Sainsbury in Comparison with Tesco

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.Ratio calculation of the two companies in 2009
1.1.Return on capital employed(ROCE)
operating profit + share of associate(etc) companies’ profitx 100 = Return on capital Long term finance(total asset- current liablities) employed (ROCE) Sainsbury: 673 x 100= 9,46%

7114(=10033-2919)

Tesco : 2970 x 100=10,6% 28013(=46053-18040)

1.2.Rate of return on shareholders’ funds (equity)
profit for shareholder x 100 = rate of return on shareholders’ funds (equity) stockholders’ funds (equity)

Sainsbury: 366 x 100= 8,36%
4376

Tesco : 1930 x 100= 14,91%
12938
1.3. Gross margin
gross profit x 100 = gross margin
revenue
Sainsbury: 1,093 x 100 = 5,76%
18,968

Tesco : 4,218 x100 = 7,76%
54,327

1.4. Operating margin
operating profit x 100 = operating margin
revenue
Sainsbury: 673 x 100 = 3,54%
18968

Tesco : 2970 x100 = 5,46%
54327

1.5. Asset turnover
sales = asset turnover net asset(total asset- current liabilities)

Sainsbury: 18968 = 2,66:1
7114(=10033-2919)

Tesco : 54327 = 1,94:1 28013(=46,053-18,040)

1.6. Rate of stock turnover
inventories(stock) *365 = asset turnover
cost of sales
Sainsbury: 689*365 = 14 days
17875

Tesco : 2669*365 = 19 days
50109

1.7.Borrowing/equity ratio
non-current loans(includes short-term borrowing) x 100 = borrowing/equity ratio long-term finance(shareholders’ equity+loans)
Sainsbury: 2331(=154+ 2177) x100 = 53.27%
4376

Tesco : 16450(=4059+16450) x 100 = 127.14%
12938

Summary of calculationsSainsburyTesco
Rate of return on capital employed(ROCE)9,46% (8.72)10,6%(14.08) Rate of return on shareholders’ funds (equity)8,36% (7.76)14,9%(13.85) Gross margin 5,76% 7,76%
Operating margin 3,54% 5,46%
Asset turnover 2,66:11,94:1
Rate of stock turnover14 days19 days
Borrowing/equity ratio6,25%116,5%

b)Analyze and compare the financial performance and the financial position of the of the two companies in 2009 ; and consider to what extent, if any, the profitability of Sainsbury has improved over the five year period as compared with that of Tesco.

2. Financial performance and position analyze in 2009
Financial information are used to examine and analyze the financial performance and position of the company. When we assess a firm’s financial condition we can use financial ratios to evaluate operating performance and financial condition of a company.

2.1. Return on Capital Employed Ratio

The Rate of Return on Capital Employed (ROCE) is used to identify the efficiency and profitability of a company’s capital investments, irrespective of whether the capital is borrowed or provided by owners. ROCE for Tesco was 14.08% in 2004, however, in five years this rate has deteriorated and declined to 10.06% in 2009 by decreasing 4.02 points. For Sainsbury’s the performance on the ROCE is slightly better than Tesco. ROCE for Sainsbury was 8, 72% in 2004 and it increased to 9.46% in 2009.Even though, there is a minimal increase about 0.74% on ROCE for Sainsbury, when taking into account that the ROCE for Tesco declined about 4.02%, this figure implicates a good improvement. We may conclude that MSGA has worked and the new...
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