Financial Ratios: TESCO and J. Sainsbury

Topics: Balance sheet, Asset, Financial ratios Pages: 14 (2657 words) Published: April 30, 2014
Introduction to Finance and Accounting
2nd Semester Assignment

Name: Maximos Nathanailidis
Date: 28/4/2014

Table of Contents

1. Introduction

The purpose of this report is to conduct a comparative ratio analysis of the financial statements of J. Sainsbury PLC and Tesco PLC for the year-ending 2013. The financial information that is provided from each company’s annual report and the comparison between them will help possible users of this analysis to understand not only the differences between these two companies but also each company’s weaknesses and strengths. Below, the profiles of the two companies will be referred as well as eight accounting ratios for each company will be presented in order to have the appropriate financial information to analyse. Furthermore, the possible users of this analysis will be identified and all their differing information requirements will be mentioned. Finally, there will be provided a short discussion on the importance of supplementing financial analysis with non-financial considerations and a general conclusion will be made which will contain a summary of the main findings of this report. 1.1 Tesco’s PLC profile

Tesco PLC (Public Limited Company) is a food retail company which operates in nine markets with 923 stores across the world. It employs more over 240,000 people which sell its products giving access to 260 million people (Tesco PLC., 2014). Over the past five years, Tesco has expanded from the UK’s supermarkets into new countries with new products and services including a major non-food business. More specifically, the company has started to sell electrical devices, internet shopping, toys, sports equipment, home entertainment, home shop, cook shop and furniture. Also it provides financial services in cooperation with Royal Bank of Scotland serving 3.4 million customers which reveals the company’s intentions to expand in new markets. 1.2 J. Sainsbury’s Profile

Sainsbury PLC is engaged in grocery and related retailing. The company’s activities are organised into three segments which are retailing (supermarkets and convenience), financial services (Sainsbury’s Bank), and Property investments (The British Land Company PLC and Land Securities PLC) (Reuters, 2014). The Company employs around 150,000 people and it operates over 1,000 stores acquiring 572 supermarkets and 440 convenience stores. The Company also acquires an online entertainment company, Global Media Vault Limited and HMV Group plc's holding in Anobii Limited, a social network and online retailer of e-books. 2. Financial-accounting information and ratios

According to Roger Hussey (Hussey, 1999), the financial accounting information is primarily concerned with communicating a ‘true and fair view’ of the financial performance and financial position of an entity to external parties in accordance with established principles, legal requirements and accounting standards. The general purpose of financial statements is to provide information that is useful to a wide range of users for making economic decisions and assessing the organizational management (IFRS, 2014). Accounting ratios are related with this information and their purpose is to describe a quantitative relationship between two values permitting the comparison of company’s performance with the previous years, competitors and with the industry benchmarks. Below, profitability, liquidity, working capital control and financial risk ratios will be presented and compared for the two companies providing the appropriate financial information. 2.1 Profitability and efficiency ratios

The main objective of a financial statement analysis is to value a firm’s equity securities which mean that the firm has to ensure its profitability for the future (Mackenzie et al., 2013). Profitability and efficiency ratios are used by financial information users in order to assess the firm’s operating...

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IFRS, 2014. IFRS Foundation. [Online] London: IFRS Foundation Available at: [Accessed 18 April 2014].
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Mackenzie, B. et al., 2013. Wiley IFRS 2013: Interpretation and Application of International Financial Reporting Standards. New Jersey: John Wiley & Sons.
Maynard, J., 2013. Financial Accounting, Reporting, and Analysis. Oxford: Oxford University Press.
Reuters, 2014. [Online] Available at: [Accessed 18 April 2014].
Sinha, G., 2009. Financial Statement Analysis. New Delhi: PHI Learning Private.
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