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.

Page 1 of 32

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

Page 2 of 32

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.

Page 3 of 32

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
PROFITABILTY RATIOS

2011

2012

Sainsbury's
2013

2011

Return on Equity (%)

15.97% 15.76%

Return on Capital Employed

(%)

13.18% 13.72% 11.50% 10.10%

2012

2013

0.74% 11.80% 10.62% 10.71%

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)

Page 4 of 32

Graph 1

ROE

20.00%
15.00%
10.00%
5.00%
0.00%

2011

2012

2013

Sainbury's

11.80%

10.62%

10.71%

TESCO

15.97%

15.76%

0.74%

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
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

ROCE
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

2011

2012

2013

Sainbury's

10.10%

9.68%

9.21%

TESCO

13.18%

13.72%

11.50%

Page 5 of 32

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

Net Profit Margin

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

2011

2012

2013

Sainbury's

3.03%

2.68%

2.63%

TESCO

4.39%

4.39%

0.19%

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)

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Graph 4

Gross Profit Margin

9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%

2011

2012

2013

Sainbury's

5.50%

5.43%

5.48%

TESCO

8.48%

8.44%

7.07%

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 shortterm 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
TESCO
LIQUIDITY RATIOS

Sainsbury's

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%

Page 7 of 32

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

Current Ratio
68.00%
66.00%
64.00%
62.00%
60.00%
58.00%
56.00%
54.00%

2011

2012

2013

Sainsbury's

58.50%

64.80%

61.44%

TESCO

64.51%

64.17%

65.66%

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
Page 8 of 32

Quick Ratio
50.00%
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%

2011

2012

2013

Sainsbury's

30.90%

34.89%

29.76%

TESCO

46.68%

45.48%

45.94%

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

TESCO

Sainsburys

EFFICIENCY RATIOS

2011

2012

2013

2011

2012

2013

Inventory Turnover

21

22

22

15

16

16

1.28

1.26

1.29

1.85

1.81

1.84

Asset Turnover

Inventory Turnover
Page 9 of 32

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

Inventory Turnover
25
20
15
10
5
0

2011

2012

2013

Sainsburys

15

16

16

TESCO

21

22

22

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

Page 10 of 32

Asset Turnover
2.00
1.50
1.00
0.50
0.00

2011

2012

2013

Sainsburys

1.85

1.81

1.84

TESCO

1.28

1.26

1.29

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

Gearing Ratio

In

65%
60%
55%
50%
45%

2011

2012

2013

Sainsbury's

52%

54%

53%

TESCO

60%

57%

62%

Page 11 of 32

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

Interest Cover
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00

2011

2012

2013

Sainsbury's

7.36

7.07

6.78

TESCO

7.46

9.25

6.91

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

Page 12 of 32

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

Cash Flow Adequacy

0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00

2011

2012

2013

Sainsbury's

0.29

0.34

0.17

TESCO

0.24

0.23

0.15

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.

Page 13 of 32

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

Quality of Profit
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00

2011

2012

2013

Sainsbury's

1.00

1.20

1.11

TESCO

1.22

1.16

0.92

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.

Page 14 of 32

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 Zscore, 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

Z Score
2.50
2.00
1.50
1.00
0.50
0.00

2011

2012

2013

Sainsbury's

2.29

2.25

2.28

TESCO

1.63

1.61

1.58

Page 15 of 32

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.

Page 16 of 32

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.

Page 17 of 32

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/fundingopportunities/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].
J Sainsburys (2012) Annual Report and Financial Statements 2012 [Online]. J
Sainsburys plc. Available from:
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March 2014]
J Sainsburys (2013) Annual Report and Financial Statements 2013 [Online]. J
Sainsburys plc. Available from:
http://www.jsainsbury.co.uk/media/1616189/sainsburys_ara.pdf [Accessed 07 March
2014].
J Sainsbury PLC, (2014) History [online]. Available from: http://www.jsainsbury.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].

Page 18 of 32

Tesco (2012) Annual Report 2012 [Online]. Tesco plc. Available from:
http://www.tescoplc.com/files/pdf/reports/tesco_annual_report_2012.pdf [Accessed
08 March 2014].
Tesco (2013) Annual Report 2013 [Online]. Tesco plc. Available from:
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].

Page 19 of 32

VIII.

Appendices

Appendix 1: Ratio Analysis for Sainsburys and Tesco

A. Profitability
TESCO
PROFITABILTY RATIOS

Sainsbury's

2011

2012

2013

2011

2012

2013

2,655,000

2,806,000

124,000

640,000

598,000

614,000

16,623,000 17,801,000 16,661,000

5,424,000

5,629,000

5,734,000

Return on Equity
Net Income
Shareholder's Equity
Return on Equity (%)

15.97%

15.76%

0.74%

11.80%

10.62%

10.71%

3,467,000

3,803,000

3,074,000

854,000

891,000

882,000

26,312,000 27,712,000 26,729,000

8,457,000

9,204,000

9,580,000

Return on Capital Employed

PBIT
Capital employed
Return on Capital Employed
(%)
Net profit Margin
Net Income
Sales Revenue

