Tesco_Sainsburys (1).docx - Financial Analyses for Tesco PLC and Sainsbury PLC Short Introduction Francesca The most important objective of a business

Tesco_Sainsburys (1).docx - Financial Analyses for Tesco...

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Financial Analyses for Tesco PLC. and Sainsbury PLC. Short Introduction - Francesca The most important objective of a business is to earn profit at the end of the year. The profit/loss information as well as; the assets, liabilities, capital etcetera, is published from the companies every year. Understanding and connecting every item of the financial statement is not very easy and understandable. This is the reason why analysis such as liquidity, efficiency and profitability are very important to properly judge the firm performance for the year. Profitability analysis allows the directors of the entities to properly plan resources and therefore forecast the profitability of a proposal or optimize the actual profit of the company. Also helps investors to understand the position of the firm. Financial analysis will be measured for two competitive firms such as Tesco PLC and Sainsbury PLC. Tesco and Sainsbury are both two large companies operating in grocery stores industry with their headquarters in UK. Tesco market capitalization value is 22.192B GBP and Sainsbury’s is 5.033B BGP. Tesco 1 number of employees for 2020 is and Sainsbury has 111900 employees. 2 The financial statements are retrieved from official website of both companies at their Annual Report for 2020. 3 The values represented in appendix I and II are the financial statements for both companies which will be used to calculate the ratios in this further analysis. 1 [ CITATION Yah201 \l 1033 ] 2 [ CITATION Yah202 \l 1033 ] 3 [ CITATION Sai20 \l 1033 ];[ CITATION Tes20 \l 1033 ]
Profitability Analysis - TESCO vs. Sainsbury (Francesca) ROCE= EBIT/Total Assets- Current Liabilities. Comparing Tesco vs. Sainsbury In the appendix below is represented the values for ROCE for the two companies. It is clearly seen that in general the ROCE of Tesco is approximately as the ROCE of Sainsbury for the two year analyses 2019 and 2020. So we can conclude that to better understand the profitability for both firms we must also see the two other components of profitability analyses; Net Profit Margin and Gross Profit Margin. For 2019 Tesco ROCE is 4.05% and ROCE of Sainsbury is as well 4%. The values have changed for 2020 because ROCE of Sainsbury has a low value of only 3.78% and Tesco 4.4%. This means Tesco has generated better profitability for the year 2019/2020 comparing with itself since in 2018/2019 the ROCE is 4.05%. At the other hand Sainsbury is at an unfavorable situation regarding Tesco and itself since comparing with the previous year the ROCE value is lower from 4% to 3.78%. Comparing the two companies we can conclude in general that Tesco management for the employed capital is better for 2020. Comparing with the industry ROCE and EPS 4 are the two best measurements for a company’s profitability. ROCE which shows how much “money” is used to make the profit at the end of the year is sometimes the better measure from all others so researchers use ROCE or ROE 5 to better understand the profitability of the industry. In this case groceries industry is not operating the best since comparing with previous year (example 2013-2015) 6

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