The main goal of this paper is preparing a financial ratio analysis of the company Sainsbury's. The financial ratio analysis constitutes the most typical and broaden measurement to investigate the financial position of the company. The ratio examination is utilized to present the performance of the enterprise or compare its results with other firms over the time. Nevertheless, the ratio analysis is just a simple calculation of the firm’s financial state and does not embrace details for instance the business’ size.
Sainsbury’s is the second largest supermarket chain with the 16.9% share in the retail sector in the United Kingdom. The enterprise was established in 1869 by John James Sainsbury and in 1922 it became the largest grocery store in the UK. Furthermore, the company was an early adopter in the self-service in Britain. In 1995, the Sainsbury’s position dropped to the third place with the Tesco as a leader on the market and Asda in the second place. However, in 2014 Sainsbury’s regained its position and came in the second place.
The holding firm (J Sainsbury plc) is consisted of three departments such as Sainsbury’s Bank, Sainsbury’s Argos and Sainsbury’s Supermarkets Ltd with the headquarter in Holborn Circus in London. The greatest number of company’s shares has Qatar Investment Authority (25.9%); Lord Sainsbury of Turville holds 4.99% of the stake; Judith Portrait (trustee of charitable trust) holds 3.92% of the shares and Sainsbury’s family has 15% of the stake. The company runs under three formats such as supermarket, convenient store- Sainsbury’s Local and online shopping service. The present CEO of the enterprise is Mike Cope. The Sainsbury’s presence is visible in London Stock Exchange and FTSE 100 Index.
Table of Contents
1. Introduction of the company
2. Financial ratio analysis
3. Profitability ratios
a) Gross margin ratio
b) Net margin ratio
c) Return on assets (ROA)
d) Return on capital employed (ROCE)
e) Return on equity (ROE)
4. Liquidity ratios
a) Current ratio
b) Quick ratio
5. Efficiency ratios
a) Inventory holding period
b) Receivables period
c) Payables period
6. Capital structure ratios
a) Gearing ratio
b) Interest cover
c) Dividend cover
7. Stock market performance ratios
a) Earnings per share (EPS)
b) Dividend payout ratio
c) Dividend yield
d) Price earnings (PE)
8. Limitations of the analysis
9. Conclusion
10. References
Objectives and Topics
The primary objective of this work is to evaluate the financial health and performance of the company Sainsbury's through a detailed application of various financial ratio analyses. The paper seeks to identify the firm's operational strengths and weaknesses by examining data over a multi-year period to assess stability and trends.
- Profitability and operational efficiency assessment
- Liquidity and short-term debt-paying ability
- Capital structure and financial risk management
- Stock market performance and shareholder returns
- Critical evaluation of ratio analysis as a tool for corporate performance
Excerpt from the Book
8. Limitations of the analysis
Despite the fact that ratios are attractive and uncomplicated analytical technique, they are not faultless approach, hence the ratios’ examination of financial reports contains its limitations.
Firstly, the ratio technique delivers historic facts. Generally, the ratios examine the outcomes of the financial performance of the organization from the past. Furthermore, this historical information does not demonstrate that the enterprise will carry on towards the same direction in the future and accomplish similar results. In addition, the figures from the income statement are conditioned by the current cost, while some data from the balance sheet are determined by the historical cost, what may cause disproportion or abnormal ratio outcome (Gitman,2011).
The inflation affects also the weakness of analysis. The inflation relates to the price rise. Gradually, the positive trends in revenues may indicate that the organization has enhanced its performance, however the adjustments are indeed the result of the inflation not enhanced sales rate. Hence, the correlation of the results from the specific years can be deceived by the inflation. The information on the financial statement cannot provide with the accurate data, because the influence of the inflation is not mentioned, while the transactions are displayed. For example, the assets that were purchased by the company in the past and displayed at historic rate, may not have the same price presently on grounds of inflation’s impact. The worth of inventory and depreciation may be estimated divergently when it was put on record and at present (Gitman, 2011).
Summary of Chapters
1. Introduction of the company: Provides an overview of Sainsbury's history, its market position in the UK retail sector, and its current organizational structure.
2. Financial ratio analysis: Defines the purpose of ratio analysis as a tool for assessing corporate financial position and lists the categories used for the study.
3. Profitability ratios: Examines the firm's ability to generate earnings relative to its sales, assets, and capital, highlighting the impact of 2015 performance.
4. Liquidity ratios: Analyzes the company's capability to meet short-term obligations and its reliance on inventory.
5. Efficiency ratios: Evaluates operational efficiency through inventory turnover, receivable collection, and payable management periods.
6. Capital structure ratios: Assesses the financial risk of the company by reviewing gearing levels, interest coverage, and dividend sustainability.
7. Stock market performance ratios: Looks at indicators significant for investors, such as EPS, dividend payout, dividend yield, and price-to-earnings ratios.
8. Limitations of the analysis: Discusses the inherent weaknesses of financial ratio analysis, including historical bias, inflation impact, and manipulation risks.
9. Conclusion: Summarizes the findings regarding Sainsbury's recent financial recovery and suggests complementary analytical frameworks for future assessments.
10. References: Lists the academic and industry sources used to compile the data and analytical context.
Keywords
Financial ratio analysis, Sainsbury's, Profitability, Liquidity, Efficiency, Capital structure, Stock market performance, Earnings per share, Gearing ratio, Corporate finance, Retail sector, Financial reporting, Management efficiency, Dividends, Investment analysis
Frequently Asked Questions
What is the primary focus of this document?
The document focuses on the quantitative financial analysis of Sainsbury's, utilizing a variety of accounting ratios to assess its business performance between 2012 and 2016.
Which categories of financial ratios are analyzed?
The study covers five main categories: Profitability, Liquidity, Efficiency, Capital structure, and Stock market performance ratios.
What is the core objective of the research?
The objective is to interpret the financial condition of Sainsbury's to provide insights into its strengths, weaknesses, and operational management efficiency.
What methodology is applied in this paper?
The paper uses secondary financial data from annual reports and financial databases to calculate and interpret standard corporate finance ratios over a five-year timeframe.
What does the main body of the text address?
The main body systematically presents calculations and trend analyses for specific ratios, accompanied by visual representations and interpretations for each metric.
What are the key themes defining the work?
Key themes include historical performance trends, management efficacy, competitive market pressure, and the limitations of purely quantitative financial metrics.
How did Sainsbury's perform in 2015 according to the analysis?
The analysis shows a significant downturn in 2015 across multiple ratios, which the text attributes to increased competition from discount retailers like Aldi and Lidl.
Why is it recommended to use additional tools like SWOT?
Because ratio analysis is purely quantitative and ignores qualitative factors like market trends or strategic changes, the author suggests combining it with tools like SWOT or Porter’s Five Forces for a holistic view.
- Quote paper
- MBA graduate Katarzyna Szydlowska (Author), 2017, The Company "Sainsbury's". A Financial Ratio Analysis, Munich, GRIN Verlag, https://www.grin.com/document/512512
