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FINDINGS AND ANALYSIS

4.1

Presentation of data and Analysis

In this section the financial ratios of the company are presented in the form of tables and graphs. Four types of financial ratios are calculated. These are profitability ratios, liquidity ratios, leverage ratios and efficiency ratios.

4.1.1 Profitability Ratios

To analyze the profitability of Sainsbury six ratios are calculated for last five years financial data of the company. The ratios calculated are Gross profit margin, operating profit margin, net profit margin, return on shareholders equity, return on total assets, and earnings per share. These ratios are discussed in the following lines.

Gross Profit Margin Gross profit margin is calculated by dividing gross profit with the total sales and multiplying by 100. Gross profit determines the total profits gained by the company in order to meet the operating expenses. The gross profit margins of the company calculated for the last five years are as follows:

millions Year Gross Profit Sales Gross Profit Margin

Gross Profit Margin Sainsbury 2012 2011 1,211 1,160 22,294 21,102 5.43 5.50

2010 1,082 19,964 5.42

Tesco 2012 5261 64539 8.15

The above table presents the gross profit margin of Sainsbury for the last five years. It suggest that gross profit margin of Sainsbury has decreased over a period of five years. In year 2007 it was 6.8 % which decreased to 5.6% in year 2008. In year 2011 the gross profit margin of Sainsbury was 5.5 %. The graphical representation of the gross profit margins for the five years is given below:

Gross Profit Margin


8 7 6 5 4 3 2 1 0 2011 2010 2009 2008 2007

GP Margin

Years

The comparison of gross profit margin of Sainsbury for the year 2011 with the gross profit margin of the Tesco for the year 2011 is shown in the following table. It suggests that Sainsbury is quite behind the industry leader in terms of gross profit margin. The gross profit margin of Tesco for 2011 was 8.29% whereas gross profit margin of Sainsbury for 2011 was 5.5 %.

Gross Profit Margin Sainsbury Tesco 5.5 8.29

The graphical representation of the above table is as follows:

GP Margin
10 8

GP Margin

6 4 2 0 Sainsbury Companies Tesco

Operating Profit Margin

Operating profit margin of the company determines the profitability of a company arising from its operations. Operating profit does mot incorporates interest charges in it. The operating profit margins of the company calculated for the last five years are as follows:

millions Year Operating Profit Margin Sales Operating Profit Margin

Operating Profit Margin Sainsbury 2012 2011 874 851 22,294 21,102 3.92 4.03

2010 710 19,964 3.56

Tesco 2012 3985 64539 6.17

The ratios presented in the above table suggest that operating profit margin of the company was at its minimum value in the year 2008 and in the year 2011 it was at its maximum value. In year 2008 the operating profit margin was 2.97% whereas in the year 2011 it was 4.0%. The decrease in operating profit margin in the year 2008 can be contributed to the financial crisis. Decreased gross profit margin has contributed to lower the operating profit margin. representation of the operating profit margins for the five years is given below: The graphical

Operating Profit Margin


Operating Profit Margin
5 4 3 2 1 0 2011 2010 2009 2008 2007

Years

The comparison of operating profit margin of Sainsbury for the year 2011 with the operating profit margin of the Tesco for the year 2011 is shown in the following table. It suggests that Sainsbury stands behind Tesco in terms of operating profit margin. The operating profit margin of Tesco for 2011 was 6.35 % and operating profit margin of Sainsbury for the year 2011 was 4.03%.

Operating Profit Margin Sainsbury Tesco 4.03 6.3

The graphical representation of the operating profit margin of Tesco and that of Sainsbury is as follows:

Operating Profit Margin


Operating Profit Margin
7 6 5 4 3 2 1 0 Sainsbury Companies Tesco

Net profit margin

Net profit margin of a company shows the true profitability in terms of units of money per unit of sale. If the net profit of a company is less it means that either the prices of products are less or the cots and expenses are high. The net profit margins of Sainsbury calculated for the last five years are as follows:

millions Year Net Profit Sales Net Profit Margin

Net Profit Margin Sainsbury 2012 2011 598 640 22,294 21,102 2.68 3.03

2010 585 19,964 2.93

Tesco 2012 2814 64539 4.36

The net profit margins presented in the above table suggest that in the year 2009 net profit margin of the company was at its minimum value and in the year 2011 it raised to a maximum value. In year 2009 the net profit margin was 1.52% whereas in the year 2011 it was 3.03.0%. The decrease in the net profit margin in the year 2009 can be due to the financial crisis that it all the businesses of the world. Net profit is calculated by subtracting expenses from operating

margin. The operating margin has decreased in the year 2008, as a result net profit margin also decreased. The graphical representation of the net profit margins for the five years is given below:

