£416.5m
-£69.5m
-£69.5m 100 -20%
£347.0m 1
Also, there is a table of Sainsbury’s profit and loss account on the following page:
Turnover rose by 1.54% from £17,162m to £17430m. Gross Profit was up by 9.63% from £1257m to £1391m. Net Profit was up by 7.27% from £625m to £674m.
Turnover 2002 2003
£17,162m £17,430m
£17430m
£17162m
£268m
£268m 100 1.54%
£17430m 1
Gross Profit 2002 2003
£1,257m £1,391m
£1,391m
£1,257m
£134m
£134m 100 9.63%
£1391m 1
Net Profit 2002 2003
£625m £674m
£674m
£625m
£49m
£49m 100 7.27%
£674m 1
Business Size
- Number of Employees
We can assume that if the numbers of employees are increased, it is probable that the business is doing well and making profits – which allow it to invest in more employees. However, if they are cutting down on employees, we can assume that it is cutting costs on wages to save money.
In March 29th 2003, the total number of employees was 85,316. In 2002, there were 92,240 employees. The full-time equivalent number in 2003 was 55,285. In 2002 it was 57,176 full time employees.
This means that in 2003, there were 6924 fewer workers (1891 full time workers and 5033 part time workers) than in 2002 which show that they are cutting the number of employees inorder to save costs.
Total Employees 2002 2003
92440 85316
85316
92440
-6924
-6924 100 -8.1%
85316 1
This shows that the Total Number of Employees went down. They must have been looking to cut their costs i.e. by cutting jobs inorder to save money on wages.
Part Time Employees 2002 2003
35264 30031
30031
35264
-5033
-5033 100 -16.7%
30031 1
This shows that the number of Part Time Employees went down by almost 17%. They must have been looking to cut their costs i.e. by cutting jobs inorder to save money on wages. They seem to be cutting a high percentage of Part Time Employees.
Full Time Employees 2002 2003
57176 55285
55285
57176
-1891
-1891 100 -3.42%
55285 1
This shows a cut of almost 3.5% of Full Time Employees. You can see from these figures that they are cutting their costs by sacking workers. You can also see that they are cutting a higher percentage of Part Time Employees than Full Time Employees.
Dividends per Share
If we look at the value per share over the last 5 years, we can see that from 1999 to 2000, they made quite a big loss but they
recovered from 2000 to 2002 but then they cut the price again in 2003.
1999 to 2000 1999 = 21.7p 2000 = 15.4p
15.4p
21.7p
-6.3p
6.3p 100 -40.9%
15.4p 1
The dividend payment from 1999 to 2000 went dramatically down. Profit must have been low for this year. They would have to have cut the dividend payment for their shareholders to retain sufficient cash resources in the company.
2000 to 2001 2000 = 15.4p 2001 = 21.4p
21.4p
15.4p
6.0p
6.0p 100 28.0%
21.4p 1
The dividend payment from 2000 to 2001 went up by 6p. Profit obviously boosted the dividend payment to go up.
2001 to 2002 2001 = 21.4p 2002 = 24.4p
24.4p
21.4p
3.0p
3.0p 100 12.29%
24.4p 1
The dividend payment from 2001 to 2002 also went up but for this year by 3p. Profit obviously boosted the dividend payment to go up again.
2002 to 2003 2002 = 24.4p 2003 = 16.5p
16.5p
24.4p
- 7.9p
-7.9p 100 -47.87%
16.5p 1
For this year, the dividend payment went down by nearly 8p. Profit would probably not have been as high as expected causing the dividend payment to go down.
1999 to 2003 1999 = 21.7p 2003 = 16.5p
16.5p
21.7p
-5.2p
-5.2p 100 -31.51%
16.5p 1
Overall for the last 5 years, the dividend payment has gone down by 5.2p (31.5%). Profit would have been much lower than expected and shareholders would not have been convinced that the company is doing well causing the lower dividend payment.
I think these figures are what they are is because from 1999 to 2000, they didn’t have many loyal customers and had to offer special offers on products – this would result in less profit. They probably also had to cut jobs in order to save money. In 2000 – 2002, the dividend payment increased. I think this is because more loyal customers shopped at more and more branches and jobs were created – showing that the company were expanding and doing well. However in 2003, the dividend payment dropped. I think this is because there was speculation about a take over bid and many people were concerned about the future of the company. This resulted in fewer people shopping which meant they had to cut jobs inorder to save money.
- We can tell the business is growing if it opens new branches around the country. Safeway has stores all over the country including in Scotland, Wales, Northern Island, Jersey, Isle of Man, Guernsey and even one in Gibraltar. But this could be a sign of desperation to boost their profile and their profit – following in the steps of Tesco abroad.
