Limited Companies (Tesco and Sainsbury) Case Study

Limited Companies (Tesco and Sainsbury) - Case Study ExampleThe stance of both the companies is illustrated with the help of financial ratios, to read between the lines of the companies financial statements and to completely understand the financial data presented by the companies in their annual reports. The structure of the report comprises the companies financial performance abstract for the year ended 2005 from management, investors and lenders outlook because solely these three groups are interested in the companies position and performance with different perspectives. Therefore, the comparison presented in this report would be helpful for the companys management, investors and lenders wholly to form a base for their future decisions.Tesco and Sainsbury build been in the retail business for a long time. These companies operate on the international level, but have most number of their stores in UK, which is the major market of these companies. Tesco is the largest and most profitable superstore chain in Britain. It is the fourth largest supermarket in the human beings. Tesco operates 2,318 stores in 12 countries around the world and employs 326,000 people, 237,000 of them in Britain where it is the largest private employer (TESCO A Corporate Profile, accessed 29.11.2005). The principal activity of the Group is the operation of food stores and associated activities in the UK, Republic of Ireland, Hungary, Poland, Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia and Japan (Tesco annual Report, accessed 28.11.2005). Sainsbury is the UKs third-largest grocery retailer (after Tesco and ASDA) operates the long-struggling Sainsburys Supermarkets chain -- some 464 supermarkets in the UK (accounting for nearly 85% of sales). The supermarkets get about 40% of their sales from private-label products. In addition to supermarkets, the company operates 260 toilet facility stores under the Sainsburys Local, Bells and Jacksons banners. Sai nsbury also owns 55% of Sainsburys Bank (in a joint venture with Scottish bank HBOS) and a property development company (J Sainsbury plc overview, accessed 28.11.2005).PART BANALYSIS & COMPARISON OF FINANCIAL PERFORMANCETesco and Sainsbury are two popular companies in the United Kingdom. But the latest annual reports issued by these two companies break off diverse results in the companies financial performance for the year ended 2005. A deeper analysis of the differences between these companies financial results is presented below with the help of some ratios peculiar to the analysis in terms of companys management, lenders and investorsFROM MANAGEMENTS OUTLOOKThe following analysis and comparison is done to help the companies management to assess their performance and capabilities in the light of the companies recent financial resultsGross Profit MarginTesco Plc7.3%Sainsbury Plc 4.12%The Gross Profit ratio analyses the companys profit bank before accounting for various operating costs. The gross profit margin of Tesco is higher than Sainsbury, which indicates that Tescos management has efficiently managed to obtain more profit out of its sales after accounting for cost of sales incurred during the process of making the goods and work available to customers than Sainsbury. Net Profit MarginTesco Plc5.7%Sainsbury Plc 0.65%The net profit ratio analyses a companys profitability after taking into account all the operating costs. The to a higher place ratio calculation shows that Tesco has had significantly higher net profit margin than Sainsbury whose profit margin after the operating cost