Financial Performance of Tesco and Sainsbury

Executive Summary

This study provides the analysis of two of the big giants Supermarkets of UK, in order to understand the market conditions prevailing in UK grocery industry and to analysis the financial performance of the companies. It is observed that since the grocery industry is a price sensitive one, where demands and supply could fluctuates a lot therefore for debt financing companies; it is hard to exist in such an industry. Therefore, more of equity financing is a safe option. Further, the financial crunch has affected the super market business in the year of 2009, when all the supermarkets had to face lower sales and ultimately lower returns.

For supermarkets as it is more of a cash based business, it is necessary that companies should focus on generating cash through safer modes. High receivables and inventories with lower turnovers can cause problems for such companies.

This research helps to understand what could be the ultimate companies' actions regarding capital structure decision, liquidity decision and profitability. Further, it provide a detail analysis of both the company's financial ratios, followed by recommendations and conclusion.

Tesco and Sainsbury

Introduction

TESCO is the UK's first Grocery retailer and it has been at the number forth in comparison with the world. It has 5380 shops alone in UK and a lot more in other three major regions namely, Europe, North America and Asia. It has varied collection of organizations in different industries; superstores (Tesco Extra), super markets, small city shops (Tesco Metro), and energy retailing (Tesco Express), and financial solutions (Tesco Personal Finance). Tesco.com is the UK's major Internet shipping service. Tesco's formula for development is to develop new shops, broaden into new nations, and to add new goods and solutions. Indeed, it has shifted beyond goods and far beyond the UK to become an international retailer of common items, as well as food. The technique seems to be a successful one for Tesco, which saw its revenue improve from £51.5 thousand in financial 2008 (ends February) to £67.6 thousand in financial 2011. Over that time, Tesco included more than 1,600 shops and saw a stable improvement in income. However, Tesco is having difficulties in the US where it released a new convenience store chain; it lost nearly $300 thousand through financial 2011 (ends February).

Back at home, Tesco's fast development has gained it about a 30% share of the UK grocery market and an 8.5% piece of the nonfood market. Tesco is experiencing even more powerful competitors from its primary UK competing Wal-Mart-owned ASDA, which lately obtained the Netto cycle of lower price shops in the UK. To enhance its One Stop Convenience Store chain in the UK, Tesco obtained more than 75 shops from private Generators Team in beginning of 2011 (Block, 1992).

Tesco this year joined the VoD market by obtaining an 80% share in the English video-on-demand (VoD) assistance Blinkbox, which plays with Amazon.com's LoveFilm. Formerly, Tesco purchased out its joint venture partner Royal Bank of Scotland in Tesco Personal Finance (TPF) for about ...