The Financial Performance Of ‘Tesco’ And ‘Sainsbury

The assessment of monetary explanations of associations is fundamentally imperative for the appraisal of the whole execution of the firm lastly assessment of better speculation choices. There are diverse money related instruments that are open for building up important examination of the monetary explanations of associations. One of the monetary devices that are generally utilized as a part of assessing the money related proclamation is ratio analysis, which not just helps with the assessment of the organization's execution but it gives space for successful correlation of the execution of one firm to that another (Joel, 2006). In this report, the principle objective is to make examination of two United Kingdom based firms; Tesco and J Sainsbury Supermarkets through the assurance of proportion investigation for both of these organizations. Firstly, this report aims to compare the financial performance of two companies then it sheds light on the level of disclosure it is done in the annual statements. This report provides the consultancy on the level of disclosure that Tesco and Sainsbury are doing in the published reported. Moreover, it examines whether needs of all stakeholders are addressed or not. it also provide advice on improving the disclosure.

As a consultant, you have been asked to report upon the financial performance of ‘Tesco’ and ‘Sainsbury’ from the annual reports. You are required to select the Annual Reports of each of these two companies for the same year and your Annual Reports should have been published in the past five years.

 

As said there various sorts of proportions that will be resolved for Tesco and Sainsbury. These involve profitability analysis and liquidity proportions.

Profitability Analysis

ROA (Return on Assets)

The Tesco’s profitability is demonstrating by the growing efficiency incline over the firm (Moyer, McGuigan and Rao, 2011). Appeared differently in relation to Sainsbury, their example in productivity is continuously rising. Tesco rise in productivity is owed to the limit of the association to attract awesome and capable examiners with the objective dealing with this strong cash related method for the triumphant in future to be in the accommodating example. As ROA is going upward, the example over the three years had a particular fall in 2013 to a figure under 6%. In spite of the way that the organization's arrangements are raising there are potential that the firm may not get their receivable in a fortunate way and most of the arrangements might be acquired utilizing a charge card. Tesco had the most bewildering top in 2012 appeared differently in relation to Sainsbury. In any case, Sainsbury showed a high record in 2011 and 2013, which might be credited to helpful amassing of offers livelihoods by the association and effective procedures used by the organization as a part of the headways of its inventories.

 

ROE (Return on Equity)

Tesco has higher profits for value inside the three-year time frame. This is owed to its enhanced interests in different divisions, for example, monetary part, land speculations. Besides, the higher profit for value can be owed to the long history of powerful administration of shareholder's value in the organization's operations. At last, successful venture choices by Tesco multiplied by the colossal continues from the speculations have expanded the level of profits inside the organization (Peterson and Fabozzi, 2012).

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Net Margin

Tesco is demonstrating higher performance in its execution to the extent its event diverged from Sainsbury. Conspicuously this extension in the general income is credited to the compelling organization of expenses and awesome frameworks of promoting of its things to open up on the arrangements. Sainsbury has been recording low volumes of offers pay stood out from Tesco with different retail outlets in the United Kingdom to help the business wage. In addition, Sainsbury low arrangements wage can be associated with poor procedures for things headway, which incite unimportant arrangements livelihoods. Tesco has practical techniques for total trade receivables, which helps the social affair of commitments owed by customers to the association. In addition, it is sure that Tesco has done well in locales of peril organization especially with the expanding of its associations, which improves its ability to contribute and develop the market outlets of its things. Clearly, as noted from the presentation, it is in like manner obvious that the retail outlets by Tesco outperform by a more noteworthy edge those of Sainsbury (Sainsbury’s, 2013).

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Liquidity Ratios

Liquidity proportions show the capacity of the organization to meet its transient commitments with the accessible fleeting resources. This is shown by two fundamental proportions; the present apportion and the fast corrosive proportion (Terence and Thomas, 2005).

Current Ratio

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The present proportion demonstrates the capacity of the organization to meet its transient liabilities with the accessible fluid or current resources. The proportion is found by the recipe; current resources partitioned by the present liabilities (Koller, Goedhart and Wessels, 2011).

With your consultancy report you are required to give advice upon the level of disclosure that each of these two companies have provided in the published annual reports.

There are always various stakeholders of annual reports. All of the stakeholders require specific information from the annual reports (Paramasivan, 2009). The stakeholders of annual reports of Tesco and Sainsbury are presented in the below table.