- Valuation of Assets
Safeway company assets rose from £2,684.9 million in 2002 to £2,876.1 million in 2003 (1.07% increase). The group assets also rose from £3,337.2 million in 2002 to £3,657.2 million in 2003 (1.09% increase). (These figures are for the Total assets less current liabilities). These figures would suggest that overall, Safeway is growing into a big company.
Safeway net assets, the company assets decreased from £1,704.9 million in 2002 to £1,691.1 million in 2003 (down by 0.99%). The group assets went up from £2,110.6 million in 2002 to £2,211.0 million in 2003 (1.04% increase).
- Market Share
Safeway’s market share dropped from 9.9% to 9.2% in 2003. Whereas compared to rivals – the market share of Sainsbury’s (16%) and Tesco (26.8%), their aim to increase their market share hasn’t been successful.
5. Turnover of the Company
Safeway’s turnover for 2003 was only up by 0.91%. (From £8,560.0 million in 2002 to £8,638.7 million in 2003). This means that they are only selling slightly more than in 2002.
Business Ratios
There is a more definite way of measuring the success of a business by comparing ratios. The first comparison I will make is comparing the gross profit in 2003 compared to 2002.
The calculation is made as a ratio by comparing the gross profit to the sales revenue per year:
2002
Gross profit: Sales Revenue
£1,828,500,000: £8,560,000,000
Divide by 8560.0 £0.21: £1
2003
Gross Profit: Sales Revenue
£1,832,300,000: £8,638,700,000
Divide by 1,000,000 £1832.3: £8638.7
Divide by 8638.7 £0.21: £1
We can tell from this that they earned exactly the same gross profit in 2003 than in 2002 meaning that they have got back from their sales revenue the same amounts. The ratio also shows what has happened to sales revenue compared to the costs of sales.
I will now find out the percentages with the formula:
Gross profit 100
Sales Revenue 1
2002 - £1,828,700,000 100
£8,560,000,000 1
Divide by 1,000,000 = £1828.7 100 21.36%
£8560 1
2003 - £1,832,300,000 100
£8,638,700,000 1
Divide by 1,000,000 = £1832.3 100 21.2%
£8638.7 1
I now compared it to a rival company Sainsbury’s:
2002
Gross profit: Sales Revenue
£1,257,000,000: £17,162,000,000
divide by 1,000,000 £1257: £17162
divide by 17162 £0.07: £1
2003
Gross profit: Sales Revenue
£1,391,000,000: £17,430,000,000
divide by 1,000,000 £1391: £17430
divide by 17430 £0.07: £1
If I want to get a percentage, I need to times by 100:
2002
£1,257,000,000 100
£17,162,000,000 1
divide by 1,000,000 £1257 100 7.3%
£17162 1
2003
£1,391,000,000 100
£17,430,000,000 1
divide by 1,000,000 £1391 100 7.98%
£17430 1
We can see that both Safeway and Sainsbury’s figures are changing very slightly. Safeway are slightly going down, Sainsbury’s going slightly up.
Now, my next ratio is to compare the Net Profit margin for 2003 compared to 2002. This shows if their expenses are climbing. I first compared the net profit to the sales revenue:
The calculation is made as a ratio by comparing the net profit to the sales revenue per year:
2002
Net profit: Sales Revenue
£416,500,000: £8,560,000,000
Divide by 1,000,000 £416.5: £8560
Divide by 8560 0.04p: £1
2003
Net Profit: Sales Revenue
£347,000,000: £8,638,700,000
Divide by 1,000,000 £347: £8638.7
Divide by 8638.7 0.04p: £1
I will now work out the percentages by this formula:
Net Profit 100
Sales Revenue 1
2002
£416,500,000 100
£8,560,000,000 1
divide by 1,000,000: £416.5 100 4.86%
£8560 1
2003
£347,000,000 100
£8,638,700,000 1
divide by 1,000,000 £347 100 4.01%
£8638.7 1
We can see from this that they earned exactly the same net profit in 2003 than in 2002 but a very slight decrease meaning that they didn’t lose that much. Their expenses may have gone up together with their cost of wages.