13.18%

13.72%

11.50%

10.10%

9.68%

9.21%

2,655,000

2,806,000

124,000

640,000

598,000

614,000

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%

5,125,000

5,397,000

4,089,000

1,160,000

1,211,000

1,277,000

Gross Profit Margin

Gross Profit
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%

B. Liquidity
TESCO
LIQUIDITY RATIOS

Sainsbury's

2011

2012

2013

2011

2012

2013

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

64.51%

64.17%

65.66%

58.50%

64.80%

61.44%

11,438,000

12,353,000

12,465,000

1,721,000

2,032,000

1,914,000

3,162,000

3,598,000

3,744,000

812,000

938,000

987,000

Current Liabilities

17,731,000

19,249,000

18,985,000

2,942,000

3,136,000

3,115,000

Acid/Quick Ratio

0.47

0.45

0.46

0.31

0.35

0.30

Current ratio

Current Ratio
Acid/Quick Ratio
Current assets
Inventories

Page 20 of 32

C. Efficiency Ratio
TESCO
EFFICIENCY RATIOS

Sainsbury's

2011

2012

2013

2011

2012

2013

3,162,000

3,598,000

3,744,000

812,000

938,000

987,000

Cost of sales
Inventory Turnover
(Days)
Asset Turnover

55,330,000

58,519,000

60,737,000

19,942,000

21,083,000

22,026,000

21

22

22

15

16

16

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

1.28

1.26

1.29

1.85

1.81

1.84

Inventory days
Inventory

Asset Turnover (Times)

D. Gearing Ratio
TESCO
GEARING
RATIOS
Gearing ratio
Long term debt
Preferences
shares
Equity

Sainsbury's

2011

2012

2013

2011

2012

2013

9,595,000

9,777,000

9,946,000

2,285,000

2,494,000

2,482,000

402,000

402,000

403,000

535,000

538,000

541,000

16,623,000

17,801,000

16,661,000

5,424,000

5,629,000

5,734,000

60%

57%

62%

52%

54%

53%

3,467,000

3,803,000

3,074,000

854,000

891,000

882,000

465,000

411,000

445,000

116,000

126,000

130,000

7.46

9.25

6.91

7.36

7.07

6.78

Gearing ratio (%)

Interest cover
EBIT
Interest Expense
Interest cover

E. Cash Flow
TESCO
Cash Flow ratios
Cash Flow Adequacy
Net Cash flow from
operating activities
Creditors due in one
year
Cash Flow Adequacy

Sainsbury's

2011

2012

2013

4,239,000

4,408,000

2,837,000

17,731,000 19,249,000 18,985,000

0.24

0.23

0.15

2011

2012

2013

854,000 1,067,000

981,000

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

0.29

0.34

Page 21 of 32

0.17

Quality of Profits
Net Cash flow from
operating activities
Operating profit
Quality of Profits

4,239,000

4,408,000

2,837,000

854,000

1,067,000

981,000

3,467,000
1.22

3,803,000
1.16

3,074,000
0.92

854,000
1.00

891,000
1.20

882,000
1.11

F. Z- Score
Z-Score
X1
Current Assets
Current Liabilities

2,011

TESCO
2,012

12,039,000
17,731,000

12,863,000
19,249,000

13,096,000
18,985,000

Total assets

47,206,000

50,781,000

50,129,000

X1
X2
Retained
earnings

-0.12

-0.13

11,171,000

12,164,000

10,535,000

Total assets

47,206,000

50,781,000

50,129,000

X2
X3
Operating Profit

0.24

0.24

3,467,000

3,803,000

3,074,000

Total assets

47,206,000

50,781,000

50,129,000

2,013

Sainsbury's
2,011
2,012
1,721,000
2,942,000

2,032,000
3,136,000

2,013
1,914,000
3,115,000

11,399,000 12,340,000 12,695,000

-0.12
-0.11
-0.09
-0.09
3,374,000

3,715,000

4,060,000

11,399,000 12,340,000 12,695,000

0.21
0.30
0.30
0.32
851,000

887,000

887,000

11,399,000 12,340,000 12,695,000

0.06
0.07
0.07
0.07

X3
0.07
0.07
X4
Market
402,000
402,000
403,000
Capitalization
Total Liability 30,583,000 32,980,000 33,468,000
X4
0.01
0.01
0.01
X5
Sales

60,455,000

63,916,000

64,826,000

Total assets

47,206,000

50,781,000

50,129,000

X5
Z-score

1.28
1.63

1.26
1.61

535,000

538,000

541,000

5,975,000
0.09

6,711,000
0.08

6,961,000
0.08

21,102,000 22,294,000 23,303,000

11,399,000 12,340,000 12,695,000

1.29
1.85
1.81
1.84
1.58
2.29
2.25
2.28

Page 22 of 32

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

Tesco Plc: Income Statement from 2011 to 2013

Page 23 of 32

Tesco Plc: Balance Sheet from 2011 to 2013

Page 24 of 32

Tesco Plc: Cash Flow from 2011 to 2013

Page 25 of 32

Balance sheet of TESCO Plc from 2010 to 2011

Page 26 of 32

Balance sheet of TESCO Plc from 2012 to 2013.

Page 27 of 32

Appendix 3 : Financial statements of Sainsburys from 2011 to 2013

Balance Sheet of Sainsburys from 2011 to 2012

Page 28 of 32

Balance Sheet of Sainsburys from 2012 to 2013

Page 29 of 32

Sainsburys Balance Sheet 2011-2013

Page 30 of 32

Sainsburys Income Statement 2011-2013

Sainsburys Cash Flow 2011-2013

Page 31 of 32

Page 32 of 32