BUSINESS MANAGEMENT

Business Management



Business Management

Sainsbury plc

Part A

Sainsbury Plc

Financial Ratio Analysis for the year 2006-11

Ratio

2011

2010

2009

2008

2007

2006

Return on Assets

5.8%

5.6%

2.9%

3.3%

2.9%

3.4%

Return on Equity

12.4%

13%

6.2%

7.1%

7.9%

11.3%

Return on Investment

9.8%

9%

9.5%

7.1%

7.6%

2.9%

Equity Ratio

47.6%

46%

44%

49%

45%

30%

Interest Coverage Ratio

6.14

4.80

4.55

4.02

4.86

1.48

Profit Margin

3.0%

2.9%

1.5%

1.8%

1.9%

2.7%

Asset Turnover

1.9

1.91

1.88

1.81

1.54

1.26

J Sainsbury (Sainsbury or “the company”) is engaged in retailing services with business interests in financial services and property investments. The company is one of the leading retail chains in the UK. It has a market share of around 16.1% and serves over 19 million customers per week. Strong presence in the UK imparts distinct competitive advantage and favorable market dynamics for Sainsbury, which facilitate revenue and business expansion growth prospects. However, rising labor cost in the UK could impact the company's margins adversely.

Sainsbury was one of the prominent gainers of the increased popularity of private label products. The company has developed strong private brand product portfolio over the years. As of March 2011, around 22% of the 30,000 products offered at the company's stores consisted of own-label goods. Prominent among these lines of products are Basics, an economy range of food and non-food products; and Taste the Difference (TTD), which consists of premium food lines including many processed foods such as readymade meals and premium bakery lines. The other popular private owned brands of the company include Kids, the own-labeled products range for children; Be Good To Yourself (BGTY) products with reduced calorie and fat content; TU, the company's own brand clothing range; and TU Home, offering a range of home products, such as lighting, rugs, and kitchen products. In addition, in FY2011, the company launched more than 5,000 new or improved own-brand products, including the major re-launch of TTD.

Shareholders Value Analysis Model

Shareholder value ais aa aterm athat asuggests athat athe adecisive ameasure aof aa acompany's asuccess ais ahow awell ait aenriches aits ashareholders. aShareholder aValue aAnalysis a(SVA) ais aone aof aa anumber aof atechniques aused aas asubstitutes afor atraditional abusiness ameasurements. aIt abecame afashionable ain athe a1980s, awhen ait awas alinked ato aJack aWelch, athen aCEO aof aGeneral aElectric.

Essentially, athe aidea ais athat ashareholders' amoney ashould abe aused ato aearn aa ahigher areturn athan ait acould aby ainvesting ain aother aassets awith athe asame aamount aof arisk. aTo acalculate ashareholder avalue, ayou aestimate athe atotal anet aworth aof aa acompany, ai.e. atotal aassets aminus atotal aliabilities, aand adivide athis afigure aby athe avalue aof aits ashares. aThe aresult agives ayou athe ashareholder avalue aof athe acompany. aThe abasic arule aof aSVA ais athat aa acompany aadds avalue afor aits ashareholders aonly awhen aequity areturns aexceed aequity acosts. aWhen athat avalue ahas abeen acalculated, athe acompany acan atake asteps ato aimprove aits aperformance aand aalso ause aSVA ato ameasure athe asuccess aof athose aactions.

Process of Equity Valuation

Determination of forecasted financial statements

The most important and initial step in equity valuation is determination of pro forma financial statements. These financial statements are formulated, on one side, using historical financials of the company and on the other side, as well as prospective growth of the company and their ...