I compared the net profit with Sainsbury’s again:
2002
Net profit: Sales Revenue
£625,000,000: £17,162,000,000
divide by 1,000,000 £625: £171,620
divide by 171,620 £0.0036: £1
2003
Net profit: Sales Revenue
£674,000,000: £17,430,000,000
divide by 1,000,000 £674: £174,300
divide by 174,300 £0.0038: £1
I will now find out the percentages with the formula:
Net profit 100
Sales Revenue 1
2002
£625,000,000 100
£17,162,000,000 1
divide by 1,000,000 £625 100 3.6%
£17,162 1
2003
£674,000,000
£17,430,000,000
divide by 1,000,000 £674 100 3.8%
£17,430 1
Sainsbury’s net profit is again very slightly more than last year. We see again that Safeway’s figures are going slightly down and Sainsbury’s slightly up.
A calculation I could make is one which shows how productive they are. This is done by dividing the net profit by the number of employees:
2002 – £416.5m £4505.62
92440
2003 –£347.0m £4067.23
85316
This shows us that in 2002, each worker produced £4505 of net profit for the company. In 2003, each worker contributed £4067 of net profit to the company. This shows us that they were more productive in 2002 compared to 2003. It also shows that they are not controlling their costs. If their figure is lower than a rival company, the management could be blamed.
I compared this with the figures of Sainsbury’s:
2002 – £625.0m £3577.56
174700
2003 - £674.0m £3862.46
174500
This shows that in 2002, each worker produced £3577 of net profit. In 2003, each worker contributed £3862 of net profit. In 2003, each worker is producing more net profit for the company. It also shows that Sainsbury’s are controlling their costs unlike Safeway who are not.
I will now work out the percentage increase of expenses over the last year for Safeway:
2002 2003
£m £m
1,412 1,485.3
1,485.3
1,412
73.3
73.3 100 4.93%
1,485.3 1
This shows us that Safeway’s expenses increased in 2003 compared to 2002. This means that less profit is generated, so more jobs may be cut and reduction in costs may be entertained.
Another calculation I can make is the liquidity ratio. I can work this out by dividing current assets by current liabilities.
2002
Current Assets = £759.0 million
Current Liabilities = £1,561.8 million
= £759,000,000: £1,561,800,000
Divide by 1,561,800,000 = £0.48: £1
2003
Current Assets = £798.0 million
Current Liabilities = £1,359.7 million
= £798,000,000: £1,359,700,000
Divide by 1,359,700,000 £0.58: £1
If I want to get a percentage, I have to multiply each answer by 100:
2002
Current Assets 100
Current Liabilities 1
= £759,000,000 100
£1,561,800,000 1
Divide by 1,000,000 =£759 100 48.5%
£1561.8 1
2003
Current Assets 100
Current Liabilities 1
= £798,000,000 100
£1,359,700,000 1
Divide by 1,000,000 = £798 100 58.6%
£1,359.7 1
This shows that Safeway had more money to pay off debtors in 2002 than in 2003.
I will now compare this with Sainsbury’s liquidity ratio:
2002
Current Assets £3,728.0m
Current Liabilities £4,708.0m
= £3,728,000,000: £4,708,000,000
Divide by 4,708,000,000 £0.79: £1
2003
Current Assets £4,153.0m
Current Liabilities £4,774.7m
= £4,153,000,000: £4,774,000,000
Divide by 4,774,000,000 £0.86: £1
For a percentage, I times each by 100:
2002
Current Assets 100
Current Liabilities 1
= £3,728,000,000 100
£4,708,000,000 1
Divide by 1,000,000 =£3728 100 79.1%
£4708 1
2003
Current Assets 100
Current Liabilities 1
= £4,153,000,000 100
£4,774,000,000 1
Divide by 1,000,000 = £4153 100 86.9%
£4774 1
Both Safeway and Sainsbury’s liquidity ratios have gone up. They both have more money in 2003 to pay off debts than in 2002.
The next calculation I will make will be the ROCE (return on capital employed). This is done by dividing the Net Profit by Capital Employed and multiplying the answer by 100:
2002
Net Profit 100
Capital Employed 1
= £416,500,000 100
£2,110,600,000 1
Divide by 1,000,000 = £416.5 100 19.7%
£2110.6 1
2003
Net Profit 100
Capital Employed 1
= £347,000,000 100
£2,211,000,000 1
Divide by 1,000,000 = £347 100 15.6%
£2211 1
These figures show that in 2002, Safeway did better since it received a higher yield from its capital employed. It also means that they were less profitable in 2003.
I will now compare this with Sainsbury’s:
Net Profit 100
Capital Employed 1
2002
£625,000,000 100
£4,909,000,000 1
divide by 100,000: £625 100 12.7%
£4909 1
2003
£674,000,000 100
£5,072,000,000 1
divide by 100,000: £674 100 13.2%
£5072 1
Sainsbury had a slight increase in the ROCE. Safeway had a slight decrease. Sainsbury’s would get a higher yield from its capital employed.
