Introduction:
The aim of this report is to conduct an analysis of the financial statements of J. Sainsbury plc and Tesco plc for the year ending 2013, comparing both companies by looking at the ratios calculated and looking at the importance of supplementing financial analysis with non-financial considerations.
Tesco is Britain’s leading food retailer and the third largest in the world. Tesco opened in 1929. After joining the eighties trend for large out-of-town supermarkets, in the 1990’s the company started pioneering many new innovations. Tesco has over 530,000 colleagues over 12 countries serving up to 75 million transactions every week. J. Sainsbury is into grocery, retail and financial services. It has a 16.8% UK market share. It has 157,000 colleagues, 23 million customer transactions per week, and 1,106 stores. The information in appendix 1 and 2 was extracted from both companies’ annual reports, for Sainsbury’s year ended March 2013 and February2013 for Tesco.
Analysis
An operating profit of £9.25 was made on every £100 of capital employed from Sainsbury’s. Compared to Tesco, an operating profit of £7.02 was made on every £100. Looking at the two figures Sainsbury utilizes their capital more efficiently than Tesco, because looking at their revenue scale Tesco is has 2188 compared to Sainsbury which only has 887. Using the 10 year benchmark in the UK, the risk free return rate is at 2.87% in the UK ( (Bloomberg). Therefore comparing Tesco and Sainsbury against the risk free return they are both performing well.
Gross profit
J. Sainsbury made £5.48 in gross profit for every £100 of revenue whilst Tesco is performing better at £6.31 in every £100.

The gross profit margin of both companies is mostly affected by global economic recession but Tesco is doing quite well. Sainsbury find itself in difficult probably due to high competition with other high street supermarket like Asda, Morrison, and Somerfield.

Read more: http://www.ukessays.com/essays/marketing/an-analysis-of-business-and-financial-performance-of-tesco-marketing-essay.php#ixzz2qYxzWy4W

Operating profit
The operating profit margin is lower than the gross profit margin (£3.81 operating profit for every £100 of revenue) because it takes account of total expenditure
Current ratio
J. Sainsbury has £0.61 of current assets for every £1 of current liabilities in 2013. This means that there will be no problem for J. Sainsbury’s in covering their current liabilities if their current creditors had to be all paid at once. Tesco also has £0.70 for every £1 of current liability. They also are able to pay back their current creditors if needs be.
Acid test
Current assets include the inventory which cannot be converted into cash at a short term notice (Accounting for managers 2012) therefore the acid test ratio is the ration which takes this into account. The acid test shows the relationship between liquid assets and current liabilities (POWERPOINT). J. Sainsbury has £0.30 of liquid assets for every £1 of their current liabilities in 2013. This means they may experience difficulty in paying their debts if they need to pay them at once. Tesco currently has more liquid assets than Sainsbury; however they only have £0.49 of liquid assets for every £1 of their current liabilities. However Tesco would still struggle in repaying all their debts at once.
Gearing
Gearing if the amount of borrowings relative to shareholders equity (Accounting for managers 2012). J. Sainsbury’s gearing in 2013 was lower, with long-term debt up to 29.04% compared to Tesco which was at 46.50%
An answer of more than 50% indicates that the business is 'highly geared', since it has to make large monthly debt repayments. This can become a problem (especially if the economy heads into a recession or the industry goes into decline) because the business will still have to make its monthly repayments, even though its cash inflows may be deteriorating.
A business with a gearing ratio of less than 50% is said to have 'low gearing', since its monthly debt repayments do not form a significant proportion of its monthly outgoings.

Identify and discuss possible users of your analysis and their differing information requirements

The possible users for Tesco and Sainsbury could be the stakeholders, which mean anyone that has an interest in the business doing well. The main stakeholders for these companies are the present and potential investors. The information that they would require would be the level on operating profit whether than if it is better than the average.

 Customers – purchasing risk
 If buying on credit, is the business a going concern?
 If warranties, guarantees or continuity of supply are important, is the business profitable enough to continue providing goods/services?

 Employees – employment risk
 Is the business sufficiently profitable and liquid to continue operations for the foreseeable future without cutting jobs, reducing prospects or placing future employment benefits at risk?
 Present and potential investors – investment risk and stewardship of management
 Is the level of return on operating profit better than the industry average?
 Is working capital being managed efficiently?
 Does the business have enough liquidity to remain solvent?
 Are there any risks from the capital structure of the business/gearing?
 Are the returns to shareholders higher and the prospects better than alternatives?