating expenses. The gross profit margins of the company calculated for the last five years are

as follows:

Gross Profit Margin£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Gross Profit 1,211 1,160 1,082 5261Sales 22,294 21,102 19,964 64539Gross Profit Margin 5.43 5.50 5.42 8.15

The above table presents the gross profit margin of Sainsbury for the last five years. It suggest

that gross profit margin of Sainsbury has decreased over a period of five years. In year 2007 it

was 6.8 % which decreased to 5.6% in year 2008. In year 2011 the gross profit margin of

Sainsbury was 5.5 %. The graphical representation of the gross profit margins for the five years

is given below:

Gross Profit Margin

012345678

2011 2010 2009 2008 2007

Years

GP

Mar

gin

The comparison of gross profit margin of Sainsbury for the year 2011 with the gross profit

margin of the Tesco for the year 2011 is shown in the following table. It suggests that Sainsbury

is quite behind the industry leader in terms of gross profit margin. The gross profit margin of

Tesco for 2011 was 8.29% whereas gross profit margin of Sainsbury for 2011 was 5.5 %.

The graphical representation of the above table is as follows:

Gross Profit Margin

Sainsbury 5.5

Tesco 8.29

GP Margin

0

2

4

6

8

10

Sainsbury Tesco

Companies

GP

Mar

gin

Operating Profit Margin

Operating profit margin of the company determines the profitability of a company arising from

its operations. Operating profit does mot incorporates interest charges in it. The operating profit

margins of the company calculated for the last five years are as follows:

Operating Profit Margin£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Operating Profit Margin 874 851 710 3985Sales 22,294 21,102 19,964 64539Operating Profit Margin 3.92 4.03 3.56 6.17

The ratios presented in the above table suggest that operating profit margin of the company was

at its minimum value in the year 2008 and in the year 2011 it was at its maximum value. In year

2008 the operating profit margin was 2.97% whereas in the year 2011 it was 4.0%. The decrease

in operating profit margin in the year 2008 can be contributed to the financial crisis. Decreased

gross profit margin has contributed to lower the operating profit margin. The graphical

representation of the operating profit margins for the five years is given below:


0

1

2

3

4

5

2011 2010 2009 2008 2007

Years

Ope

ratin

g Pr

ofit

Mar

gin

The comparison of operating profit margin of Sainsbury for the year 2011 with the operating

profit margin of the Tesco for the year 2011 is shown in the following table. It suggests that

Sainsbury stands behind Tesco in terms of operating profit margin. The operating profit margin

of Tesco for 2011 was 6.35 % and operating profit margin of Sainsbury for the year 2011 was

4.03%.

The graphical representation of the operating profit margin of Tesco and that of Sainsbury is as

follows:


Sainsbury 4.03

Tesco 6.3


01234567

Sainsbury Tesco

Companies

Ope

ratin

g Pr

ofit

Mar

gin

Net profit margin

Net profit margin of a company shows the true profitability in terms of units of money per unit of

sale. If the net profit of a company is less it means that either the prices of products are less or

the cots and expenses are high. The net profit margins of Sainsbury calculated for the last five

years are as follows:

Net Profit Margin£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Net Profit 598 640 585 2814Sales 22,294 21,102 19,964 64539Net Profit Margin 2.68 3.03 2.93 4.36

The net profit margins presented in the above table suggest that in the year 2009 net profit

margin of the company was at its minimum value and in the year 2011 it raised to a maximum

value. In year 2009 the net profit margin was 1.52% whereas in the year 2011 it was 3.03.0%.

The decrease in the net profit margin in the year 2009 can be due to the financial crisis that it all

the businesses of the world. Net profit is calculated by subtracting expenses from operating

margin. The operating margin has decreased in the year 2008, as a result net profit margin also

decreased. The graphical representation of the net profit margins for the five years is given

below:

Net Profit Margin

0

0.51

1.5

22.5

33.5

2010 2010 2009 2008 2007

Years

NP

Mar

gin

The contrast of net profit margin of Sainsbury for the year 2011 with the net profit margin of the

Tesco for the year 2011 is shown in the following table. It is clear that net profit margin of

Sainsbury is less the net profit margin of Tesco. The net profit margin of Tesco for 2011 was

4.38 % whereas net profit margin of Sainsbury for the year 2011 was 3.03%.