The following are the stakeholders of the two companies:

Stakeholders

Tesco

Sainsbury

Customers

Yes

Yes

Suppliers

Yes

Yes

Employees

Yes

Yes

Investors (shareholders)

Yes

Yes

Local Community

Yes

Yes

Competitors

Yes

Yes

Directors/Management

Yes

Yes

Financial Institutions

Yes

Yes

Government Authorities

Yes

Yes

 

As suggested by Martínez?Ferrero, Garcia?Sanchez and Cuadrado?Ballesteros (2015), all of these stakeholders have their own specific needs for which they refer to the annual statements. After doing the analysis of five years annual reports, it has become visible that Tesco is able to meet the needs of its owners and managers in an effective manner. It has presented the details about operations and business decisions in a detailed manner. The detailed reporting has enabled the management to make their decisions with full understanding of the figures. As per suggestion of Guay, Samuels and Taylor (2015),it has discussed various operational risks which are important for employees and management to take any further decision. However, the annual statement of Sainsbury are bit precise, and relatively it has not provided sufficient information like Tesco has provided. The stockholders can also get the sufficient information from the annual reports of Tesco and Sainsbury. Both companies has provided information in an adequate manner to meet the needs of stockholders. AsLawrence (2013) said management, owners and stockholders are most important parties, if their needs are met, it means that the disclosure is done in an effective manner. Further analysis of the annual statements of Tesco tells that its employees could also get the sufficient information from it. They are in position to take the information related to the financial performance of the company. therefore, if ever needed they can get information and use it in the case of labor unions or for discussing the promotions, compensations and rankings. Thus, the needs of employees are effectively catered through this.This has also provided information about executive compensation which is offered to the management employees. This information is helpful for employees for making collective bargaining agreements with the management (Fernandez-Feijoo, Romero and Ruiz, 2014). Sainsbury has provided information related to employees in form of retirement benefit programs, saving related share option schemes, cautionary settlement and employee benefits. Like Tesco, executive compensation information is also provided.Though, potential investors also need sufficient information about the viability of investing in the business. The analysis of Tesco’s annual statement that it might not be providing the sufficient information for investors.The analysis of Tesco’s annual statement shows that it might not be providing the sufficient information for potential investors. It is difficult to take any decision by forecasting the performance of Tesco for next years. The performance is not stable. For example, the fluctuations in its return on equity and quick ratio are great, this shows it is not possible for potential investors to get the clear picture about the future performance. In opposite to this, Sainsbury has presented the information for its potential investors in an effective manner. it has used graphs and precise figures which are even better for information. Moreover, the ratio analysis also reveals that its future is secured than Tesco. Hence, the potential investors are in position to get desired information from the annual statements. As per the information related to its working capital and extend debt securities (debentures and long term bank loans), there is not enough detail in the annual reports of Tesco. This has made it difficult to state that needs of financial institutions are effectively met. However, Sainsbury has provided the information for financial institutions in an adequate manner. The notes which are provided for its credit payments depicts its trustworthiness for suppliers (Bình, 2016). It has mentioned every minor detail about suppliers. Comparison with Sainsbury tells that though they have also revealed information about their sources and suppliers, Tesco has satisfied the needs of suppliers in a better manner. It could not be said that suppliers’ cannot get the sufficient information from the statements. Both companies has provided details about the desired information for suppliers. According to Titman, Keown and Martin (2015), government entities use the annual statements to get the information related to the taxes and other duties which a company must has to pay. The analysis has revealed that both Tesco and Sainsbury has provided sufficient information about taxes in the past five years’ annual statements, however, following the requirements given in McKinney (2015), the level of disclosure is better for Tesco’s annual statements.

Though, both has provided variety of information in its annual report. Therefore, it is also reasonable to conclude that the needs of community members and customers could be fulfilled through the annual statements. In short, Tesco has provided sufficient information in its annual statements in a quite comprehensive manner. Though, annual reports of Sainsbury are less comprehensive than Tesco but the good aspect is that it has presented various aspects in a precise manner.

Critically examine whether the needs of key stakeholder groups have been sufficiently addressed in the Annual Reports that you have selected and how the reports could be improved for the benefit of these stakeholders

The key stakeholders are getting sufficient information from the annual reports of Sainsbury and Tesco. The analysis which is conducted in this report has revealed that more or less both companies has provided adequate information in their annual reports. The key stakeholders are management/directors, stockholders/investors, government, employees, suppliers and customers. though, few deficiencies are observed at certain places, but those are minor deficiencies in terms of disclosure. Both of them should clearly understand that disclosure overload is not something which is attractive for stakeholders. Both of them had detailed information in their annual reports; too much detail is what is known as disclosure overload. One way to improve the disclosure is to ensure that precise information is given to the stakeholders.

