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AC2091 Financial Reporting

tag 0 Download 0 Pages / 0 Words tag 17-06-2022
  • Course Code: AC2091
  • University: University Of London
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  • Country: United Kingdom

Answer:

Introduction:

This report has been done to analyze the financial data of Tesco plc and Sainsbury Plc to help the investors to find the best company for the purpose of investment. This report describes the history, fundamental analysis of Tesco and Sainsbury and guides the investors.  

Company overview:

Tesco:

Tesco plc is one of the biggest retail chains of UK which operates in general merchandise and grocery. In concern of profits, it is the third largest retailing company in whole world. This company has many subsidiaries and all are involved in operating the grocery stores. Tesco also offers financial, banking and insurance services to its customers. Company has its operations mainly in UK, Hungary, Turkey, Poland, Slovakia, Czech Republic, Thailand and Malaysia (Tesco, 2017). Company has been founded in 1919. Headquarter of the company is in Welwyn Garden City, UK. Currently, company is operating its 7000 stores and employed 476453 employees worldwide. The market price of Tesco shares are £186.9 as on 16 March 2017.

Sainsbury:

Sainsbury has been awarded as second largest retail chain in UK. It has around 16.9% of total shares of retail industry in the market. This company has many subsidiaries and all are involved in operating the grocery stores. Sainsbury also offers financial services and property investment services to its client (Sainsbury, 2017). Company is operating a great range of store formats such as supermarket, convenience store, retail stores which provide many services and food and non food goods to the clients. Company has been founded in 1869. Headquarter of the company is in UK. Currently, company is operating its 1374 convenience stores and supermarkets. The market price of Sainsbury shares are £268.10 as on 16 March 2017.

Tesco Analysis:

Company analysis is a technique used by the investor and analyst to identify and evaluate the company’s profitability, liquidity state, return on shares; investing decision etc. many factors are analyzed by the investors while doing fundamental analysis over the company.

Tesco Plc is the third largest retailing company in whole world in concern of profits. It has been analyzed through the income statement of the company that the total revenue of the company has been decreased in 2016 by 0.12% (Appendix). The growth in the operating profit has been analyzed -1.18%. The net profit of the company has been increased by £ 102000 of last year profit. Current assets and quick assets of the company has also experienced a growth of 0.24% and .37% respectively (Appendix).

Company has reduced the inventory level to maximize the profit by .17%. The sales minimization also affected the total debtors of the company. It reduced by .06% from last year whereas the sales have been reduced by 0.12% (Appendix). Through this analysis, it has been found that the operations of the company have been reduced.

The current ratio and quick ratio of the company have experienced a growth in 2016. The ratios are .75% and .62% in 2016 respectively (Appendix). The working capital of the company has been enhanced by 38% (Appendix). It has been found through the analysis of profitability ratios that the operating profit, net profit margin, ROCE, ROE, Return on total assets of Tesco Plc has been experienced a growth in 2016 of 1.2%, 1.02%, 1.18%, 1.01% and 1.02% respectively (Appendix).

With the help of Debt equity ratio of the company, it has been found that the company has raised funds through equity rather than debt in 2016 (Appendix). It has also found that the total debt of the company has been reduced by the company to manage the profitability. This action has been taken by the company for managing the operations even in loss state. Interest coverage ratio also depict that the company has reduced total interest expenses to enhance th profits (Appendix).

Efficiency ratio of the company depict that the receivable turnover ratio, Creditor turnover ratio, Inventory turnover ratio, Assets turnover ratio of the company has been enhanced for 2015. Currently the ratios of the company are 10.06, 11.09, 19.82 and 1.23 respectively. This depict that the efficiency of the company has been enhanced in 2016.      

Sainsbury Plc Analysis:

Company analysis is a technique used by the investor and analyst to identify and evaluate the company’s profitability, liquidity state, return on shares; investing decision etc. many factors are analyzed by the investors while doing fundamental analysis over the company.

Sainsbury is the second largest retailing company in UK. It has been analyzed through the income statement of the company that the total revenue of the company has been decreased in 2016 by 0.011% (Appendix). The growth in the operating profit has been analyzed 6.97%. The net profit of the company has been increased by £ 384000 of last year profit. Current assets and quick assets of the company have also experienced a growth of 0.005% and 0.015% respectively (Appendix).

Company has reduced the inventory level to maximize the profit by 0.029%. The sales minimization did not affect the total debtors of the company. It enhanced by 0.079% from last year whereas the sales have been reduced by 0.011% (Appendix). Through this analysis, it has been found that the operations of the company have been reduced.

The current ratio and quick ratio of the company have experienced a growth in 2016. The ratios are .66% and .51% in 2016 respectively (Appendix). The working capital of the company has been enhanced by 9% (Appendix). It has been found through the analysis of profitability ratios that the operating profit, net profit margin, ROCE, ROE, Return on total assets of Tesco Plc has been experienced a growth in 2016 of 7.06, 3.89, 6.47, 3.46 and 3.76 respectively (Appendix).

