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Financial Analysis of TESCO & J SAINSBURY Free essay! Download now

Home > GCSE > Business studies > Financial Analysis of TESCO & J SAINSBURY

Financial Analysis of TESCO & J SAINSBURY

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Financial Analysis of TESCO & J SAINSBURY  essay previewFinancial Analysis of TESCO & J SAINSBURY  essay previewFinancial Analysis of TESCO & J SAINSBURY  essay preview

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Financial Analysis

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Financial Analysis of TESCO & J SAINSBURY

In this report we are comparing and contrasting the financial performance and position of J Sainsbury plc and Tesco plc, the two retail sector companies listed on the London Stock Exchange for three financial years 2007-2009. Our main aim is to carry out vertical analysis, trend analysis and ratio analysis to find out which company among the two is better for investment.

In the beginning sections we are analyzing the companies individually and then drawing up a conclusion on the basis of the analysis in the end. Since our main aim is to find out which company is better for investment, we are stressing on performance and profitability indicators, however we have paid due attention to indicators of sound financial position such as liquidity, working capital management and solvency.

J SAINSBURY plc

The horizontal analysis and vertical analysis of J Sainsbury plc are shown in the following exhibits.

J Sainsbury
Vertical Analysis of Income Statement
Year
2009
2008
2007
Revenue
100.00%
100.00%
100.00%
Cost of sales
-94.52%
-94.38%
-93.17%
Gross Pro?t
5.48%
5.62%
6.83%
Administrative expenses
-2.22%
-2.81%
-3.90%
Other income
0.30%
0.17%
0.10%
Operating Pro?t
3.56%
2.97%
3.03%
Finance income
0.27%
0.47%
0.37%
Finance costs
-0.78%
-0.74%
-0.62%
Share of post-tax loss from joint ventures
-0.59%
-0.01%
0.00%
Pro?t before taxation
2.46%
2.69%
2.78%
Income tax expense
-0.94%
-0.84%
-0.89%
Pro?t for the ?nancial year
1.53%
1.84%
1.89%

Profitability and Performance:

From the above analysis, it is evident that the company is operating in a saturated market. More than 90% of the sales revenue is consumed by the cost of goods sold generating a gross profit of only 5%-7%. Although other expenses are insignificant the company is generating a net profit of 1.5% to 1.9% of sales in the three years which is negligible.

Incorporating the horizontal analysis of the income statement shown below, we see that the market is not growing, there seems to be no real growth in sales because sales growth equals average rate of inflation. The profit figures have actually declined in the financial year 2008-2009

J Sainsbury
Horizontal Analysis of Income Statement


2009-2008
2008-2007
Revenue

6.02%
4.00%
Cost of sales

6.18%
5.36%
Gross pro?t

3.39%
-14.51%
Administrative expenses

-16.33%
-24.96%
Other income

90.00%
76.47%
Operating pro?t

26.98%
1.92%
Finance income

-37.35%
29.69%
Finance costs

12.12%
23.36%
Share of post-tax loss from joint ventures
5450.00%
-2.00%
Pro?t before taxation

-2.71%
0.42%
Analysed as:



Underlying pro?t before tax

11.27%
28.42%
Pro?t on sale of properties

714.29%
0.00%
Investment property fair value movements
-124.00%
0.00%
Financing fair value movements

150.00%
-150.00%
One-off items

-100.00%
-114.63%


-2.71%
0.42%
Income tax expense

18.00%
-1.96%
Pro? t for the ?nancial year

-12.16%
1.54%


Although the sales seems to grow, at least nominally, the gross profit percentage has decreased from 6.83% to 5.62% in the financial year 2007-2008 and 5.62% to 5.48% during the year 2008-2009. Similarly the operating profit percentage has decreased from 3.03% to 2.97% and then increased from 2.97% to 3.56% during the year 2007-2008 and 2008-2009 respectively. This indicates a decline in the profitability of the company over the three years period. The company is already in a saturated market and needs to control costs to remain ...

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