Net Profit Margin


3.5 3

NP Margin

2.5 2 1.5 1 0.5 0 2010 2010 2009 2008 2007

Years

The contrast of net profit margin of Sainsbury for the year 2011 with the net profit margin of the Tesco for the year 2011 is shown in the following table. It is clear that net profit margin of Sainsbury is less the net profit margin of Tesco. The net profit margin of Tesco for 2011 was 4.38 % whereas net profit margin of Sainsbury for the year 2011 was 3.03%.

Net profit margin Sainsbury Tesco 3.03 4.38

The graphical representation of the net profit margins of Tesco and Sainsbury for the year 2011 is given below:

Net Profit Margin


5 4

NP Margin

3 2 1 0 Sainsbury Tesco

Companies

Return on total Assets

Return on total assets is a tool to determine the return on total investment of a company. The total assets of a company are usually financed by creditors and shareholders. This ratio determines the output of investment of creditors and shareholders. The returns on total assets of Sainsbury calculated for the last five years are as follows:

millions Year Profit after Taxes Total assets Return on total Assets

Return on total Assets Sainsbury 2012 2011 598 640 12340 11399 4.85 5.61

2010 585 10855 5.39

Tesco 2012 2814 50781 5.54

The returns on assets for the last five years show that they were at their value in the year 2009 and at their maximum value in the year 2011. In the year 2009 the return on total assets was at its minimum value because in this year net profits were at their minimum value. In year 2009 the return on total assets was 2.88% whereas in the year 2011 it was 5.61. %. The graphical representation of the return on total assets for the five years is given below:

Return on total Assets


Return on Total Assets
6 5 4 3 2 1 0 2011 2010 2009 2008 2007

Years

The graph shows that return on total assets has decreased in the years 2008 and 2009. This reason behind it is that in these years net profit margin has also decreased. Return on total Assets Sainsbury Tesco 5.61 4.64

The comparison of returns on total assets of Sainsbury and Tesco for the year 2011 is shown in the above table. Return on total assets of Tesco is less as compared to return on total assets of Sainsbury. The return on total assets of Tesco for 2011 was 4.64 % whereas return on total assets of Sainsbury for the year 2011 was 5.61%. The return on assets of Tesco is less because it employs more assets as compared to Sainsbury and the larger amount in denominator decreases the return of assets.

The graphical representation of the return on assets of Tesco and Sainsbury for the year 2011 is as follows:

Return on Total Assets


Return on Total Assets
6 5 4 3 2 1 0 Sainsbury Companies Tesco

Return on shareholder's equity Return on shareholders equity determines the return on the investment of shareholders of company. The returns on shareholders equity of Sainsbury calculated for the last five years are as follows:

Return on shareholder's equity millions Sainsbury Tesco Year 2012 2011 2010 2012 Profit after Taxes 598 640 585 2814 Shareholder's Equity 5629 5424 4966 17801 Return on shareholder's equity 10.62 11.80 11.78 15.81

The returns on shareholders equity for the last five years show that year 2009 gives minimum returns on the shareholders equity. The return of shareholders equity was at its highest value in the year 2011. In year 2009 the return on shareholders equity was 6.60% whereas in the year 2011 it was 11.79 %. The graphical representation of the return on shareholders equity for the five years is given below:

Return on Shareholder's Equity


Return on Shareholder's Equity

14 12 10 8 6 4 2 0 2011 2010 2009 2008 2007

Years

In the years 2008 and 2009 the return on shareholders equity has decreased due to low net profits in these years. The comparison of returns on shareholders equity of Sainsbury and Tesco for the year 2011 is shown in the table below. Return on shareholders equity of Tesco is greater as compared to return on shareholders equity of Sainsbury. The return on shareholders equity of Tesco for 2011 was 17.89 % whereas return on shareholders equity of Sainsbury for the year 2011 was 11.79%. The return on shareholders equity of Tesco is more because its profit after tax is greater as compared to profit after tax of Sainsbury. Return on Shareholder's Equity Sainsbury Tesco 11.79 17.89

