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J Sainsbury Company Evaluation And Analysis

1505 words - 7 pages

This report is going to look at J Sainsbury and evaluate the aspects of the company’s financial position, performance and strategy. The original numbers and base information have been gathered from Sainsbury’s Annual Reports 2010-2013, which seek to meet predominantly the needs of Sainsbury’s shareholders. All numbers not in percentages are in £million unless otherwise stated. The figures are taken from J Sainsbury’s group accounts, which is made up of retailing, financial services and property investment. Its segment revenues solely comprise of retail business and therefore the financial reporting will be based on Sainsbury’s retail sector alone.

Financial performance
Sainsbury’s has a 16.8% market share in the UK supermarket industry. It has increased its property market value over the last four years by £1.7billion and within the last year has opened 14 new supermarkets, 87 convenience stores and created 5000 new jobs. In addition, total sales have reached £25,632 million, a 4.3% increase from the previous year. It has also had thirty-four consecutive quarters of like-for-like sales growth. These initial figures indicate that Sainsbury’s is in a strong position.

The gross profit margin has remained stable since 2010, increasing from 5.42% to 5.48% in 2013, a 0.01% increase over the four years. These figures are relatively low because the retail industry operates on low prices. Supermarket retailing is a low margin business and therefore prices have to be kept low to remain competitive. The addition of new space acquired has contributed to higher operating costs, which has kept the gross profit margin low, however, the gross and operating profit margins were maintained despite continued cost inflation, representing stability. The return on total capital employed has seen a slow increase since 2010, from 11% to 11.2% in 2013. This increase is attributable to the cumulative effect of Sainsbury’s accelerated investment in space since 2009, and is attractive to long-term investors basing returns on high dividend yields as opposed to capital value. Increased liabilities and equity indicates that finance has been invested in revenue generating assets thus maintaining the attractive stable return. The return on shareholders capital employed has decreased, from 11.78% in 2010 to 10.71% in 2013. This may be a concern to potential investors; however, it is attributable to the increased funding in investment in cash and other interest bearing assets. The return on equity also decreased, from 12%% to 10.8% in 2013. This is attributable to its real estate assets owned which leads to short-term diluted return on equity, until they mature.

Liquidity
Liquidity is the ability to generate cash when and where it is needed. It is primarily measured by current and acid test ratios (Edgar, Kenneth and Pamela, 2012: 305). Sainsbury’s current ratio is relatively stable. Current ratios are generally low in the retail sector, firstly because all goods are...

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