• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Sainsbury's Ratio Analysis

Extracts from this document...

Introduction

BTEC National Certificate in Business (e-Business) Unit 2 - Investigating Business Resources (Assignment Three) Task (P5 / P6) Sainsbury's - Ratio Analysis 2006 (�m) 2007 (�m) Sales 16,061 17,151 Cost of Sales 14,994 15,979 Net Profit 104 477 Gross Profit 1,067 1,172 Current Assets 3,820 1,915 Current Liabilities 4,810 2,721 Stock 576 590 Average Stock 568 583 Debtors ---- ---- Creditors 2,094 2,267 Fixed Assets + Net Current Assets 12,747 9,576 Calculations Ratio Analysis 2006 2007 Profitability Gross Profit percentage of Sales = Gross Profit for year x 100 Sales for year 1,067 x 100 16,061 = 6.6% 1,172 x 100 17,151 = 6.8% Net Profit percentage of Sales = Net Profit for Year x 100 Sales for Year 104 x 100 16,061 = 0.6% 477 x 100 17,151 = 2.8% ROCE (Return on Capital Employed) = Net Profit for Year before interest rate and Tax x 100 Fixed + net Current Assets 104 x 100 12,747 = 0.8% 477 x 100 9,576 = 5.0% Liquidity Current Ratio = Current Assets Current Liabilities 3,820 4,810 = 0.8:1 1,915 2,721 = 0.7:1 Acid test Ratio/Liquidity Ratio Current Assets - Stock Current Liabilities 3,820 - 576 4810 = 0.7:1 1,915 - 590 2721 = 0.5:1 Efficiency/Working Capital Management Stock Turn over = Average Stock x 365 Cost of Goods Sold 568 x 365 14,994 = 14 Days 583 x 365 15,979 = 13 Days Debtors Collection Period = Debtors x 365 Credit Sales for Year ----- ----- Creditors Payment Period Creditors x 365 Credit Purchase for Year ----- ----- Sainsbury's - Ratio Analysis 2006 2007 Profitability ROCE (Return On Capital Employed) ...read more.

Middle

Sainsbury's (Acid test Ratio) The acid test ratio of 0.7:1 for 2006 highlights that Sainsbury's has serious problems. 0.7:1 means that for every �1 of current liabilities, the business has �0.70 of cash available at short-notice. A figure less than 1 indicates that the business may experience difficulties in meeting its short-term debts and the company is in danger of bankruptcy. The ratio of 0.5:1 for 2007 shows that it is not secured as the liquidity problems has increased from the last year. An answer of less than 1.0 also indicates that Sainsbury's may not be holding cash in a productive and profitable form. Efficiency/Working Capital Management These ratios examine the productivity of a business. Productivity looks at how efficiently a company is using its factors of production to produce goods/services and profit. * Rate of Stock Turn over This measures the number of times in a 12-month period that a business sells its stock. This ratio returns the number of days that on average item of stock is held at the business. In other words how long it takes the business to sell the item. Sainsbury's (Stock turnover) Sainsbury's turned its stock in 14 days in 2006 and 13 days in 2007. The acceptable number of days should be turning the stock before 30 days. This means that Sainsbury's is turning its stock very fast, they are not keeping the stock for longer in the warehouse. The speed of turning its stock has got better from 2006. Conclusion (D2) Profitability These ratios can show how profitable a business is over a time. ...read more.

Conclusion

A technique for doing this is a ratio analysis, providing a more meaningful picture of the performance of a business. Ratio analysis isn't just comparing different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the figures against previous years, other companies, the industry, or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and might perform in the future. Financial ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. The level and changes of these ratios can be used to make inferences about a company's financial condition, its operations and attractiveness as an investment. A financial ratio can give a financial analyst an excellent picture of a company's situation and the trends that are developing. Examples: The importance of ratios to stakeholders depends on who they are and what they are trying to find out. * A potential shareholder will pay more attention into account of profits after tax of a firm and how much return on the capital employed or net assets. * A bank manager would confirm if the firm has enough liquid assets to cover its short-term debts. * The sales director of the firm will be concerned with how many the sales in relation to the profits the firm has made. The ratios are based on the different measurement of performance. These are divided into three groups namely profitability ratios, liquidity ratios and efficiency ratios. Ratio analysis will be a relatively effective and powerful technique in the interpretation and assessment of business performance when applying it to comparisons. ?? ?? ?? ?? ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. SWOT Analysis for Coca Cola

    the Hispanics growing number and economic power, they have become of more importance to marketers. Coca-Cola can benefit from this massively because as the population grows the more that Coca-Cola will be consumed. Threats * Intense competition Coca-Cola is at intense competition in the non-alcoholic beverages section of the drinks industry.

  2. Accounting case study. I am writing this report to explain the contents thats on ...

    If the business has a healthy current ratio but a poor acid test ratio it may be that the business is holding too much stock. AT = �8,360-�7,400/�1,610 = 0.6: 1 Efficiency. There are three sets of efficiency ratios. Debtors' payment period.

  1. Business resources P5

    Then you start with your fixed assets, then the current assets and then the current liabilities. The fixed asset is divided into 3 columns the first column has the cost of the asset, then the second column has the accumulated depreciation and the last column has the net book value.

  2. Free essay

    `Accounting as a discipline has no theory`. Critically evaluate this statement and provide examples ...

    Fred21 came out just before FRS18 as an update for ssap2. Fred21 stated that going concern and accruals were still important and that consistency and prudence should be considered as qualities. Ssap2 was superseded in 1999 by the statement of principles.

  1. A2 Business CourseWork

    This can be achieved by not making the customer wait elongated periods of time. As you are probably any Tesco store has a vast number of checkouts to enable customers to pay as quickly as possible, just having a greater number reduces queuing time dramatically.

  2. Assignment 4: ethical issues. The community. P4 and M3

    The WTO also provides a legal and institutional framework for the implementation and monitoring of these agreements, as well as for settling disputes arising from their interpretation and application.

  1. Financial Ratio Analysis.

    * The ratios of different companies cannot be properly compared where each company employs different accounting policies. Strengths Despite of the limitations, it provides a useful tool for management, shareholders and any interested parties to assess the performance of the business.

  2. ASSIGNMENT P5, M2 & D2- RATIO ANALYSIS

    This means the company should be able to sort their financial problems out as they are getting more income. Liquidity Current ratio: It is an indicator of a firm?s ability to meet short-term financial obligations; it is the ratio of current assets to current liabilities.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work