FINANCIAL STATEMENT ANALYSIS

Financial Statement Analysis

Financial Statement Analysis

Introduction

In this report we are comparing and contrasting the financial performance and position of J Sainsbury plc and Tesco plc, the two retail sector companies listed on the London Stock Exchange for three financial years 2007-2009. Our main aim is to carry out vertical analysis, trend analysis and ratio analysis to find out which company among the two is better for investment.

In the beginning sections we are analyzing the companies individually and then drawing up a conclusion on the basis of the analysis in the end. Since our main aim is to find out which company is better for investment, we are stressing on performance and profitability indicators, however we have paid due attention to indicators of sound financial position such as liquidity, working capital management and solvency.

History of TESCO

In 1919, Jack Cohen, returning from the First World War, invested his soldier's gratuity, worth Pounds 30, in a grocery stall in London. Five years later he introduced tea as his first own-label product under the name Tesco, created from the initials of his tea supplier, T E Stockwell, and the first two letters of his own name. Cohen opened his first Tesco store in 1929 in London and by the end of the 1930s there were more than 100 shops, mainly in the London area. The first supermarket-style Tesco opened in 1947, the year the company floated on the Stock Exchange. Over the next 30-odd years the fortunes of the chain declined as the company lost its traditional customer focus.

In the early 1980s the charismatic Ian MacLaurin became the first non-family member to become chief executive of the retailer. He closed smaller stores and aggressively expanded large suburban superstores. However, the company suffered again in the 1990s when its pile-it-high, sell-it-cheap strategy lost favour with shoppers. In an effort to get back on track, Tesco introduced a string of initiatives designed to improve its communication with customers, most notably the Tesco Clubcard, which was launched in 1995. That year the company overtook J Sainsbury to become the UK's largest supermarket.

Terry Leahy, the marketing whiz behind many of these plans, was appointed chief executive in 1997. He ramped up the group's expansion plans with the ambition of becoming a major international business. New initiatives included the launch of home shopping in 1996 and financial services, such as insurance, the following year. International expansion was also given new impetus with the closure of its struggling French chain and the successful move into Ireland in 1997 and Thailand in 1998. The group has maintained double-digit sales growth for the past three years, cementing its lead position in British retail, and has continued to innovate.

In January Tesco, recognising the limitations on the expansion of large out-of-town stores, made a decisive move into the convenenience store market with the acquisition of 870 T&S Stores in the UK.

History of SAINSBURY

Profits are down again, the share price is tottering, the historic head office is up for sale and a couple of ...