J Sainsbury Plc'S Results - Assignment Example

Company’s annual report and accounts - J Sainsbury plc Contents Introduction 3 Ratio analysis 3 Profitability ratios 4 Liquidity ratios 6 Efficiency ratios 7 Capital gearing ratios 8 10 Conclusion 10 References 11 12 Appendix 13 Introduction In the year 1869 Sainsbury was founded in UK. It is a retail based company. The first store was opened in the Drury Lane of London. From the year 1882 they started selling their own brand products. The development of the company is running for the last hundred forty four years. Now it operates more than one thousands super markets with the help of one lac fifty thousand employees. Employees are treated here as colleagues, whereas the customers are the heart of the company. The Motive of the company is to satisfy the customers with best shopping experience. The strong cultural values make their identity as well as it is the integral part of their success (J Sainbury Plc, 2013, p.1). David Tyler is the chairman of the company. In real fair price, they are offering the best food for health. Profit making is not only the main of the company. They respect the environment. Their aim is to be the greenest grocer of UK. As well as they are funding for different charitable causes. From being a retail shop it is now diversifying its business by going online, opening own brand bank, they also doing property related business. All of these help them to acquire the whole market. In every aspect of need and demand Sainsbury can stand with their product as well as services. As a super market it is the first sponsor of the London 2012 Paralympics Games. The company has a market share of 16.5% in the UK super market (Mirza, 2012, pp.34-87). Ratio analysis When an investor wants to invest in any company he needs to analyse the financial information of that company. The huge amount of numbers in the financial statement may confuse the investors. So financial ratio is a simpler and more organised way by which the investor can easily make his judgement about the financial position of the company. So we can say that Ratio analysis is a tool which is mainly used for different quantitative analysis of one company’s financial statement (Friedlob and Schleifer, 2003, pp.45-67). The company’s liquidity, solvency, efficiency and capital structure of the company can be understood by using ratio analysis. Some of the ratio discussed below. Profitability ratios Comparing with the expenses and relevant costs of the company, what is the ability of the business to generate earnings is measured by this type of ratios. Profit margin and return on assets are the two basic profitability ratios to measure the earnings capability of the companies (J Sainsbury plc, 2012, pp.2-5). Year 2012 2011 2010 2009 2008 Revenue 22294 21102 19964 18911 17837 Profit for the period 598 640 585 289 329 The above table shows the yearly amount of profit and revenue. We can see that it is continuously increasing in terms of revenue. However the profit amount gets decreased in 2009 and 2012 relevant from the previous economy. The world economy can give answer for this, as these two years suffered from recession and depression (Augustin, 2011, pp.16-34). As the chairman said that they are planning to increase the dividend in the coming year in two terms over the medium term. They increases in the following way. Year 2012 2011 2010 2009 2008 Dividend per Share 15.30p 14.50p 13.60p 12.60p 10.35p However, considering the current scenario of the world economy it will get difficult for the company to maintain the increase in the dividend in the same way (J Sainsbury plc1, 2011, pp.3-7). Gross profit margin is the ratio where the gross profit is measured over the revenue of the company. Considering the world economy we can say that the company is doing well (Hemming Information Services, 2006, pp.67-108). Return on assets ratio tells the shareholder about what amount of earnings are generated from his invested capital. It is highly dependent on the industry. The following graph shows the earning position of an investor if he invests in Sainsbury. The graph shows that the company also affected in the recession period with the industry (Hm and Böhm, 2008, pp.23-56). Liquidity ratios These ratios help to show the ability of the company to pay its short term debt obligations. The higher the ratio the lager margin of safety the company will possesses to cover its short term debts (Maguire, 2007, p.15). Year 2012 2011 2010 2009 2008 Current Assets 2032 1721 1853 1591 1722 Current Liabilities           Borrowings 150 74 73 154 165 Other Current Liabilities 2986 2868 2720 2765 2487 3136 2942 2793 2919 2652 Borrowings 2617 2339 2357 2177 2037 Provisions 349 234 210 152 384 Net Interest 124 113 110 140 127 The company does not have any bank overdraft. It has its long term borrowings. The amount of interest the company has to paid are shown in the above chart. Current ratio and quick ratio are explained for the period of five years (J Sainsbury plc4, 2008, p.35). Current ratio helps the investor to understand about the pay ability of current assets over current liability. The optimum current ratio is 1, whereas here the company is able to maintain it above .5 and trying to reach the optimum level. Quick ratio determines the ability of company to meet the short term obligations by the help of current assets or liquid assets of the company. Current assets after the deduct ion of inventories is measured over current liabilities. Higher current ratio signifies better the liquidity position of the company to meet its short term obligations. By the following graph we can see that the company’s quick ratio cannot cross the limit of 0.5 for the last five years. Efficiency ratios How the company is using its assets and liabilities internally has been measured by these kind of