6768 - Abstract Introduction The retail sector in the UK is...

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Abstract Introduction The retail sector in the UK is essential for the country’s economy contributing to approximately 20% of the GDP. Sainsbury and Tesco are among the most renowned companies in the retail industry. This report will assess and compare the financial performance of the two companies over the last 5 years. To analyse the financial performance of the two companies, ratio analysis will be carried out. Ratio or account analysis is an efficient way to compare and estimate the financial performance of a firm in a given year with that of a different year and other companies in a similar industry. In a highly competitive industry, such as the UK retail sector, analyze strengths, weaknesses, opportunities and threats of each firm in detail is vital in order to understand its respective position in the market. In addition to ratio analysis, the corporate governance arrangements for each company will be assessed and compared with the UK Corporate Governance Code. J Sainsbury Plc is one of the largest and oldest retailer chain in the UK holding a market share of about 16%. It was initially opened as a single grocery store before expanding to production of own-brand preserved meats, in-house and delivered across London. The company was founded in 1860, by John James Sainsbury and his wife, Mary Ann Sainsbury, in London. As of 2019, the company had expanded to 2300 branches in the UK. The company deals in general goods and groceries. The company had about 178,000 employees during the same period. The management team of company include Mr. Martin Scicluna, Chairman; Mike Coupe, CEO and Mr. Kevin O’Byrne, the CFO. Tesco on the other hand deals with general merchandise and groceries. The company was founded by Jack Cohen in 1919. It has since expanded to over 3500 branches in the UK. The company has about 344,000 employees with a commitment to provide a great shopping experience for their consumers as well as the community. Profitability ratios These ratios indicate a firm’s ability to generate profits upon against a given amount of associated expenses. The higher the profitability ratio(s) the better the firm in generating earnings. The profitability ratios covered include, gross profit margin, net profit margin, operating profit margin, return on equity and return on assets. Gross profit margin This ratio represents the portion of a unit (each pound) of sales revenue retain as gross profit Gross profit margin = (Revenues- Cost of goods sold)/sales revenues. Over the five-year period, Sainsbury has been a better performer with an average gross profit margin of 6.2% between 2015 and 2019 while Tesco recorded a 3.9% average margin following a loss in 2015. Both companies however have been recording a steady increase in the gross profit margin Gross Margin % 2015 2016 2017 2018 2019 Tesco -3.4% 5.2% 5.2% 5.8% 6.5% Sainsbury 5.1% 6.2% 6.2% 6.6% 6.9%
2015 2016 2017 2018 2019 -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% Gross Profit Margin Tesco Sainsbury Return on Equity Return on Equity indicates the return that a company makes from shareholders’ investment. Between 2018 and 2019, Tesco gave relatively high returns to its investors at 14.3% and 10.4% respectively

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