Tesco Analysis
Introduction:
The current economic crisis is raising difficulties for investors who want to gain higher profit through investing the right companies. With the help of ratio analysis, this report will focus on the performances of Tesco and Sainsbury from year 2008 to 2009, making a comparison between Tesco, which is the largest British retailer by both global sales and domestic market share (Wikipedia, 2009), and Sainsbury, which is the third largest chain of supermarkets in UK with a share of the UK supermarket sector of 16.3% (Wikipedia, 2009). This report will be divided into four parts, profitability and returns to investors, liquidity and working capital cycle, capital structure and financing, a conclusion and recommendation, using trend analysis and cross sectional analysis, taking differences in accounting methods and changes in strategy and structure into account.
Profitability and Returns to Investors:
According to the profitability ratio, ROCE for Tesco has decreased from 14.04% to 11.45% within on year. Compared with Sainsbury whose ROCE had increased 2.36%; Tesco seems had less management efficiency than Sainsbury. However, this is mainly due to the big increase of capital employed compared with the small increase of net profit. The capital employed of Tesco has increased 40.8% accompanied with a decrease of 4.7% for Sainsbury, and for net profit, both companies did not have too much digital difference. This increase of capital employed for Tesco is mainly due to the increase amount of property, plant and equipment, because of Tesco’s long-term strategy including international market, which may need more plants and equipments for the expansion of international market but maybe unfortunately, it didn’t utilize assets in 2009 as well as that in 2008. For return on shareholders’ funds, Tesco decreased 1.23% within one year. Profit for this financial year is slightly larger than last year, but there is much more equity shareholders funds than last
The current economic crisis is raising difficulties for investors who want to gain higher profit through investing the right companies. With the help of ratio analysis, this report will focus on the performances of Tesco and Sainsbury from year 2008 to 2009, making a comparison between Tesco, which is the largest British retailer by both global sales and domestic market share (Wikipedia, 2009), and Sainsbury, which is the third largest chain of supermarkets in UK with a share of the UK supermarket sector of 16.3% (Wikipedia, 2009). This report will be divided into four parts, profitability and returns to investors, liquidity and working capital cycle, capital structure and financing, a conclusion and recommendation, using trend analysis and cross sectional analysis, taking differences in accounting methods and changes in strategy and structure into account.
Profitability and Returns to Investors:
According to the profitability ratio, ROCE for Tesco has decreased from 14.04% to 11.45% within on year. Compared with Sainsbury whose ROCE had increased 2.36%; Tesco seems had less management efficiency than Sainsbury. However, this is mainly due to the big increase of capital employed compared with the small increase of net profit. The capital employed of Tesco has increased 40.8% accompanied with a decrease of 4.7% for Sainsbury, and for net profit, both companies did not have too much digital difference. This increase of capital employed for Tesco is mainly due to the increase amount of property, plant and equipment, because of Tesco’s long-term strategy including international market, which may need more plants and equipments for the expansion of international market but maybe unfortunately, it didn’t utilize assets in 2009 as well as that in 2008. For return on shareholders’ funds, Tesco decreased 1.23% within one year. Profit for this financial year is slightly larger than last year, but there is much more equity shareholders funds than last
Bibliography: | |(For the 53 weeks ended 28 February 2009) £m |(For the 52 weeks ended 23 February 2008) £m | |Ratios |Definition |Calculation |Results |Calculation |Results | |Acid test ratio |Current assets-inventories / |(£14045-£2669)/ £18040 |0.63 |(£6300-£2430)/ £10263 |0.38 | | |current liabilities | | | | | |Working capital cycle -----Activity ratios | |Inventory holding |Closing inventories / Cost of|(£2669/£50109)*365 |19.44 days |£(2430/£43668)*365 |20.31 days | |period |sales * 365 days | | | | | |Trade Receivables’ |Trade receivables/ Credit |(£0/£54327)*365 |0 days |(£0/£47298)*365 |0 days | |days |sales * 365 days | | | | | |Trade payable days |Trade payables/ Cost of sales|(£4748/£50109)*365 |34.59 days |(£3936/£43668)*365 |32.90 days | | |Short-term borrowing)/ |borrowings)]/(£32008 -£3995 + | |borrowings)]/( £23864-£3963+ | | | |(Capital employed + |£4059) | |£2084) | | | |(For the 52 weeks ended 21 March 2009) £m |(For the 52 weeks ended 22 March 2008) £m | |Ratios |Definition |Calculation |Results |Calculation |Results | | |employed |assets)-£2919(Net current | |assets)-£2652) (Net current | | | | |liabilities)] | |liabilities)] | |