Financial analysis

Financial analysis - 1 Financial analysis of Tesco and...

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1 Financial analysis of Tesco and Sainsbury Name Institution Course Date
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2 Introduction Sainsbury PLC is a UK company involved in retailing grocery related products and banking activities (Uk.finance.yahoo.com, 2015). It conducts its operations through its three segments; Financial Services, Property Investments, and Retailing segments. As of 14th of March 2015, the company had 1,304 supermarkets and convenience stores. It also provides insurance, energy efficiency advice, credit cards, entertainment products, among other services. Tesco is a company that deals in the design and assembly of technology-based solutions. It has two segments; Tubular Services and Top Drive Segments (Finance.yahoo.com, 2015). The Top Drive Segment manufactures top drive services and electronically powered equipment. The Tubular Services Segment provides tubing running services, casing, and automated offerings for oil as well as natural gas companies. This paper uses a range of financial ratios to analyze the financial performance of the two companies for the three-year period ending January/February 2015. PROFITABILITY ANALYSIS Gross profit margin Gross profit margin indicates the gross profit a company earns per pound of total net sales (Stickney and Stickney, 2010). In the year ending 28th February 2015, Tesco PLC had a gross profit margin of -3.39% indicating that it made a gross loss of £0.0339 for every pound of net revenue. This implies th at the company’s operations were not profitable in 2015. It also shows that it did not generate adequate earnings to cover for additional expenses. The gross profit margin was 6.31% in 2014 and 6.55% in 2013. The trend shows that the profitability of Tesco PLC declined throughout the period from 2013 to 2015.
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3 Sainsbury’s gross profit margin for the year 2015 was 5.081% implying that it earned a gross profit of £0.05081 per pound of net sales. The ratio was positive meaning that the company had about 5% of the total revenue for paying both operating and non-operating costs such as interest expense. The ratio was 5.480% in 2013 and 5.791% in 2014. The trend shows that the profitability of Sainsbury improved in 2014 before declining in 2015. The gross profit margin for Sainsbury was more than that of Tesco in 2015. This suggests that Sainsbury was more profitable than Tesco. Operating profit margin It shows that percentage of the total revenue that is left after paying the operating expenses (Stickney and Stickney, 2010) . Tesco’s operating profit margin for 2015 was -9.30% implying that it made an operating loss of £0.093 per pound of total sales. Therefore, Tesco’s operating activities were not profitable in the year 2015. The ratio was 4.14% and 3.76% in 2014 and 2013 respectively. On the other hand, Sainsbury had an operating margin of 0.3407% in 2015 indicating that 0.34% of its total revenue was left after meeting all the operating costs. The operating margin for Tesco increased from 3.806% in 2013 to 4.213% in 2014 then fell to 0.3407% in 2015. The trend suggests a decrease in the profitability in 2015. Sainsbury’s operating margin was more than that of Tesco for each of the three years implying that it was more profitable than Tesco.
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