Net profit margin

Sainsbury 3.03

Tesco 4.38

The graphical representation of the net profit margins of Tesco and Sainsbury for the year 2011

is given below:

Net Profit Margin

0

1

2

3

4

5

Sainsbury Tesco

Companies

NP M

argi

n

Return on total Assets

Return on total assets is a tool to determine the return on total investment of a company. The

total assets of a company are usually financed by creditors and shareholders. This ratio

determines the output of investment of creditors and shareholders. The returns on total assets of

Sainsbury calculated for the last five years are as follows:

Return on total Assets£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Profit after Taxes 598 640 585 2814Total assets 12340 11399 10855 50781Return on total Assets 4.85 5.61 5.39 5.54

The returns on assets for the last five years show that they were at their value in the year 2009

and at their maximum value in the year 2011. In the year 2009 the return on total assets was at its

minimum value because in this year net profits were at their minimum value. In year 2009 the

return on total assets was 2.88% whereas in the year 2011 it was 5.61. %. The graphical

representation of the return on total assets for the five years is given below:


0

1

2

3

4

5

6

2011 2010 2009 2008 2007

Years

Ret

urn

on T

otal

Ass

ets

The graph shows that return on total assets has decreased in the years 2008 and 2009. This

reason behind it is that in these years net profit margin has also decreased.

The comparison of returns on total assets of Sainsbury and Tesco for the year 2011 is shown in

the above table. Return on total assets of Tesco is less as compared to return on total assets of

Sainsbury. The return on total assets of Tesco for 2011 was 4.64 % whereas return on total assets

of Sainsbury for the year 2011 was 5.61%. The return on assets of Tesco is less because it

employs more assets as compared to Sainsbury and the larger amount in denominator decreases

the return of assets.

The graphical representation of the return on assets of Tesco and Sainsbury for the year 2011 is

as follows:


Sainsbury 5.61

Tesco 4.64

Return on Total Assets

0

1

2

3

4

5

6

Sainsbury TescoCompanies

Retu

rn o

n To

tal A

sset

s

Return on shareholder's equity

Return on shareholder’s equity determines the return on the investment of shareholders of

company. The returns on shareholder’s equity of Sainsbury calculated for the last five years are

as follows:

Return on shareholder's equity£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Profit after Taxes 598 640 585 2814Shareholder's Equity 5629 5424 4966 17801

Return on shareholder's equity 10.62 11.80 11.78 15.81

The returns on shareholder’s equity for the last five years show that year 2009 gives minimum

returns on the shareholder’s equity. The return of shareholder’s equity was at its highest value in

the year 2011. In year 2009 the return on shareholder’s equity was 6.60% whereas in the year

2011 it was 11.79 %. The graphical representation of the return on shareholder’s equity for the

five years is given below:

Return on Shareholder's Equity

02468101214

2011 2010 2009 2008 2007

Years

Ret

urn

on S

hare

hold

er's

Eq

uity

In the years 2008 and 2009 the return on shareholder’s equity has decreased due to low net

profits in these years.

The comparison of returns on shareholder’s equity of Sainsbury and Tesco for the year 2011 is

shown in the table below. Return on shareholder’s equity of Tesco is greater as compared to

return on shareholder’s equity of Sainsbury. The return on shareholder’s equity of Tesco for

2011 was 17.89 % whereas return on shareholder’s equity of Sainsbury for the year 2011 was

11.79%. The return on shareholder’s equity of Tesco is more because its profit after tax is greater

as compared to profit after tax of Sainsbury.


Sainsbury 11.79

Tesco 17.89

The graphical representation of return on shareholder’s equity of Tesco and Sainsbury for the

year 2011 is as follows:


0

5

10

15

20


Retu

rn o

n Sh

areh

olde

r's

Equi

ty

Earnings per share

Earnings per share represent the income available to shareholders for each share invested in the

company. Earnings per share are calculated by dividing earnings available to shareholders with

the number of shares. The earnings per share available to the shareholders of Sainsbury for the

last five years are given in the following table:

Earnings per sharePence Sainsbury Tesco

Year 2012 2011 2010 2012Earnings per share 32 34.4 32.1 36.75

The Earnings per share are at their highest value in year 2011. The year 2009 represents lowest

earnings per share. Earnings per share in year 2009 are low because of the low profits in that

year.

