# Sainsbury's Ratio Analysis

Unit 2 – Investigating Business Resources

(Assignment Three)

Sainsbury’s - Ratio Analysis

Calculations

Sainsbury’s - Ratio Analysis

Report on Financial Performance of

Sainsbury’s in 2006 & 2007

(M3)

Ratio Analysis can make accurate judgements of an organisation’s performance.  Ratio Analysis could also be useful to many stakeholders in the business.

• It helps Owners to inform them when they are looking to make decisions about the future of the business.
• It helps investors to check that their investment is doing well and providing a fair return on their money.
• Suppliers, if they are owed money by the business then they will want to know If they are likely to get their money back.
• It helps employees to check the accounts to monitor how profitable the business is and therefore whether they can request pay rises or improvements on their working auditions.
• It also helps customers to check that the business is likely to be financially healthy and therefore able to keep supplying them.

Under the Ratio Analysis, there are three main headings that I have used to calculate Sainsbury’s performance:

1. Profitability - These analyse the profit made over the last year.
2. Liquidity - These measure the solvency of the business and its ability to meet short-term debts.
3. Efficiency (Working Capital Management) - These analyses the efficiency of the business in terms of the use of its resources in generating sales.

Profitability

Profitability is a factor that is most important to owners of business is its profitability.  The following ratios can help monitor the company's profit performance.

• ROCE (Return on Capital Employed)

This is often referred to as the ‘primary accounting ratio’ and it expresses the annual percentage return that an investor would receive on their capital. It basically relates the profit to the size of the business.

This shows us the percentage return that the investors have received on the capital that invested.

Sainsbury’s (ROCE)

In the year of 2006 the Sales turnover of Sainsbury’s is six times less, approx than in 2007 at 5.0%.  The ROCE for both years is not much although 2007 has a higher ROCE.

• Gross Profit percentage of ...