Tesco VS. SAINSBURY

Tesco vs. Sainsbury

Tesco vs. Sainsbury

Introduction

The analysis of financial statements of companies is highly essential for evaluating the overall performance of the company and ultimately, better investment decisions can be possible. There are various financial tools that are available for making an appropriate analysis of the financial statements of companies. One such financial tool that is highly used in assessing the financial statements is ratio analysis which not only helps in the assessment of performance of a company, but also allows for better comparison of the performance of one company to that of another. In this report, the main aim has been to compare the performance of two UK based companies known as J Sainsbury Plc and Tesco Supermarkets Plc through the calculation of ratio analysis for both these companies over a period of five years.

Sainsbury and Tesco are two largest grocery retail chains primarily operating in United Kingdom. Sainsbury, once the market leader, has gradually lost its market share to Tesco over time and Tesco has now emerged the market leader in grocery retail industry. In this assignment, I am required to analyze Sainsbury and Tesco's financial and competitive positions by doing strategic and financial statement analysis for the last five years. On the basis of such analysis, I am required to propose a strategic recovery plan for Sainsbury, outlining key investment strategies to be undertaken, evaluating proposed investment strategies to be undertaken and identifying the risks involved therein and also evaluating the impact of such investment strategies on Sainsbury's financial and competitive position.

In this assignment, I have used various tools and techniques available for such financial and competitive analysis, including but not limited to Value Chain Analysis, Porter's Five Forces Model, BCG Growth Matrix and traditional financial statement and ratio analysis. I wouldn't have been able to produce following structured analysis and propose recovery strategies had I not utilized such tools and techniques of financial and competitive analysis.

Competitive Analysis of Sainsbury & Tesco Financial Positions

Sainsbury's Financial and Competitive Position

Over the last five years, Sainsbury has been noticeably different and lagging behind Tesco on number of fronts and consequently such factors had contributed towards its downfall. A summary of such differences is outlined below.

Low Profitability Relative to Tesco

Over the last five years, Sainsbury has been living on relatively low Operating Profit margins due to number of factors. Major ones are concentration on low margin products, inefficiencies in controlling costs and lack of value added through suppliers' chain. As shown by the following graphs, Sainsbury is lagging behind Tesco in EBITDA margin and net profit margin.

Such low profitability has also resulted in relatively low return on invested capital and return on equity ratios despite not many differences in the utilization of capital and use of leverage.

Low Sales Growth Relative to Tesco

Another factor that has contributed to the downfall of Sainsbury over the last few years is its low sales growth relative to Tesco as shown by the following graph.

Despite high sales growth of Tesco in Asia, the major ...