The graphical representation of the Earnings per share of Sainsbury for the five years is given

below:

Earnings per share

0510152025303540

2011 2010 2009 2008 2007

Years

Earn

ings

per

Sha

re

Low earnings per share in the years 2008 and 2009 are due to low net profits in these years.

The comparison of Earnings per share of Sainsbury and those of Tesco for the year 2011 is

shown the table below. Earnings per share of Tesco are lower as compared to Earnings per share

of Sainsbury. The Earnings per share of Tesco for 2011 were 33.1 whereas Earnings per share of

Sainsbury for the year 2011 were 34.4. This implies that investors get more earnings on one

share invested in Sainsbury as compared to earnings on one share invested in Tesco.

The graphical representation Earnings per share of Tesco and those of Sainsbury for the year

2011 is as follows:

Earnings per share

Sainsbury 34.4

Tesco 33.1

Earnings per Share

32

32.5

33

33.5

34

34.5

Sainsbury Tesco

Companies

Earn

ings

per

Sha

re

4.1.2 Liquidity Ratios

Liquidity of an organization measures the tendency of an organization to pay the short term

dents. If a company pays its short tern debts quickly and efficiently, it is said to be having more

liquidity. Three types of ratios are calculated to analyze the liquidity of the company. These are

current ratio, quick ratio and inventory to net working capital. The liquidity ratios of Sainsbury

calculated for the last five years are presented as below:

Current ratio

Current ratio determines the ability of an organization to pay its short term debts with the help of

assets that are converted into cash in a short duration of time. Current ratio is calculated by

dividing current assets by current liabilities. The current ratios of Sainsbury calculated for the

last five years are given in the following table:

Current Ratio£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Current Assets 2032 1708 1797 12863Current Liabilities 3136 2942 2793 19180Current Ratio 0.65 0.58 0.64 0.67

The current ratios of Sainsbury for the last five years show that they are at their lowest value in

year 2009. The year 2007 shows highest current ratio of Sainsbury. The current ratio for the year

2007 was 0.703 and for the year 2011 it was 0.58.

The graphical representation of current ratios of Sainsbury for the five years is given below:

Current Ratio

00.10.20.30.40.50.60.70.8

2011 2010 2009 2008 2007

Years

Cur

rent

Rat

io

In the years 2009 and 2008 current assets of Sainsbury decreased and its current liabilities

increased which contributed in decreasing its current ratio in these years. The next two years are

at better position in terms of current ratio.

The comparison of the current ratio of Sainsbury and that of Tesco is given in the following

table. It shows that current ratio of Sainsbury is lower that that of Tesco. The current ratio of

Sainsbury for the year 2011 was 0.58 and for Tesco it was 0.60. It implies that the Tesco is more

capable of paying its short term debts as compared to Sainsbury.

Current ratio

Sainsbury 0.58

Tesco 0.6

The graphical representation of current ratios of Sainsbury and current ratio of Tesco for the year

2011 is given below:

Current Ratio

0.570.5750.580.5850.590.5950.6

0.605


Cur

rent

Rat

io

Quick ratio

Quick ratio of an organization measures the ability of firm to pay its short term obligations from

current assets other than inventories. The conversion of inventories into cash in short period of

time has some difficulties. Quick assets represent the currents assets of an organization other

than inventories. Quick ratio presents clearer picture of liquidity of an organization. The quick

ratios of Sainsbury calculated for the last five years are given in the following table:

Quick ratio£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Quick Assets 1094 896 1095 9265Current Liabilities 3136 2942 2793 19180Quick ratio 0.35 0.30 0.39 0.48

The quick ratios of Sainsbury for the last five years show that the year 2009 has lowest quick

ratio and the year 2007 has highest quick ratio. Quick ratio in the year 2007 was 0.48 whereas

quick ratio for the year 2009 was 0.301. This suggests that after the financial crisis in 2007, the

company is facing problems in paying its short tern debts.

