The aim of the report is to examine and analyse the financial results, performance, and investment potential in 2018 and 2019 of two leading companies in the British retail market. The two companies are Sainsbury's and Tesco. The analysis is based on the source of the ratio analysis, in which the C...
,Table of Contents
Portfolio 1............................................................................................................................... 3
Introduction......................................................................................................................... 3
Sainsbury’s & Tesco overview............................................................................................3
Ratios: 2018-2019 Tesco & Sainsbury................................................................................3
Current Ratio................................................................................................................... 3
Acid test ratio (Quick ratio)..............................................................................................4
Gross profit margin..........................................................................................................5
Net profit margin.............................................................................................................. 5
Earning per share (EPS) & Price-to-earnings (P/E) ratio.................................................6
Return on capital employed (ROCE) & Average inventories turnover period
(AITP)Ratios....................................................................................................................7
Gearing & Dividend pay-out ratio (DPR)..........................................................................8
Limitations of relying on financial ratios to interpret a company’s performance...................9
Recommendations on how the financial performance of the poorly performing business
can be improved................................................................................................................. 9
Conclusion........................................................................................................................ 10
Portofolio 2........................................................................................................................... 10
Solution............................................................................................................................. 10
Limitations of investment appraisal techniques in the long term decision making.............11
APPENDIX........................................................................................................................... 12
...................................................................................................................................... 12
...................................................................................................................................... 13
...................................................................................................................................... 17
Reference list....................................................................................................................... 20
Managerial Finance
, Portfolio 1 & 2
Portfolio 1
Introduction
According to Business Encyclopedia (2020), the combination of the cash flow
statement, the income statement and the balance sheet is a financial statement. All
three together offer a description of the company's wellbeing. Jim Woodruff (2018),
claims, that the evaluation of companies' financial statements is the key in assessing
the company's overall success and make better investment decisions. (Jim
Woodruff, 2018) There are numerous financial instruments for analysing organisation
financial statements, ratio analysis is one of the most widely utilised financial
instrument to evaluate the financial statement. (Andrew Bloomenthal, 2020)
Moreover, the same author states that ratio analysis is a process by which the
results of an organisation in a single year can be calculated and contrasted with
previous years' results, and with other firms from the same industry. The aim of the
report is to examine and analyse the financial results, performance, and investment
potential in 2018 and 2019 of two leading companies in the British retail market. The
two companies are Sainsbury's and Tesco. The analysis is based on the source of
the ratio analysis, in which the Current ratio, P/E ratio, Quick ratio, Earnings per
share, Net Profit Margin, Return on capital employed, Gross Profit margin, Average
inventories turnover period, Gearing ratios, Dividend pay-out ratio, will be utilized in
comparing both companies performance. Secondly, recommendations will be
provided for the poorly performing business. Lastly, the limitations of financial ratios
in determining a company performance will be discussed.
Sainsbury’s & Tesco overview
According to Daniela Coppola (2020), Sainsbury's headquarter in London and is the
second biggest store in the UK, behind Tesco, Morrisons, and Asda. It is one of the
"big four" food distributors. Sainsbury was founded in 1869 by John James
Sainsbury with a store on Drury Lane, London. Sainsbury ranges food, clothes,
household appliances, electrical products etc. (Sainsbury, 2019)
According to Tesco (2019), Tesco PLC, was founded in 1919 by Jack Cohen, and is
a British food and goods retailer, which runs internationally and is based
Hertfordshire, England. Besides Sainsbury, as Tugba Sabanoglu (2020) claims,
Tesco is also involved in general merchandise and foodstuffs. Being also one of "Big
Four" supermarkets alongside Asda, Sainsbury and Morrisons, with a share of over
25 percent of the market, positioned as the leading grocery retailer. Tesco is not only
one of Britain's most successful brands; but since 2016, is the 15th-largest
supermarket brand in the world. Daniela Coppola (2020), states, that Tesco has
7005 stores with 420.000 employees worldwide.
Ratios: 2018-2019 Tesco & Sainsbury
Current Ratio
The current ratio is used to calculate if a corporation has enough cash to pay its
obligations when they are due. Current ratio = Current assets / Current liabilities.
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