Financial Analysis of Sainsbury's and Marks & Spencer: BUS4Y0 Coursework Report Sample

Introduction Of The Finance, Budgets And Decisions Assessment Coursework Report

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1: Executive Summary

This report has discussed the important aspects of financial analysis of two companies selected Sainsbury's and Marks and Spencer's. As per analysis of the overall ratio analysis, it can be considered that Sainsbury outperforms its nemesis in all ratio parameters except solvency ratios. Additional commentary provided on addressing the problems encountered during conduct of calculations has been identified as potential incorrectness in data retrieved from the balance sheet. Suggestions offered to investors in the industry have been further considered as adhering to solvency and leveraging prospects for expecting higher returns on investment in the foreseeable future.

2: Justification of Company and Ratios selected

In order to garner a detailed evaluation of financial analysis, the selected companies are considered to be Sainsbury’s and Marks and Spencer’s. The main company is considered to be Sainsbury’s, while its competitor is deemed to be Marks and Spencer’s. Justification provided on the selection of companies can be associated with both companies possessing detailed aesthetics in the retail manufacturing businesses. In order to complete this comparative analysis of both the companies’ ratios selected to consist of profitability, liquidity, solvency and turnover parameters. Justification provided on selection of ratios can be ascertained concerning all these ratios possessing high-quality attributes to portray the financial overview of companies.

3: Analysis of Companies using ratios

3.1: Analysis of the Profitability Ratios

As per the analysis of profitability ratios, it can be considered that the profitability prospects for both Sainsbury’s and Marks and Spencer’s have been on the negative side. However, the overall decline in growth is more apparent for Marks and Spencer’s than Sainsbury’s. This is further translated in numerical terms for the Net profit ratio of Sainsbury’s as -1.49% in 2021 as compared to 2020, while for Marks and Spencer’s the figure is considered to be -2.47%. [Refer to Appendix 1]. Hence, it can be considered that the ratio metrics for Sainsbury’s is better positioned as compared to its competitor Marks and Spencer’s. Ligocka (2019), explained and expressed that lower profitability prospects are harmful financial prospects for companies in order to ensure long-run business durability and sustainability.

3.2: Analysis of liquidity Ratios

As per analysis of liquidity ratios, the quick ratio growth for Sainsbury’s is expressed as -0.02 in 2021, while for Marks and Spencer’s it is numerically expressed as -1.73 [Refer to Appendix 2]. Hence, the liquidity prospects of Sainsbury’s are considered to be better than its competitor Marks and Spencer’s.

3.3: Analysis of Solvency Ratios

According to the analysis of solvency ratios, it can be considered that the overall growth in debt-to-equity ratio for Marks and Spencer’s is superior as compared to Sainsbury’s. This is numerically justified by considering the growth values as 0.53 and -0.07 [Refer to Appendix 3].

3.4: Analysis of Turnover Ratios

According to analysis of turnover ratios, it can be considered that the growth in inventory turnover ratio is marginally superior for Sainsbury’s as compared to Marks and Spencer’s [Refer to Appendix 4].

4: Suggestions Offered to Potential Investors

The main suggestions offered to potential investors can be associated with financial clauses. Financial aspects can be evaluated by conducting ratio analysis for retail companies Sainsbury's and Marks and Spencer's. Fahlevi and Mukhibad (2018), explained that investor attributes can be mainly ascertained with the help of solvency ratios. Hence, suggestions offered to potential investors in the industry consist of measuring investment prospects, where leverage prospects are considerably higher.

5: Commentary on Problems encountered while calculation and interpretation of ratios

Commentary provided on problems encountered while calculating and interpreting ratios can be fundamentally attributed to achieving actual figures of balance sheet. Dong et al. (2018), explained and opined that actual balance sheet figures are usually kept undisclosed as it is expected that companies possess higher valuation of assets and liabilities as depicted in actual statements of financial position.

Presentation

Slide 1: Executive Summary

BP

• This report has discussed the financial analysis for Sainsbury’s and Marks and Spencer’s
• Profitability, Liquidity and Turnover ratios of Sainsbury’s is considered to be higher
• Major problems encountered including lack of transparency
• