Financial Reporting for Sainsbury - Essay Example

?Introduction The paper aims to identify and report some ratios within the annual report of for Sainsbury, UK which is a very famous and extensive retail store. The purpose of identifying and calculating the ratios is to evaluate how the company has grown over a two year period and show how calculation of such ratios can be useful in analyzing the financial health of any organization over a time period. Other than that, the paper also elucidates on the various purposes as to why financial statements and annual reports can be helpful and the reason why organizations choose to publish annual reports and make them public for people. The paper then rounds up with a conclusion on the two elements discussed in this essay, namely being financial ratios and the purpose of annual reporting for organizations. Sainsbury – The Retail Store Sainsbury Supermarket Ltd. Is a child company of Sainsbury’s PLC which is also commonly known as Sainsbury’s and is also the third largest retail outlet in the United Kingdom with a market share ranging to about 17% (Bloomberg, 2012.) Sainsbury’s has a long and hard history with several brand and organizational re-launches and which dates back to the 19th century in the Victorian Era. It became the largest retail store in London in the early 1920’s and is considered as a pioneer for self service in a retail store. In the early 1990’s, Tesco and Asda became larger than Sainsbury’s and took over its market share letting it slide down to the third position in the retail industry (The beginning - Sainsbury's. 2012, Corporate Strategy In UK Food Retailing, 1982-2002) In 2010-11, Sainsbury launched several sponsorship programs, the most popular of which is the sponsorship for 2012 Paralympics. In 2011, Sainsbury’s also opened its 1000th store which is based in Scotland and marks a major milestone for the company and for the entire Sainsbury’s group. (The beginning - Sainsbury's. 2012) Financial Analysis The financial analysis for Sainsbury’s includes two major ratios which are Net Profit Margin and Stockholder’s Equity Ratio. These ratios are calculated over a two year period that is 2010-11, in order to understand how Sainsbury’s is faring financially: Net Profit Margin: Details 2011 2010 Net Income 640 585 Revenue 21,102 19,964 Net Profit Margin (Net Income / Revenue) 3.03% 2.93% (Sainsbury’s Annual Report 2011) The net profit margin indicates that over the past two year period, the company has increased its earning per dollar of revenue earned as it net profit margin percentage has increased from 2.93% in 2010 to 3.03% in 2011.additionally, for the current year, we can see that the company has earned 3 cents in net profit or net income against each dollar of revenue that it has earned in 2011. These net profit margin figures are also indicative of the fact that the company has been able to grow and improve its pricing strategy, reduce its operational costs and reduce its liability costs (interest to be paid) over the year which had led to an increase of 0.1% over the year (Ratio – Profit Margin, 2012, 3 Financial Ratios, 2012) Stockholders Equity Ratio: Details 2011 2010 Total Liabilities 5,475 5,679 Stockholders Equity 4,221 4,157 Stockholders Equity Ratio (Total Liabilities / Stockholders Equity) 1.30 1.37 (Sainsbury’s Annual Report 2011) The stockholders equity ratio indicates that the company has leveraged its equity and taken loans and established liabilities against it. The ratio is indicative of the number of times the company has leveraged itself over its equity. This implies that in 2011, the company has leveraged about 1.3 times its equity which has actually reduced from the previous year when it was 1.37 in 2010. A high ratio of stockholders equity indicates that the company has an aggressive financing mode and would like to grow through financial leverage instead of organic growth through buildup of retained earnings. For an organization that is in the retail sector, leverage ratios are generally ranging from 1.5 to 1.68 which means that Sainsbury’s actually is less leveraged than an average retail company within the industry. (Debt/Equity Ratio, 2012, 3 Financial Ratios, 2012) Purpose of Financial Statements and Annual Reports There are various reports and press releases that organizations make public over the course of a year; however, the most critical and important one is the annual report that declares the company’s financial position and health over the past year along with the activities and strategies that the company has undertaken and implemented over the year. The financial statements and annual report also identifies the number of activities and strategies that the company has plans for and will undertake in the future. All future plans, growth patterns, futuristic activities and risks are identified in an annual plan other than historical activities, growth patterns and the risks that the organization has faced. (The Use of Historical Financial Statement Information, 2012, The Uses Of Financial Statements, 2012) There are various stakeholders who are involved in an organization which includes both internal as well as external stakeholders. Each stakeholder group considers the annual report as important for their individualistic purpose which ranges from understanding the company’s growth opportunities for its future growth potential, to its current financial health; and from its corporate social responsibility to its ability to perform and face business as well as strategic risks. (Analysis And Uses Of Financial Statements, 2012) Conclusion The paper discusses two major elements related to annual reports, one being financial analysis of an organization and the second one being the purpose of annual reports for the stakeholders of any organization. The case in point was the annual report for 2010-11 for Sainsbury’s Supermarket Ltd. which is one of the largest retail stores in the United Kingdom. The analysis of its ratios indicates that the company has shown great promise and its net profit margin has shown an improvement over the two year time period while its leverage is also significantly lower than an average of the retail companies. This is also indicative of the fact that Sainsbury’s shows great promise in the future of retail industry if it continues to grow at this pace availing opportunities as it grows. In addition to that, the paper also analyzed the reason why annual reports are published by organizations and why they are important to stakeholders, the primary reason being information and evaluation of the company along with its future prospects of growth. References: 1. The beginning - Sainsbury's. 2012. The beginning - Sainsbury's. [ONLINE] Available at: http://www2.sainsburys.co.uk/aboutus/our_140th/through_the_years/the_beginning.htm. [Accessed 01 February 2012] 2. Sainsbury Sales Slow More Than Anticipated on Fuel - Bloomberg. 2012. Sainsbury Sales Slow More Than Anticipated on Fuel - Bloomberg. [ONLINE] Available at: http:// www.bloomberg.com/news/2011-03-23/sainsbury-sales-slow-more-than-anticipated-amid- fuel-cost-rise.html. [Accessed 01 February 2012]. 3. Corporate Strategy In UK Food Retailing, 1980-2002. 2012. [ONLINE] Available at: http:/ /web.archive.org/web/20080627171320/http://cep.lse.ac.uk/seminarpapers/24-05-04+- +Background+paper+by+Geoffrey+Owen.pdf. [Accessed 01 February 2012]. 4. Ratio - Profit Margin. 2012. Ratio - Profit Margin. [ONLINE] Available at: http:// www.investopedia.com/university/ratios/profitmargin.asp#axzz1l9Q7cL7J. [Accessed 01 February 2012] 5. Financial Ratios - Current Ratio - Debt Ratio - Profit Margin. 2012. 3 Financial Ratios - Current Ratio - Debt Ratio - Profit Margin. [ONLINE] Available at: http:// sbinfocanada.about.com/od/management/a/3ratios.htm [Accessed 01 February 2012] 6. Debt/Equity Ratio Definition | Investopedia . 2012. Debt/Equity Ratio Definition | Investopedia . [ONLINE] Available at: http://www.investopedia.com/terms/d/ debtequityratio.asp#axzz1l9Q7cL7J. [Accessed 01 February 2012]. 7. Sainsbury’s Annual Report 2011. 2012. [ONLINE] Available at: http://www.j- sainsbury.co.uk/media/171813/ar2011_report.pdf. [Accessed 01 February 2012]. 8. The Use of Historical Financial Statement Information. 2012. 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