The graphical representation of return on shareholders equity of Tesco and Sainsbury for the year 2011 is as follows:

Return on Shareholder's Equity


Return on Shareholder's Equity
20 15 10 5 0 Sainsbury Companies Tesco

Earnings per share

Earnings per share represent the income available to shareholders for each share invested in the company. Earnings per share are calculated by dividing earnings available to shareholders with the number of shares. The earnings per share available to the shareholders of Sainsbury for the last five years are given in the following table:

Pence Year Earnings per share

Earnings per share Sainsbury 2012 2011 2010 32 34.4 32.1

Tesco 2012 36.75

The Earnings per share are at their highest value in year 2011. The year 2009 represents lowest earnings per share. Earnings per share in year 2009 are low because of the low profits in that year. The graphical representation of the Earnings per share of Sainsbury for the five years is given below:

Earnings per share


40 35 30 25 20 15 10 5 0 2011 2010 2009 2008 2007

Earnings per Share

Years

Low earnings per share in the years 2008 and 2009 are due to low net profits in these years. The comparison of Earnings per share of Sainsbury and those of Tesco for the year 2011 is shown the table below. Earnings per share of Tesco are lower as compared to Earnings per share of Sainsbury. The Earnings per share of Tesco for 2011 were 33.1 whereas Earnings per share of Sainsbury for the year 2011 were 34.4. This implies that investors get more earnings on one share invested in Sainsbury as compared to earnings on one share invested in Tesco. Earnings per share Sainsbury Tesco 34.4 33.1

The graphical representation Earnings per share of Tesco and those of Sainsbury for the year 2011 is as follows:

Earnings per Share


34.5

Earnings per Share

34 33.5 33 32.5 32 Sainsbury Tesco

Companies

4.1.2 Liquidity Ratios

Liquidity of an organization measures the tendency of an organization to pay the short term dents. If a company pays its short tern debts quickly and efficiently, it is said to be having more liquidity. Three types of ratios are calculated to analyze the liquidity of the company. These are current ratio, quick ratio and inventory to net working capital. The liquidity ratios of Sainsbury calculated for the last five years are presented as below:

Current ratio

Current ratio determines the ability of an organization to pay its short term debts with the help of assets that are converted into cash in a short duration of time. Current ratio is calculated by dividing current assets by current liabilities. The current ratios of Sainsbury calculated for the last five years are given in the following table:

millions Year Current Assets Current Liabilities

Current Ratio Sainsbury 2012 2011 2010 2032 1708 1797 3136 2942 2793

Tesco 2012 12863 19180

Current Ratio

0.65

0.58

0.64

0.67

The current ratios of Sainsbury for the last five years show that they are at their lowest value in year 2009. The year 2007 shows highest current ratio of Sainsbury. The current ratio for the year 2007 was 0.703 and for the year 2011 it was 0.58. The graphical representation of current ratios of Sainsbury for the five years is given below:

Current Ratio
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2011 2010 2009 2008 2007

Current Ratio

Years

In the years 2009 and 2008 current assets of Sainsbury decreased and its current liabilities increased which contributed in decreasing its current ratio in these years. The next two years are at better position in terms of current ratio.

The comparison of the current ratio of Sainsbury and that of Tesco is given in the following table. It shows that current ratio of Sainsbury is lower that that of Tesco. The current ratio of Sainsbury for the year 2011 was 0.58 and for Tesco it was 0.60. It implies that the Tesco is more capable of paying its short term debts as compared to Sainsbury. Current ratio Sainsbury Tesco 0.58 0.6

The graphical representation of current ratios of Sainsbury and current ratio of Tesco for the year 2011 is given below:

Current Ratio
0.605 0.6

Current Ratio

0.595 0.59 0.585 0.58 0.575 0.57 Sainsbury Tesco

Companies

Quick ratio

Quick ratio of an organization measures the ability of firm to pay its short term obligations from current assets other than inventories. The conversion of inventories into cash in short period of time has some difficulties. Quick assets represent the currents assets of an organization other than inventories. Quick ratio presents clearer picture of liquidity of an organization. The quick ratios of Sainsbury calculated for the last five years are given in the following table:

millions Year Quick Assets Current Liabilities Quick ratio

Quick ratio Sainsbury 2012 2011 2010 1094 896 1095 3136 2942 2793 0.35 0.30 0.39

Tesco 2012 9265 19180 0.48

The quick ratios of Sainsbury for the last five years show that the year 2009 has lowest quick ratio and the year 2007 has highest quick ratio. Quick ratio in the year 2007 was 0.48 whereas quick ratio for the year 2009 was 0.301. This suggests that after the financial crisis in 2007, the company is facing problems in paying its short tern debts. The graphical representation of quick ratios of Sainsbury for the five years is given below:

Quick Ratio
0.6 0.5

Quick Ratio

0.4 0.3 0.2 0.1 0 2011 2010 2009 2008 2007

Years

In the years 2009 quick assets of the company decreased from 929m to 881m. This decreased in quick assets contributed in the low quick ratio in the year 2009. In the next year quick assets increased and contributed to raise the quick ratio. The comparison of the quick ratio of Sainsbury and that of Tesco is given in the following table. It shows that quick ratio of Sainsbury is lower that that of Tesco. The quick ratio of Sainsbury for the year 2011 was 0.30 and for Tesco it was 0.40. It implies that the Tesco is more capable of paying its short term debts out of its quick assets as compared to Sainsbury.

Quick ratio Sainsbury Tesco 0.3 0.4

The graphical representation of quick ratios of Sainsbury and current ratio of Tesco for the year 2011 is given below:

Quick Ratio
0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Sainsbury Tesco

Quick Ratio

Quick Ratio

Inventory to net working capital Inventory to net working capital of an organization measures the degree to which working capital of the organization is occupied by the inventory. Working capital determines the short term financial condition of an organization. It is calculated by subtracting current liabilities from current assets. If the working capital of an organization is positive it means that company can pay its short term liabilities out of its current assets. A firm having negative working capital is unable to pay its short term debts out of its current assets. Inventory to net working capital ratio of a company determines the extent to which inventory hold the working capital. Inventory to net working capital ratio of Sainsbury calculated for the last five years is given in the following table: Inventory to net working capital millions Sainsbury Tesco Year 2012 2011 2010 2012 Inventory 938 812 702 689 Net Working Capital 1104 1234 -996 -1349 Inventory to net working capital -0.85 -0.66 0.70 -0.51

The graphical representation of Inventory to net working capital of Sainsbury for the five years is given below:

Inventory to net working capital


2007 2008

Years

2009 2010 2011 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0

Inventory to Net Working Capital

The Inventory to net working capital of Sainsbury for the last five years shows that the year 2009 has highest Inventory to net working capital ratio and the year 2007 has lowest Inventory to net working capital ratio. In the year 2007 Inventory to net working capital ratio was - 0.73 whereas Inventory to net working capital ratio for the year 2009 was -0.51. After the financial crisis company is seriously facing problems of liquidity. The graphical representation of Inventory to net working capital ratios of Sainsbury for the five years is given below:

4.1.3 Leverage Ratios

Leverage ratios of organizations assess their financing feasibility. They determine the ability of organizations to pay their financial liabilities. To assess the ability of Sainsbury in paying its financial obligations, three types of ratios are calculated. These are: Debt-to-assets ratio, Debt-toequity ratio, and Times-interest-earned. The explanation of the ratios is given below:

Debt-to-assets ratio

Debt to assets ratio of an organization determines the extent to which assets of an organization are financed by the debt. It is calculated by dividing long term liabilities or organization by total assets. A lower debt to asset ratio suggests that assets are financed by the debt to a lower extent. A higher debt ratio higher suggests that most of the assets are financed by the long term liabilities. Debt to total assets ratio of Sainsbury calculated for the last five years is given in the following table:

Debt-to-assets ratio millions Sainsbury Year 2012 2011 2010 Total Debt 5957 5957 5889 Total Assets 12340 11399 10855 Debt-to-assets ratio 0.48 0.52 0.54

Tesco 2012 5657 10033 0.56

The above table presents a clear picture about the financing of total assets of Sainsbury. In the year 2009 the debt to total assets ratio is highest as compared to the other years. Year 2008 presents lowest debt to total assets ratio of Sainsbury. In the year 2008 it is 0.512 whereas in the year 2009 it is 0.563. It implies that in year 2009 assets of Sainsbury were mostly financed by long term liabilities. The graphical representation of debt to total assets ratio of Sainsbury for the last five years is given below:

Debt-to-assets ratio
Debt to Asset Ratio
58 56 54 52 50 48 2011 2010 2009 2008 2007

Years

In the year 2009 the debt of the company increased and its total assets decreased. This has raised he debt to assets ratio of the company in year 2009. In the next year the total assets of the company increased and as a result its debt to equity ratio decreased.

