Ratios analysis for Sainsbury and comparing with its competitors (TESCO, Morrsinos and M&S) - Essay Example

FINANCIAL RATIO ANALYSIS Institute Financial Ratio Analysis Sainsbury Sainsbury 2009 Sainsbury 2008 TESCO MORRSION 2010 M&S 2010 Liquidity ratios: current ratio 0.66 0.55 0.65 0.73 0.54 0.80 quick ratio 0.37 0.31 0.39 0.44 0.24 0.36 Cash Ratio 0.3 0.21 0.27 0.18 0.11 0.21 stock days (inventory days) 14 days 14 days 15 days 19 days 15 days 28 days Gearing ratios: Gross debt-equity ratio(excluding intangibles) 55.0% 53.27% 44.62% 74.9% 41.6% 74.1% Net debt-to-equity(excluding intangibles) 47.2% 38.94% 30.05% 68.2% 39.1% 68.

1% Net interest cover 5.7x 3.64x 4.75x 3.1x 3.3x 2.6x Efficiency ratios total assets turnover 1.8x 1.88x 1.76x 1.2x 1.8x 1.3x fixed assets turnover 2.5x 2.2x 2.1x 2.5x 2.2x Profitability ratios gross profit margin 5.45% 5.47% 5.6% 8.2% 6.97% 9.09% operating profit margin 3.6% 3.14% 2.99% 6.1% 5.5% 8.9% net profit margin 2.9% 2.16% 2.84% 4.1% 3.8% 5.5% Investment ratios Earnings per share 32.1 16.6 19.1 29.33 23.93 33.5 (Source: Sainsbury plc; Morrisons; M&S; Tesco, 2011 Source: Sainsbury plc, WM MORRISON SUPERMARKETS, 2011 Source: Sainsbury plc, Annual Reports 2010, 2009) The above ratios indicate the financial performance of all the companies.

Sainsbury plc has performed exceptionally well during the last three years, the company’s performance has been reviewed through the financial ratios. Liquidity ratios help in ascertaining the survival of a company. This is basically a short term measure. Current ratio is one of the liquidity ratio which helps in identifying a company’s ability to pay off its short term liabilities with the help of its current assets. Quick ratio tells the status of a company to pay off its short term liabilities with the most liquid assets (cash ratio shows paying liabilities off with cash).

Sainsbury plc’s liquidity position has improved during the three years with its current, quick and cash ratios either improving or just remaining at the same level as that of year 2008. Although the liquidity position for Sainsbury might not be considered very good if compared to the benchmark but its current, quick and cash ratio are much better than its competitor Morrison. The company liquidity position is better than Morrison but if compared to the other competitors, it may not seem good enough.

As of 2010, Marks and Spencer and Tesco hold the better liquidity position, Tesco’s current ratio is 0.73:1, Mark & Spencer’s current ratio has been 0.80:1, Morrison’s current ratio being 0.54:1 and Sainsbury’s current ratio has been 0.65:1. Besides the liquidity position, the company’s gearing ratios are also analyzed. Gearing is an essential element which helps in deciding upon the balance between equity and debt financing. The more highly a company is geared, the more difficult it would be for the company to raise further debt finance as high level of gearing denotes that the company is highly involved in debt financing.

The gearing position for Sainsbury during the years 2008 to 2010 shows that the company has highly indulged itself into debt financing rather than the equity financing mode. The gearing ratio has crept up during these three years for Sainsbury with its net debt-to-equity ratio increasing from being 30.05% in 2008 to 47.2% in 2010. Tesco and Marks and Spencer hold the highest gearing ratio in 2010 which is 68.2% and 68.1%. Morrison, on the other hand seems to prefer equity finance over debt. The efficiency ratios are another means of analyzing a company’s performance.

These ratios demonstrate how well a company uses its assets in order to increase its sales revenue. The efficiency ratios for Sainsbury have remained almost the same through the three years from 2008 to 2010. The only other company to keep the same standard as that of Sainsbury in the year 2010 has been Morrison. The profitability ratios for Sainsbury have improved during the three years 2008 to 2010. This shows that the company’s profit have increased during the three years. Profitability ratios help in ascertaining a company’s performance with respect to the profits that the company/organization has generated.

Of all these companies, M & S seems to keep the highest profitability ratios (e.g. 5.5% Net Profit Margin) Investment ratios show the attractiveness of a company to potential investors and Sainsbury has kept steady earnings per share figure. The company’s EPS has improved during the years 2008 to 2010 (M & S being the only other company to keep a matching EPS as that of Sainsbury). References Annual Report, Sainsbury plc, 2011 http://www.j-sainsbury.co.uk/ar10/financialstatements/index.shtml Annual Report, Sainsbury plc, 2010 http://www.

j-sainsbury.co.uk/ar09/ M & S, Stockopedia, Financial Ratios, 2011 http://www.stockopedia.co.uk/share-prices/marks-spencer-LON:MKS/financials/ Morrisons, Stockopedia, Financial Ratios, 2011 http://www.stockopedia.co.uk/share-prices/morrisons-LON:MRW/financials/ Sainsbury, Bloomberg Businessweek, 2011 http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=SBRY:LN Sainsbury plc, Stockopedia, Financial Ratios, 2011 http://www.stockopedia.co.uk/share-prices/j-sainsbury-LON:SBRY/financials/ Tesco, Stockopedia, Financial Ratios, 2011 http://www.

stockopedia.co.uk/share-prices/tesco-LON:TSCO/financials/ WM MORRISON SUPERMARKETS, Bloomberg Businessweek, 2011 http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=MRW:LN