Company Profile - Assignment Example

Company Profile J Sainsbury Plc is the largest food retailer operating out of the United Kingdom. The firm was founded in 1869. Its home offices are located at in London. The physical address of the corporate headquarters is 33 Holborn, London EC1N 2HT. In 2009 the company achieved sales of 18,911 million pounds. The company serves on a weekly approximately 18.5 million customer. The firm also owns the Salisbury Bank. This corporation is extremely innovative. It currently offers an internet based shopping service that delivers the food to the homes of the customers. The home shopping internet service is available in 90% of the UK territory. The workforce of the enterprise amounts to 150,000 employees. Sainsbury has 525 supermarkets, 303 convenience stores and one bank. Its market share of 16% is the largest in the industry. “The Sainsburys brand is built upon a heritage of providing customers with healthy, safe, fresh and tasty food” (Jsainsbury, 2010). This year the company celebrated its 140th birthday. The business priorities of the company are: a) Great food at fair price; b) Accelerating the growth of complimentary non-food ranges; c) Reaching more customers through additional channels; d) Growing supermarket space; e) Active property management (Jsainsbury, 2010). The common stocks of the company are traded in the London Stock Exchange. Information concerning the prices of the stock from April 7, 2010 to April 14, 2010 is illustrated in Appendix B. The company utilized the straight line method to depreciate its assets. Inventories are valued at the lower of cost and net realisable value. Management Team The company’s Chairman is David Tyler.The chief executive officer (CEO) is Justin King, while the chief financial officer (CFO) is Darren Shapland. Mike Coope serves as the Trading Director. The company Chairman started his position on October 1, 2009 replacing Phillip Hampton. He has extensive experience working at the managerial executive level at Experian Group, Burberry plc, and Logica plc. He is currently 56 years of age. Financial Analysis of Sainsbury’s J Sainsbury generated total sales of 18,911 million pounds in fiscal year 2009. In comparison with 2008 the firm was able to increase its revenues by 6%. Despite the fact that the company achieved higher revenues its bottom line was not as good as in 2008. In 2009 Sainsbury’s obtained a net income of 289 million pounds. In 2008 its net income was 329 million pounds. About 68% of the decrease in net income was due to higher income taxes. The total assets of the enterprise in 2009 were 10,033 million pounds. During 2009 the company was able to increase its total assets by 7.18%. The total equity of Sainsbury’s in 2009 was 4,376 million pounds which represented an increase of 14.37% in comparison with 2008. The total debt of the company in 2009 was 5657 million pounds. The basic earnings per share of the company in 2008 was 19.1 pounds, while in 2009 the earnings per share of the company was reduced to 16.6 pounds (Annual Report: Sainsbury, 2009). Ratio Analysis In order to perform a more deep evaluation of the financial performance of J Sainsbury we must use ratio analysis. The utilization of ratio analysis works best when the financial analyst compares the results to the industry norm. The industry norm of the financial ratios used in this analysis is illustrated in appendix C. The information was retrieved from the Dun & Bradstreet database. The net margin of the company in 2009 was 1.53%. Low margins are a norm in this industry. The industry average for net margin is 1.4% which means Sainsbury’s numbers are 0.14% better than the industry. The return on equity (ROE) of Sainsbury’s was 6.88%, while the return on assets (ROA) was 2.88%. Both these figures were well below the industry norms of 11.9% and 5.5% respectively. The debt ratio of the company was 1.77 Based on the general rule of a 1.0 being a desirable number this corporation has too much debt. Another problem discovered by the ratio analysis is solvency issues. The current ratio of the company is 0.55. This number is very low in comparison with the industry norm of 1.9. The current ratio is test that shows the company’s ability to pay its short term debt. The quick ratio is another solvency test that does not consider inventory in its calculation. The quick ratio of the firm was 0.33, while the industry operates at 0.70. Recommendation J Sainsbury plc is a well know company in the food industry that has penetrated the UK market well. Proof of their success is the fact that they hold the highest market share in the United Kingdom. The analysis of the financial information of the company shows some troubling information. The firm achieved a positive net income of 289 million pounds, but in comparison with the previous there was negative growth. The income numbers are not as concerning as the cash flow position of the company. The firm has a very poor current ratio. If the problem persists that firm may become insolvent. A potential solution to solve the liquidity problem at Sainsbury’s is to sell off some of its assets. The company profitability numbers which include ROA and ROE are well below the industry average. This is not a good sign from an investor’s point of view. Recently the price of the stock has been going up. The price of its common stock was 333.5 pounds on April 7, 2010. By April 14, 2010 the price of the stock had increased to 348.5 pounds. Despite the short term gain in the price of the stock I would not invest in Sainsbury’s due to its liquidity problems and underperforming profitability numbers. References Annual Report: J Sainsbury Plc (2009). Retrieved April 16, 2010 from http://www.jsainsburys.co.uk/index.asp?pageid=20 Dun & Bradstreet (2010). Food Stores Key Business Ratios. Retrieved April 16, 2010 from Dun & Bradsteet database. Jsainsburys.co.uk (2010). Key Facts. Retrieved April 16, 2010 from http://www.jsainsburys.co.uk/index.asp?pageid=192 Yahoo.com (2010). Sainsbury: Historical Prices. Retrieved April 16, 2010 from http://finance.yahoo.com/q/hp?s=SBRY.L&a=03&b=7&c=2003&d=03&e=14&f=2010&g=d Appendix A: Cross reference of data The data concerning the EPS numbers were retrieved from the income statement of the company located in the annual report page 43. The data concerning the depreciation methods was retrieved from the annual report page 48. The data concerning the inventory valuation method used was retrieved from the annual report page 49. The income statement and balance sheet were used as sources for the ratio analysis. They are located in pages 43 to 45 of the financial statement Appendix B: Sainsbury’s common stock price chart (Yahoo, 2010). Legend: Date Price 7-Apr 333.5 8-Apr 334.2 9-Apr 338.4 12-Apr 346.6 13-Apr 349.7 14-Apr 348.5 Appendix C: Financial Ratio Analysis and Industry Norms 2009 Industry average Net margin 1.53% 1.4% Return on equity 6.60% 11.9% Return of Assets 2.88% 5.1% Debt Ratio 1.77 Current Ratio * 0.55 1.9 Inventory Turnover * 25.94 19.9 Quick Ratio 0.33 0.7 (Dun & Bradstreet, 2010). The current ratio of the company in 2008 was 0.25, while the inventory turnover in 2008 was 24.72. Appendix D: Food Stores (SIC: 54) Key Business Ratios (Dun & Bradstreet, 2010). Read More