The following table shows the comparison of debt to total assets ratio of Sainsbury and Tesco for the year 2011. It suggests that Debt to total assets ratio of Sainsbury is lower as compared to Tesco. Debt to assets ratio of Sainsbury is 52.24 and for Tesco it is 65.4. It implies that in Tesco most of the assets are financed by long term liabilities. Debt-to-assets ratio Sainsbury Tesco 52.24 65.4

The graphical representation of debt to assets ratio of Sainsbury and Tesco for the year is 2011 is given below:

Debt to Asset Ratio


70

Debt to Asset Ratio

60 50 40 30 20 10 0 Sainsbury Companies Tesco

Debt-to-equity ratio

Debt to equity ratio of an organization determines the extent of leverage of organization. It contrasts the funds provided by the creditors and the funds provided by the investors of the organization. It is calculated by dividing total debt by the equity of organization. A higher debt to

equity ratio suggests high leverage of the organization whereas a lower debt to equity ratio suggests lower leverage of the organization. Debt to equity ratio of Sainsbury calculated for the last five years is given in the following table:

Debt-to-equity ratio millions Sainsbury Year 2012 2011 2010 Total Debt 5957 5957 5889 Total Shareholder's Equity 5629 5424 4966 Debt-to-equity ratio 1.06 1.10 1.19

Tesco 2012 5657 4376 1.29

The above table presents a clear picture about the leverage of Sainsbury. In the year 2009 the organization is highly leveraged having debt to equity ratio of 1.29. In the year 2008 the organization is having lowest debt to equity ratio i.e. 1.04. The graphical representation of the debt to equity ratio of organization is as follows:

Debt-to-equity ratio
1.4

Debt to Equity Ratio

1.2 1 0.8 0.6 0.4 0.2 0 2011 2010 2009 2008 2007

Years
In the year 2009 debt of the company increased and as a result debt to equity ratio of the company increased. Debt to equity ratio of Sainsbury and Tesco for the year 2011 is compared in the following table. It shows that debt to equity ratio of Tesco is higher as compared to debt to equity ratio of Sainsbury. It implies that Tesco is highly leveraged as compared to Sainsbury.

Debt-to-equity ratio Sainsbury Tesco 1.098 1.87

The graphical representation of debt to equity ratio of Sainsbury and Tesco for the year is 2011 is given below:

Debt to Equity Ratio


2

Debt to Equity Ratio

1.5 1 0.5 0 Sainsbury Companies Tesco

Times-interest-earned

Times interest earned ratio determines the extent to which an organization can pay the financing cost out of its capital. It determines that for how many times an organization can pay the interest out of profits earned during a period. It is calculated by dividing profits before interests and taxes by the total interest charges. Times interest earned ratio calculated for the last five years of Sainsbury is given in the following table:

Year

Times-interest-earned millions Sainsbury Tesco 2012 2011 2010 2009 937 138 6.79 943 116 8.13 881 148 5.95 614 148 4.15

Profit Before interests and Taxes Total Interest Charges Times-interest-earned

The table suggests that in the year 2000 the ratio is highest and in the year 2009 it is lowest. In the year 2011 times interest earned ratio of Sainsbury was 4 and in the year 2011 it was 8. It means that in 2011 Sainsbury can pay the interest 8 times out of its profits and in year 2008 it can pay interest 4 times. The graphical representation of the results is as follows:

Times-interest-earned
Times Interest Earned
10 8 6 4 2 0 2011 2010 2009 2008 2007

Years

The following table contrasts the times interest earned ratio of Tesco and Sainsbury for the year 2011. It suggests that Tesco can pay 19 times interest out of its profits whereas Sainsbury can pay 8 times interest out of its capital. It means that Tesco has more than double times earned interest ratio than that of Sainsbury.