The graphical representation of quick ratios of Sainsbury for the five years is given below:

Quick Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

2011 2010 2009 2008 2007

Years

Qui

ck R

atio

In the years 2009 quick assets of the company decreased from 929m to 881m. This decreased in

quick assets contributed in the low quick ratio in the year 2009. In the next year quick assets

increased and contributed to raise the quick ratio.

The comparison of the quick ratio of Sainsbury and that of Tesco is given in the following table.

It shows that quick ratio of Sainsbury is lower that that of Tesco. The quick ratio of Sainsbury

for the year 2011 was 0.30 and for Tesco it was 0.40. It implies that the Tesco is more capable of

paying its short term debts out of its quick assets as compared to Sainsbury.

Quick ratio

Sainsbury 0.3

Tesco 0.4

The graphical representation of quick ratios of Sainsbury and current ratio of Tesco for the year


Quick Ratio

00.050.10.150.20.250.30.350.40.45

Sainsbury Tesco

Quick Ratio

Qui

ck R

atio

Inventory to net working capital

“Inventory to net working capital” of an organization measures the degree to which working

capital of the organization is occupied by the inventory. Working capital determines the short

term financial condition of an organization. It is calculated by subtracting current liabilities from

current assets. If the working capital of an organization is positive it means that company can

pay its short term liabilities out of its current assets. A firm having negative working capital is

unable to pay its short term debts out of its current assets. Inventory to net working capital ratio

of a company determines the extent to which inventory hold the working capital. Inventory to net

working capital ratio of Sainsbury calculated for the last five years is given in the following

table:

Inventory to net working capital£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Inventory 938 812 702 689

Net Working Capital-1104

-1234 -996 -1349

Inventory to net working capital -0.85 -0.66-0.70 -0.51

The graphical representation of Inventory to net working capital of Sainsbury for the five years is

given below:

Inventory to net working capital

-0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0

2011

2010

2009

2008

2007

Year

s

Inventory to Net Working Capital

The “Inventory to net working capital” of Sainsbury for the last five years shows that the year

2009 has highest Inventory to net working capital ratio and the year 2007 has lowest Inventory to

net working capital ratio. In the year 2007 Inventory to net working capital ratio was - 0.73

whereas Inventory to net working capital ratio for the year 2009 was -0.51. After the financial

crisis company is seriously facing problems of liquidity.

The graphical representation of Inventory to net working capital ratios of Sainsbury for the five

years is given below:

4.1.3 Leverage Ratios

Leverage ratios of organizations assess their financing feasibility. They determine the ability of

organizations to pay their financial liabilities. To assess the ability of Sainsbury in paying its

financial obligations, three types of ratios are calculated. These are: Debt-to-assets ratio, Debt-to-

equity ratio, and Times-interest-earned. The explanation of the ratios is given below:

Debt-to-assets ratio

Debt to assets ratio of an organization determines the extent to which assets of an organization

are financed by the debt. It is calculated by dividing long term liabilities or organization by total

assets. A lower debt to asset ratio suggests that assets are financed by the debt to a lower extent.

A higher debt ratio higher suggests that most of the assets are financed by the long term

liabilities. Debt to total assets ratio of Sainsbury calculated for the last five years is given in the

following table:

Debt-to-assets ratio£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Total Debt 5957 5957 5889 5657

Total Assets 12340 11399 10855 10033Debt-to-assets ratio 0.48 0.52 0.54 0.56

The above table presents a clear picture about the financing of total assets of Sainsbury. In the

year 2009 the debt to total assets ratio is highest as compared to the other years. Year 2008

presents lowest debt to total assets ratio of Sainsbury. In the year 2008 it is 0.512 whereas in the

year 2009 it is 0.563. It implies that in year 2009 assets of Sainsbury were mostly financed by

long term liabilities. The graphical representation of debt to total assets ratio of Sainsbury for the

last five years is given below:


48

50

52

54

56

58

2011 2010 2009 2008 2007

Years

Deb

t to

Ass

et R

atio

In the year 2009 the debt of the company increased and its total assets decreased. This has raised

he debt to assets ratio of the company in year 2009. In the next year the total assets of the

company increased and as a result its debt to equity ratio decreased.