With the help of Debt equity ratio of the company, it has been found that the company has raised funds through equity rather than debt in 2016 (Appendix). It has also found that the total debt of the company has been reduced by the company to manage the profitability. This action has been taken by the company for managing the operations even in loss state. Interest coverage ratio depicts that the company has paid more interest expenses this year (Appendix).

Efficiency ratio of the company depict that the receivable turnover ratio, Creditor turnover ratio, Inventory turnover ratio, Assets turnover ratio of the company has been changed from 2015 (Appendix). Currently the ratios of the company are 11.47, 10.98, 23.31 and 1.40 respectively. This depict that the efficiency of the company has been enhanced in 2016 (Appendix). 

Comparison:

The comparison of both the companies have been done on the basis of their history, income statement, balance sheet, cash flow statement, profitability ratios, liquidity ratios, debt ratios and efficiency ratios to analyze the best company for the purpose of investment. 

History:

Both the companies are registered in London stock market and have their headquarters in UK. Tesco plc is the third largest retailing company in whole world in concern of profit whereas the Sainsbury has been awarded as second largest retail chain in UK. Tesco offers retiling, financial, banking and insurance services to its customers whereas Sainsbury offers retailing, financial services and property investment services to its client. The market price of Tesco shares are £186.9 and Sainsbury shares are £268.10 as on 16 March 2017.

Income statement:

Income statement of both the companies depict that the revenue of the companies have been decreased by 0.12% and 0.011% respectively. The gross profit of both the companies has been increased (Tesco, 2017). It depicts that the retail industry has hiked the price. The operating profit of both the companies has been increased by 1.18 and 6.97% respectively. Net profit of both the companies has been enhanced by £102000 and £384000 (Sainsbury, 2017).

Balance Sheet:

Balance sheet of both the companies depicts the current asset, quick asset, total asset, current liabilities, total liabilities and share equity are 14828 & 4444, 12398 & 3476, 43904 & 16973, 19714 & 6724, 35278 & 10608, 8626 & 6365 respectively (amount in £’000).

Cash Flow statement:

Cash flow statement of both the companies depict that the companies have generated 2126 & 392, (615) & (400), (604) & (128) cash inflow from operating, investing and financial activities of the company (Tesco, 2017). This shows that both the companies have experienced more cash outflow from investing and financial activities.

Profitability ratios:

It has been found through the analysis of profitability ratios that the operating profit, net profit margin, ROCE, ROE, Return on total assets of Tesco Plc has been experienced a growth in 2016 of 1.2 & 7.06, 1.02 & 3.89, 1.18 & 6.47, 1.01 & 3.46  and 1.02 &  3.76 respectively (Appendix).

Liquidity ratios:

The current ratio and quick ratio of the company have experienced a growth in 2016. The ratios are .75% & 66% and 0.62 & 0.51 in 2016 respectively (Appendix). The working capital of the company has been enhanced by 38% & 9% (Appendix).

Debt ratios:

With the help of Debt equity ratio of the company, it has been found that both the companies have raised funds through equity rather than debt in 2016 (Appendix). It has also found that the total debt of the company has been reduced by the company to manage the profitability. This action has been taken by the company for managing the operations even in loss state. The debt ratio of both the companies is 4.08 and 1.67 (Appendix).

Efficiency ratios:

Efficiency ratio of the company depict that the receivable turnover ratio, Creditor turnover ratio, Inventory turnover ratio, Assets turnover ratio of the company has been enhanced for 2015. Currently the ratios of the company are 10.06 & 11.447, 11.09 & 10.98, 19.82 & 23.31 and 1.23 & 1.4 respectively (Appendix).

Conclusion:

Both the companies have been analyzed on the basis of their history, income statement, balance sheet, cash flow statement, profitability ratios, liquidity ratios, debt ratios and efficiency ratios to analyze the best company for the purpose of investment.

It has been found through both the companies’ data that both the companies are suffering from some issues. The issues are global crisis and industry breakdown. Through the analysis of both the companies it has been found that Sainsbury is better than Tesco in case of investment. As the profitability condition of the company is much better and company has dealt in a good manner with the crisis.

It has also found that Sainsbury has invested in new projects to enhance the profitability and the earnings offered by the company is 0.23 which is better than 0.05 (Tesco EPS). The market price of shares are pound 268.1 which is greater than the Tesco’s market price i.e. pound 186.9.

The profitability ratios of Sainsbury are more attractive than the Tesco’s profitability ratio. Sainsbury’s operating profit, net profit margin, ROCE, ROE, Return on total assets of .02, .02, .1, .073 and .028 respectively which is quite higher than Tesco’s ratio i.e. .019, .003, 0, .016 and .003.

So it is suggested to the investors to invest their amount in Sainsbury. It would offer more earnings to the investors and the market rate of the shares are also better. Company is even earning more profits in the industry.

References:

J Sainsbury. (2017). Annual Reports and Financial Statements. Retrieved as on 25 March 2017 file:///C:/Users/lenovo/Downloads/1250106_721933625_sainsburysar20162005.pdf

Tesco. (2017). Annual Reports and Financial Statements. Retrieved as on 25 March 2017 file:///C:/Users/lenovo/Downloads/1250107_725425761_tescoreport.pdf

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