ratios. The general use of inventory and machinery, receivable turnovers, repayment of liabilities and the usage of equity can be measured by these kinds of ratios. Asset turnover ratio determines that by every amount of worth of assets how much sales can be generated is calculated by this ratio. For the growth companies to check if they are able to generate revenue in proportion of sales or not is measured here, the higher number shows that the company is working more efficiently than who have less one. On the following graph we can see that Sainsbury is making on an average 1.8 for the last five consecutive years. This proves that the company is working efficiently, however it needs comparison with similar type of companies (Peterson and Fabozzi, 2012, pp.67-90). Inventory conversion period indicates that the average time the company is needed to collect the payment from its client or debtors is shown in this ratio. As we can see that the company is able to collect its money from the customer on an average 14 days, which indicated the efficiency of the company. Capital gearing ratios These types of ratios make a comparison between the owner’s equity and borrowed fund. It helps the investor to measure the financial leverage, by demonstrating the degree of activity performed by the company (J Sainsbury plc3, 2009, p.42). Year 2012 2011 2010 2009 2008 Capital & Reserves           Share Capital 538 535 532 501 499 Share Premium Account 1061 1048 1033 909 896 Other Reserves 315 467 438 489 1174 Retained Earnings 3715 3374 2963 2477 2366 Shareholders’ Funds 5629 5424 4966 4376 4935 Borrowings 2617 2339 2357 2177 2037 Provisions 349 234 210 152 384 Net Interest 124 113 110 140 127 The above chart shows the changes in the amount of the company’s equity share, reserve and also its provisions and interests (J Sainsbury plc2. 2010, p.36). Debt ratio evaluates the portion of debt in relative to the assets is measured by this ratio. This ratio also helps to measure the financial leverage as well as the amount of potential risks that the company may faces in term of loan in the future. If the ratio is one, it shows that the company is having more assets than debt. The level of risk for investing in any company can be measured by the help of this ratio. In the following graph we can see that the company is running risk as it cannot able to make its debt ratio in one. Debt to equity ratio measures portion of debt and equity is using by this company can be measured by this kind of ratio. An aggressive company which is using debt in high quantity may have a high ratio. Here the amount of debt equity ratio is highly appreciable by an investor. The amount of debt and equity are using by this company in an efficient way (Bragg, 2012, p.24). Conclusion Now by examining all the above ratios we came to this conclusion that, despite of the volatile world economy, Sainsbury is performing well enough. However in the liquidity position it does not implicate a good picture to the investor. While as in terms of investing the investor also need to understand different aspects of the company like its profitability, efficiency and the capital structure. All these make the investor to take his risk to invest or not to invest in this company. Moreover one should consider the financial performances of the competitors of this company before investing, for better judgement and to get the clear picture. References Augustin, J. 2011. Management Accounting at J Sainsbury Plc. GRIN Verlag: UK. Bragg, S. M. 2012. Financial Analysis: A Controllers Guide. John Wiley & Sons: US. Friedlob, G. T. and Schleifer, L. L. F. 2003. Essentials of Financial Analysis. John Wiley & Sons: US. Hansen, E., Alexander, M. and James, A. 1998. J Sainsbury Plc and the Home Depot: Retailers Impact on Sustainability: Case Study. Island press: UK. Hemming Information Services. 2006. The Retail Directory. The Retail Directory: UK. Hm, A. B. and Böhm, A. 2008. Interpretation of Key Figures in Financial Analysis. GRIN Verlag: Germany. J Sainbury Plc. 2013. About Us. [Online]. Available at: http://www.j-sainsbury.co.uk/about-us/. [Accessed on: April 23, 2013]. J Sainsbury plc. 2013. Annual Report and Financial Statements 2012. [Pdf]. Available at: http://www.j-sainsbury.co.uk/media/649393/j_sainsbury_ara_2012.pdf. [Accessed on April 23, 2013]. J Sainsbury plc1. 2012. Annual Report and Financial Statements 2011. [Pdf]. Available at: http://www.j-sainsbury.co.uk/media/171813/ar2011_report.pdf [Accessed on April 23, 2013]. J Sainsbury plc2. 2011. Annual Report and Financial Statements 2010. [Pdf]. Available at: http://www.j-sainsbury.co.uk/media/649393/j_sainsbury_ara_2010.pdf. [Accessed on April 23, 2013]. J Sainsbury plc3. 2010. Annual Report and Financial Statements 2009. [Pdf]. Available at: http://www.j-sainsbury.co.uk/media/649393/j_sainsbury_ara_2009.pdf. [Accessed on April 23, 2013]. J Sainsbury plc4. 2009. Annual Report and Financial Statements 2008. [Pdf]. Available at: http://www.j-sainsbury.co.uk/media/649393/j_sainsbury_ara_20082.pdf. [Accessed on April 23, 2013]. Maguire, M. 2007. Financial Statement Analysis. GRIN Verlag: Germany. Mirza, A. 2012. Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP. John Wiley & Sons: UK. Peterson, P. P and Fabozzi, F. J. 2012. Analysis of Financial Statements. John Wiley & Sons: USA. Appendix Ratio Analysis Sainsbury   2012 2011 2010 2009 2008 Profitability ratio           Gross profit margin 0.04 0.04 0.04 0.04 0.03 Return on asset 0.05 0.06 0.05 0.03 0.03 Liquidity ratio           Current ratio 0.65 0.58 0.66 0.55 0.65 Quick ratio 0.35 0.31 0.41 0.31 0.39 Efficiency/Activity Ratio           Asset turnover 1.81 1.85 1.84 1.88 1.76 Inventory Conversion Period 15.98 14.64 13.31 13.79 14.36 Gearing ratio           Debt ratio 0.54 0.52 0.54 0.56 0.51 Debt to equity ratio 1.19 1.10 1.19 1.29 1.05 Read More