The following table shows the comparison of debt to total assets ratio of Sainsbury and Tesco for

the year 2011. It suggests that Debt to total assets ratio of Sainsbury is lower as compared to

Tesco. Debt to assets ratio of Sainsbury is 52.24 and for Tesco it is 65.4. It implies that in Tesco

most of the assets are financed by long term liabilities.


Sainsbury 52.24

Tesco 65.4

The graphical representation of debt to assets ratio of Sainsbury and Tesco for the year is 2011 is

given below:

Debt to Asset Ratio

010

2030

40

5060

70

Sainsbury Tesco

Companies

Debt

to A

sset

Rat

io

Debt-to-equity ratio

Debt to equity ratio of an organization determines the extent of leverage of organization. It

contrasts the funds provided by the creditors and the funds provided by the investors of the

organization. It is calculated by dividing total debt by the equity of organization. A higher debt to

equity ratio suggests high leverage of the organization whereas a lower debt to equity ratio

suggests lower leverage of the organization. Debt to equity ratio of Sainsbury calculated for the

last five years is given in the following table:

Debt-to-equity ratio£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Total Debt 5957 5957 5889 5657Total Shareholder's Equity 5629 5424 4966 4376Debt-to-equity ratio 1.06 1.10 1.19 1.29

The above table presents a clear picture about the leverage of Sainsbury. In the year 2009 the

organization is highly leveraged having debt to equity ratio of 1.29. In the year 2008 the

organization is having lowest debt to equity ratio i.e. 1.04. The graphical representation of the

debt to equity ratio of organization is as follows:


0

0.20.4

0.6

0.81

1.21.4

2011 2010 2009 2008 2007

Years

Debt

to E

quity

Rat

io

In the year 2009 debt of the company increased and as a result debt to equity ratio of the

company increased.

Debt to equity ratio of Sainsbury and Tesco for the year 2011 is compared in the following table.

It shows that debt to equity ratio of Tesco is higher as compared to debt to equity ratio of

Sainsbury. It implies that Tesco is highly leveraged as compared to Sainsbury.


Sainsbury 1.098

Tesco 1.87

The graphical representation of debt to equity ratio of Sainsbury and Tesco for the year is 2011 is

given below:

Debt to Equity Ratio

0

0.5

1

1.5

2

Sainsbury Tesco

Companies

Debt

to E

quity

Rat

io

Times-interest-earned

Times interest earned ratio determines the extent to which an organization can pay the financing

cost out of its capital. It determines that for how many times an organization can pay the interest

out of profits earned during a period. It is calculated by dividing profits before interests and taxes

by the total interest charges. Times interest earned ratio calculated for the last five years of

Sainsbury is given in the following table:

Times-interest-earned£ millions Sainsbury Tesco

Year2012

2011

2010 2009

Profit Before interests and Taxes 937 943 881 614Total Interest Charges 138 116 148 148Times-interest-earned 6.79 8.13 5.95 4.15

The table suggests that in the year 2000 the ratio is highest and in the year 2009 it is lowest. In

the year 2011 times interest earned ratio of Sainsbury was 4 and in the year 2011 it was 8. It

means that in 2011 Sainsbury can pay the interest 8 times out of its profits and in year 2008 it

can pay interest 4 times. The graphical representation of the results is as follows:


0

2

4

6

8

10

2011 2010 2009 2008 2007

Years

Tim

es In

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st E

arne

d

The following table contrasts the times interest earned ratio of Tesco and Sainsbury for the year

2011. It suggests that Tesco can pay 19 times interest out of its profits whereas Sainsbury can

pay 8 times interest out of its capital. It means that Tesco has more than double times earned

interest ratio than that of Sainsbury.


