The reason of writing this report is to compare the J Sainsbury supermarket plc at the year 2009 and 2010 to know the accounting ratio is used in estimate the financial performance. This report prepared by Velavan Palaniandy and Nguyen
The report has been written to compare and comment on the financial performance and financial position in J Sainsbury supermarket plc. The accounting ratio is can identify the financial performance is decline or raise, easily know that the company is running on profit or loss. Moreover, the ratios also show that the strength and weakness of the company or business. The accounting ratio is liquidity, profitability, efficiency, gearing and investment ratio is build to knowledge of the financial performance. A number of dissimilar accounting policies are include in comparing ratio and there have an effect on profit and asset values, the method are used is depreciation, valuation of asset, and valuation of inventory. The main problems are market share will affect the company revenue and the profit will slowdown lowest point.
Gross profit margin
Gross profit margin is a financial ratio used to assess the profitability of a firm's core activities, excluding fixed costs. It is a measure of how well each dollar of a company's revenue is available to meet expenses and profits after paying for the goods or services that were sold. J Sainsbury’s plc gross profit margin in 2009 was 5.5% which was greater than in 2010 was 5.4%. Refer to the income statement of J Sainsbury PLC; the total cost of sales of J Sainsbury plc is higher. Therefore, this will increase the cost of sales of J Sainsbury’s plc. If the gross profit higher it’s mean the company run on profit or successful the business. Stated by Weetman, “Small changes in this ratio can be highly important. There tends to be a view that there is a ‘normal’ value for the industry or for the product that may be used as a benchmark against which to measure a company’s performance”. Net profit margin
Net profit margin is used to calculate the amount of net profit per $1 of turnover a business has earned (Wood and Sangster, 2008). Net profit margin of J Sainsbury was 3.6% in 2009 and also 3.6% in the following year. Therefore, during the year 2009 and 2010, net profit margin of J Sainsbury PLC keeps constant at 3.6%. On the other hand, J Sainsbury’s expenses were very low. It means J Sainsbury PLC has a good strategy to control its cost. Return on capital employed (ROCE)
The ROCE is to calculate the efficiency and profitability of a company in generating profit from its capital investment (Elliott and Elliott, 2005). ROCE of J Sainsbury in 2010 9.7% and 10.3% in 2009. Therefore, ROCE of J Sainsbury which clearly indicated a decline of 0.6% over the two years. Return on shareholder fund (ROSF)
ROSF “is the ratio of net profit to share holder’s investment. It is the relationship between net profit (after interest and tax) and share holder’s/ proprietor’s fund” (accountingformanagement.com). ROSF is considered one of the important ratios in measuring overall efficiency. Maximizing earning is the objectives in every company and this ratio “gives the investor a deeper insight into the profitability that they are concerned with. It is always critical to take professional investment advice before making any investment decisions”. (The Finance Owl, 2009). The higher ratios are better results because investors would like to invest where there is a higher return. So, The ROSF of J Sainsbury PLC increased 5.2% between the two years. Therefore, increment in ROSF for J Sainsbury will lead to a better return for investor. Mark up
Mark up of J Sainsbury was 5.8% in 2009 and 5.7% in 2010. So, it decreased 0.1% between the two years. If the cost of sales of J Sainsbury PLC is lower, then it leads to an increase of its gross margin. The rise in cost of purchases by suppliers will affect the...