I will now work out the percentage of interest paid in 2002 compared to 2003:
Interest Paid 100
Net Profit 1
2002
£m
77.3 100 18.5%
416.5 1
2003
£m
87.9 100 25.3%
- 1
We see here that in 2003, they paid a lot more interest than in 2002. This means that they increased their borrowing to expand since the interest rates were generally lowered.
I now will work out the percentage increase in dividends per share over the past year:
2002 2003
9.52p 9.66p
9.66p
9.52p
0.14p
0.14p 100 1.44%
9.66p 1
This figure is below the inflation rate of around 2%.
The last ratio I will make is the acid test ratio. This is done by subtracting the amount of stocks from the Current Assets and dividing that by Current Liabilities:
2002
Current Assets – Stocks
Current Liabilities
= £759,000,000 – £379,800,000
£1,561,800,000
= £379,200,000
£1,561,800,000
Divide by 1,000,000 = £379.2
£1561.8
I need to divide this by 1561.8 to make it into a ratio:
£379.2: £1561.8
Divide by 1561.8 = £0.24: £1
2003
Current Assets – Stocks
Current Liabilities
= £798,000,000 - £426,500,000
£1,359,700,000
= £371,500,000
£1,359,700,000
Divide by 1,000,000 = £371.5
£1359.7
I need to divide this result by 1359.7 to get a ratio:
£371.5: £1359.7
Divide by 1359.7 = £0.27: £1
These figures show that 2003 was better for Safeway than in 2002, the value of assets went up. The figures show that Safeway would have trouble in paying off immediate debt.
I will compare this with Sainsbury’s:
2002
Current Assets – Stocks
Current Liabilities
£3,728,000,000 - £751,000,000
£4,708,000,000
£2,977,000,000
£4,708,000,000
£2,977,000,000: £4,708,000,000 divide by 1,000,000 £2977: £4708
divide by 4708: £0.63 : £1
2003
Current Assets – Stocks
Current Liabilities
£4,153,000,000 - £800,000,000
£4,774,000,000
£3,353,000,000
£4,774,000,000
£3,353,000,000: £4,774,000,000
divide by 1,000,000 £3353: £4774
divide by 4774 £0.70: £1
These figures show that 2003 was better for Sainsbury than in 2002, the value of assets went up. The figures show that Sainsbury would have no trouble in paying off immediate debt unlike Safeway who would.
We can tell how well a company is doing by looking at their 5- year financial records:
Safeway blame the fact that from 1 April 2000 to 29 March 2003, their statistics were affected because there was no Easter during the year compared with 2 Easters in the years ended 3 April 1999 and 30 March 2002.
I will now make the calculation for the percentage change in the 5 year record and a comparison between Safeway and its rival Sainsbury’s:
Sales:
1999 2003
£m £m
8098.9 9516.6
9516.6
8098.9
1417.7
1417.7 100 17.5%
8098.9 1
Now, if we look at Sainsbury’s, we can see how they’re comparing with a rival:
1999 2003
£m £m
16378 18495
18495
16378
2117
2117 100 12.9%
16378 1
These figures show that Safeway are getting a bigger percentage of profit than Sainsbury’s in the five year records, although Sainsbury’s are making more money.
Safeway have expanded and more stores have been opened since 1999 and 2003:
1999 – Safeway had a total of 463 stores in UK.
2003 – Safeway had a total of 469 stores in UK.
463
469
6
If we look at the total number of stores for Sainsbury’s,
1999 – Sainsbury had a total of 545 stores in the UK.
2003 – Sainsbury had a total of 695 stores in the UK.
545
683
138
This shows that Safeway are not looking to open new stores – they are looking to cut costs by not expanding rapidly – they only opened 6 new stores. Sainsbury, on the other hand, are rapidly expanding opening up 138 new stores.
Conclusion
Safeway has had a £3 billion take over bid from Morrison’s for a couple of reasons: 1) its increase of profit is lower compared to competitors – so it would have to cut jobs, offer discounts and special offers, lower their share price…2) Their market share is declining –fewer people are buying their products and profit are not as high as expected which would not appeal to people who are looking to buy shares.
The analysis of their accounts prove that the management have found it difficult to turn round the company and it had to fall victim to Morrison’s which is a better run company.
Sainsbury’s used to be top of the market share table. Now, Tesco and Asda – Wallmart have overtaken them. .
Bibliography
Safeway Annual Reports and Accounts 2003
J Sainsbury Annual Report and Financial Statements 2003
AQA Business Studies B