Times-interest-earned Sainsbury Tesco 8.13 19.7

The graphical representation of times interest earned ratio of Sainsbury and Tesco for the year is 2011 is given below:

Times Interest Earned


Times Interest Earned
25 20 15 10 5 0 Sainsbury Companies Tesco

4.1.4 Activity Ratios

Activity ratios determine the tendency of an organization to which it transforms different kinds of accounts into cash or sales. If organizations convert the accounts into sales or cash in less lime, they are said to be efficient in their processes. Commonly used activity ratios include inventory turnover, fixed assets turnover, total assets turnover, accounts receivable turnover and average collection period. To analyze the efficiency of Sainsbury following types of activity ratios are calculated: Inventory turnover

Inventory turnover measures the tendency of a company to which a company replenishes the stock of goods. It is calculated by dividing sales with inventory. High ratio means that the company replenishes its stock quickly. The inventory turnover of Sainsbury calculated for the alt five years is given below: millions Year Sales Inventory Inventory turnover Inventory turnover Sainsbury 2012 2011 2010 22294 21102 19964 938 812 702 23.77 25.99 28.44 Tesco 2012 19964 702 28.44

The table suggests that in the year 2007 inventory turnover of the company was highest i.e. 29 times. It means that in year 2007 Sainsbury used to replenish its stock 29 times in one year. After 2007 the inventory turnover of company gradually reduced. It means that the activity level of Sainsbury slowed down after 2007. In 2011 inventory turnover of the company was 25 times. The graphical representation of the inventory turnover of Sainsbury for the last five years is as follows:

Inventory turnover
30

Inventory Tunover

29 28 27 26 25 24 2011 2010 2009 2008 2007

Years
The following table shows the comparison of inventory turnover of Tesco and Sainsbury for the year 2011. The inventory turnover of Sainsbury for the year 2011 was 2 times and that of Tesco was 17 times. It means Tesco replenishes its stock with slow speed as compared to Sainsbury. Inventory turnover Sainsbury Tesco 25.98 17.7

The graphical representation of inventory turnover of Sainsbury and Tesco for the year is 2011 is given below:

Inventory Turnover
30

Inventory Turnover

25 20 15 10 5 0 Sainsbury Companies Tesco

Fixed assets turnover

The fixed asset turnover measures the tendency to which fixed assets of company are used to produce the inventory. It is calculated by dividing sales with fixed assets. Higher fixed assets turnover suggest that company uses its fixed assets to a great extent to produce sales. Fixed assets turnover of Sainsbury calculated for the last five years is as follows:

Fixed assets turnover millions Sainsbury Year 2012 2011 2010 Sales 22294 21102 19964 Fixed assets 10308 9678 9002 Fixed assets turnover 2.16 2.18 2.22

Tesco 2012 19964 9002 2.22

In the year 2011 fixed asset turnover of Sainsbury was 2.1 times. In 2007 fixed asset turnover of the company was 2.2 times. It suggests that through a period of five years fixed asset turnover of Sainsbury has not undergone to large changes. It also implies that the fixed assets of the company are used with a constant speed to produce goods. The graphical representation of fixed asset turnover of Sainsbury for last five years is given below:

Fixed assets turnover


2.3

Fixed Asset Turnover

2.25 2.2 2.15 2.1 2.05 2011 2010 2009 2008 2007

Years

The comparison of fixed asset turnover of Tesco and Sainsbury year 2011 is given in the following table. In year 2011 the fixed asset turnover of Tesco was 2.5 times and for Sainsbury it was 2.18 times. The utilization of fixed assets of both companies for the production of goods is approximately equal.

Fixed assets turnover Sainsbury Tesco 2.18 2.5

The graphical representation of fixed asset turnover of Sainsbury and Tesco for the year is 2011 is given below:

Fixed Asset Turnover


2.6

Fixed Asset Turnover

2.5 2.4 2.3 2.2 2.1 2 Sainsbury Companies Tesco

Total assets turnover

Total asset turnover of a company measures the extent of utilization of assets of company. It determines the level to which the total assets of the company are utilized to produce goods. A higher level total asset turnover suggests that the assets of the company are utilized to optimal level for the production of goods whereas a lower total asset turnover suggests that assets are not utilized to their optimal level. The total assets turnover of Sainsbury calculated for a period of last five years is given in the following table:

Total assets turnover millions Sainsbury Year 2012 2011 2010 Sales 22294 21102 19964 Total assets 12340 11399 10855 Total assets turnover 1.81 1.85 1.84

Tesco 2009 18911 10033 1.88

In year 2007 the total asset turnover of Sainsbury was 1.79 times and in the year 2011 it became 1.85 times. This shows that the utilization of total assets of the organization has improved to some extent. In year 2008 the ratio decreased from 1.79 to 1.76 which was due to the effects of financial crisis on the economy. The graphical representation of total asset turnover of Sainsbury calculated for the last five years is given below:

Total assets turnover


1.9

Total Asset Turnover

1.85 1.8 1.75 1.7 2011 2010 2009 2008 2007

Years

The following table compares the total assets turnover of Tesco and Sainsbury for the year 2011. It shows that for the year 2011 the ratio was higher for Sainsbury. Total asset turnover of Sainsbury was 1.85 whereas for Tesco it was 1.3. It means that in Sainsbury has utilized its all assets to the optimal level as compared to Tesco.

Total assets turnover Sainsbury Tesco 1.85 1.3

The graphical representation of total asset turnover of Sainsbury and Tesco for the year is 2011 is given below:

Total Asset Turnover


2

Total Asset Turnover

1.5 1 0.5 0 Sainsbury Companies Tesco

Accounts receivable turnover

Accounts receivable turnover determines the number of times receivables are collected from trade debtors in one year. Accounts receivable turnover of Sainsbury for the last five years is given in the following table: Accounts receivable turnover millions Sainsbury Tesco Year 2012 2011 2010 2009 Annual Credit Sales 22294 21102 19964 18911 Accounts Receivable 286 343 215 195 Accounts receivable turnover 77.95 61.52 92.86 96.98

The above table suggests that lat five years have shown a variation in the accounts receivable turnover. IN the year 2007 it was 87 times which means that Sainsbury used to collect from its accounts receivables 87times in one year. In the next year the ratio decreased to 86 times. This was probably due to impact of financial crisis on the economy. The next two years have shown a rise in this ratio. In year 2011 accounts receivable turnover dropped to 61 times which was basically due to large amount of account receivables of the company in that year. The graphical representation of the accounts receivable turnover of Sainsbury for the last five years is given below:

Accounts receivable turnover


120

Accounts Recievable Turnover

100 80 60 40 20 0 2011 2010 2009 2008 2007

Years
The following table presents accounts receivable turnover of Sainsbury and Tesco for the year 2011. It suggests that Accounts receivable turnover of Sainsbury was very high as compared to that of Tesco. For Tesco it was 12.8 and for Sainsbury it was 61 times. It means that Sainsbury collects accounts receivables in short duration of time as compared to Tesco. Accounts receivable turnover Sainsbury Tesco 61 12.8

The graphical representation of accounts receivable turnover of Sainsbury and Tesco for the year is 2011 is given below:

Accounts Recievable Turnover


70

Accounts Recievable Turnover

60 50 40 30 20 10 0 Sainsbury Companies Tesco

Average collection period

Average collection period of an organization represents the length of time for which its accounts receivables are converted into cash. Average collection period of Sainsbury for the last five years is given in the following table:

Average collection period Days Sainsbury Tesco Year 2012 2011 2010 2012 Accounts Receivable 286 343 215 195 Sales 22294 21102 19964 18911 Average collection period 4.68 5.93 3.93 3.76 The above table suggests that the average collection period of Sainsbury has increased during the last five years. In year 2007 it took four days to collect receivables from trade debtors. In year 2011 it took 5 days to collect receivables from accounts receivables. The graphical representation of the ratio is as follows:

Average collection period


Average Collection Period
7 6 5 4 3 2 1 0 2011 2010 2009 2008 2007

Years

The following table compares the average collection period of Tesco and Sainsbury for the year 2011. It suggests that average collection time period for Sainsbury was 6 days in year 2011 and for Tesco it was 28 days. This big difference points out towards accounts receivable turnover of both organizations. Average collection period (Days) Sainsbury Tesco 6 28

The graphical representation of average collection period of Sainsbury and Tesco for the year is 2011 is given below:

Average Collection Period


Average Collection Period
30 25 20 15 10 5 0 Sainsbury Companies Tesco