There must be proper guidelines which should be followed for format/structure, materiality and tailoring of the annual reports. Though, financial statements often follow the structure which is provided in international accounting standards but due to the increased requirement for disclosures, firms often adopt different formats to communicate their information to the stakeholders. While designing the annual statements, it should not be forgotten that one of the most important aspect of annual statement format is about their simplicity, therefore, annual statements must be simple enough to be used by all key stakeholders. They must be a source of communicating transparent financial position (Bình, 2016). While analyzing the annual statement of both companies, it was being analyzed that there was information which was generic and boilerplate, as told by Chen, Miao and Shevlin (2015), this could be problematic for making any decision based on the information. Hence, it should be ensured that specific and required information is being provided to all stakeholders. It is also recommended that there must be tailoring of the disclosure as per the stakeholders. There are various stakeholders who look for specific information, annual statements must provide them the required information. Most importantly, the minimum disclosure requirements dictated by IFRS must be followed for the principle of materiality (Finkler et al., 2016). Only material information should be included in the annual statements. It should not be forgotten that immaterial information can only reduce the usefulness and transparency of information for stakeholders. Both companies should take a step further to a mere ‘compliance’ mode and they should shift their focus on usefulness of the information. It should provide that information in the annual statement which does not only fulfill minimum disclosure requirements but it also fulfills needs of all stakeholders (Brown et al., 2015).

Conclusion

In this report, the annual reports of two companies i.e. Tesco and Sainsbury are analyzed. From the annual reports, key financial data was obtained and which is used for comparing the financial performance of both companies. After applying the relevant tools and techniques, it was found that performance of Tesco was better than Sainsbury. This report has also analyzed the annual reports of both companies to analyze how disclosure of information is being done. It is concluded that both companies are disclosing information in a satisfactory manner. however, there is room for improvement in disclosure of information in both companies. This could be improved by taking a step further from mere compliance to providing information which is useful for all stakeholders. 

References

Brown, M.T., Rascher, D.A., Nagel, M.S. and McEvoy, C.D., 2016. Financial management in the sport industry. Holocomb Hathaway, Publishers.

Bình, T.Q., 2016. Voluntary disclosure information in the annual reports of non financial listed companies: the case of Vietnam.

Chen, S., Miao, B. and Shevlin, T., 2015. A new measure of disclosure quality: The level of disaggregation of accounting data in annual reports.Journal of Accounting Research53(5), pp.1017-1054.

Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.

Fernandez-Feijoo, B., Romero, S. and Ruiz, S., 2014. Effect of stakeholders’ pressure on transparency of sustainability reports within the GRIframework.Journal of Business Ethics122(1), pp.53-63.

Guay, W.R., Samuels, D. and Taylor, D.J., 2015. Guiding through the fog: Financial statement complexity and voluntary disclosure. Available at SSRN 2564350.

Joel, R. E. (2006). Are the largest public retailers top financial performers? A longitudinal analysis.  International Journal of Retail & Distribution Management, 33 (11), pp.842 – 857

Koller, T, Goedhart, M and Wessels, D (2011): Valuation; Measuring and managing the value of companies, US, McKinsey & Company.

Lawrence, A., 2013. Individual investors and financial disclosure. Journal of Accounting and Economics56(1), pp.130-147.

Moyer, C, McGuigan, J and Rao, R (2011): Contemporary Financial Management, USA, South-Western Cengage Learning.

Martínez?Ferrero, J., Garcia?Sanchez, I.M. and Cuadrado?Ballesteros, B., 2015. Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management,22(1), pp.45-64.

Paramasivan, P (2009): Financial Management, USA, New Age International.

Peterson, P and Fabozzi, F (2012): Analysis of Financial Statements, USA, Wiley Finance.

Titman, S., Keown, A.J. and Martin, J.D., 2015. Financial management: Principles and applications. Pearson.

McKinney, J.B., 2015. Effective financial management in public and nonprofit agencies. ABC-CLIO.

Terence, B. and Thomas, E. B. (2005). An empirical analysis of the financial impact of quick response. International Journal of Retail & Distribution Management, 36 (8), pp.607 – 626.

 

 


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