Sainsbury 8.13

Tesco 19.7

The graphical representation of times interest earned ratio of Sainsbury and Tesco for the year is


Times Interest Earned

0

5

10

15

20

25

Sainsbury Tesco

Companies

Tim

es In

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arne

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4.1.4 Activity Ratios

Activity ratios determine the tendency of an organization to which it transforms different kinds

of accounts into cash or sales. If organizations convert the accounts into sales or cash in less

lime, they are said to be efficient in their processes. Commonly used activity ratios include

inventory turnover, fixed assets turnover, total assets turnover, accounts receivable turnover and

average collection period. To analyze the efficiency of Sainsbury following types of activity

ratios are calculated:

Inventory turnover

Inventory turnover measures the tendency of a company to which a company replenishes the

stock of goods. It is calculated by dividing sales with inventory. High ratio means that the

company replenishes its stock quickly. The inventory turnover of Sainsbury calculated for the alt

five years is given below:

Inventory turnover£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Sales 22294 21102 19964 19964

Inventory 938 812 702 702Inventory turnover 23.77 25.99 28.44 28.44

The table suggests that in the year 2007 inventory turnover of the company was highest i.e. 29

times. It means that in year 2007 Sainsbury used to replenish its stock 29 times in one year. After

2007 the inventory turnover of company gradually reduced. It means that the activity level of

Sainsbury slowed down after 2007. In 2011 inventory turnover of the company was 25 times.

The graphical representation of the inventory turnover of Sainsbury for the last five years is as

follows:

Inventory turnover

24

25

26

27

28

29

30

2011 2010 2009 2008 2007

Years

Inve

ntor

y Tu

nove

r

The following table shows the comparison of inventory turnover of Tesco and Sainsbury for the

year 2011. The inventory turnover of Sainsbury for the year 2011 was 2 times and that of Tesco

was 17 times. It means Tesco replenishes its stock with slow speed as compared to Sainsbury.

The graphical representation of inventory turnover of Sainsbury and Tesco for the year is 2011 is

given below:

Inventory turnover

Sainsbury 25.98

Tesco 17.7

Inventory Turnover

0

5

10

15

20

25

30

Sainsbury Tesco

Companies

Inve

ntor

y Tu

rnov

er

Fixed assets turnover

The fixed asset turnover measures the tendency to which fixed assets of company are used to

produce the inventory. It is calculated by dividing sales with fixed assets. Higher fixed assets

turnover suggest that company uses its fixed assets to a great extent to produce sales. Fixed

assets turnover of Sainsbury calculated for the last five years is as follows:

Fixed assets turnover£ millions Sainsbury Tesco

Year 2012 2011 2010 2012Sales 22294 21102 19964 19964

Fixed assets 10308 9678 9002 9002Fixed assets turnover 2.16 2.18 2.22 2.22

In the year 2011 fixed asset turnover of Sainsbury was 2.1 times. In 2007 fixed asset turnover of

the company was 2.2 times. It suggests that through a period of five years fixed asset turnover of

Sainsbury has not undergone to large changes. It also implies that the fixed assets of the

company are used with a constant speed to produce goods. The graphical representation of fixed

asset turnover of Sainsbury for last five years is given below:


2.05

2.1

2.15

2.2

2.25

2.3

2011 2010 2009 2008 2007

Years

Fixe

d As

set T

urno

ver

The comparison of fixed asset turnover of Tesco and Sainsbury year 2011 is given in the

following table. In year 2011 the fixed asset turnover of Tesco was 2.5 times and for Sainsbury it

was 2.18 times. The utilization of fixed assets of both companies for the production of goods is

approximately equal.


Sainsbury 2.18

Tesco 2.5

The graphical representation of fixed asset turnover of Sainsbury and Tesco for the year is 2011

is given below:

Fixed Asset Turnover

2

2.1

2.2

2.3

2.4

2.5

2.6

Sainsbury Tesco

Companies

Fixe

d As

set T

urno

ver

Total assets turnover

Total asset turnover of a company measures the extent of utilization of assets of company. It

determines the level to which the total assets of the company are utilized to produce goods. A

higher level total asset turnover suggests that the assets of the company are utilized to optimal

level for the production of goods whereas a lower total asset turnover suggests that assets are not

utilized to their optimal level. The total assets turnover of Sainsbury calculated for a period of

last five years is given in the following table:

Total assets turnover£ millions Sainsbury Tesco

Year 2012 2011 2010 2009Sales 22294 21102 19964 18911

Total assets 12340 11399 10855 10033Total assets turnover 1.81 1.85 1.84 1.88

In year 2007 the total asset turnover of Sainsbury was 1.79 times and in the year 2011 it became

1.85 times. This shows that the utilization of total assets of the organization has improved to

some extent. In year 2008 the ratio decreased from 1.79 to 1.76 which was due to the effects of

financial crisis on the economy. The graphical representation of total asset turnover of Sainsbury

calculated for the last five years is given below:


1.7

1.75

1.8

1.85

1.9

2011 2010 2009 2008 2007

Years

Tota

l Ass

et T

urno

ver

The following table compares the total assets turnover of Tesco and Sainsbury for the year 2011.

