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Sainsbury's Ratio Analysis

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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.


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.


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.

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