It shows that for the year 2011 the ratio was higher for Sainsbury. Total asset turnover of

Sainsbury was 1.85 whereas for Tesco it was 1.3. It means that in Sainsbury has utilized its all

assets to the optimal level as compared to Tesco.


Sainsbury 1.85

Tesco 1.3

The graphical representation of total asset turnover of Sainsbury and Tesco for the year is 2011 is

given below:

Total Asset Turnover

0

0.5

1

1.5

2

Sainsbury Tesco

Companies

Tota

l Ass

et T

urno

ver

Accounts receivable turnover

Accounts receivable turnover determines the number of times receivables are collected from

trade debtors in one year. Accounts receivable turnover of Sainsbury for the last five years is

given in the following table:

Accounts receivable turnover£ millions Sainsbury Tesco

Year 2012 2011 2010 2009Annual Credit Sales 22294 21102 19964 18911Accounts Receivable 286 343 215 195

Accounts receivable turnover 77.95 61.52 92.86 96.98

The above table suggests that lat five years have shown a variation in the accounts receivable

turnover. IN the year 2007 it was 87 times which means that Sainsbury used to collect from its

accounts receivables 87times in one year. In the next year the ratio decreased to 86 times. This

was probably due to impact of financial crisis on the economy. The next two years have shown a

rise in this ratio. In year 2011 accounts receivable turnover dropped to 61 times which was

basically due to large amount of account receivables of the company in that year. The graphical

representation of the accounts receivable turnover of Sainsbury for the last five years is given

below:


0

20

40

60

80

100

120

2011 2010 2009 2008 2007

Years

Acco

unts

Rec

ieva

ble

Turn

over

The following table presents accounts receivable turnover of Sainsbury and Tesco for the year

2011. It suggests that Accounts receivable turnover of Sainsbury was very high as compared to

that of Tesco. For Tesco it was 12.8 and for Sainsbury it was 61 times. It means that Sainsbury

collects accounts receivables in short duration of time as compared to Tesco.


Sainsbury 61

Tesco 12.8

The graphical representation of accounts receivable turnover of Sainsbury and Tesco for the year

is 2011 is given below:

Accounts Recievable Turnover

0

1020

30

4050

6070

Sainsbury Tesco

Companies

Acco

unts

Rec

ieva

ble

Turn

over

Average collection period

Average collection period of an organization represents the length of time for which its accounts

receivables are converted into cash. Average collection period of Sainsbury for the last five years

is given in the following table:

Average collection periodDays Sainsbury Tesco

Year 2012 2011 2010 2012Accounts Receivable 286 343 215 195Sales 22294 21102 19964 18911Average collection period 4.68 5.93 3.93 3.76

The above table suggests that the average collection period of Sainsbury has increased during the

last five years. In year 2007 it took four days to collect receivables from trade debtors. In year

2011 it took 5 days to collect receivables from accounts receivables. The graphical representation

of the ratio is as follows:

Average collection period

0

12

3

45

67

2011 2010 2009 2008 2007

Years

Aver

age

Colle

ctio

n Pe

riod

The following table compares the average collection period of Tesco and Sainsbury for the year

2011. It suggests that average collection time period for Sainsbury was 6 days in year 2011 and

for Tesco it was 28 days. This big difference points out towards accounts receivable turnover of

both organizations.

Average collection period (Days)

Sainsbury 6

Tesco 28

The graphical representation of average collection period of Sainsbury and Tesco for the year is


Average Collection Period

0

5

10

15

20

25

30

Sainsbury Tesco

Companies

Aver

age

Colle

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Documents

Tesco Financial Analysis.docx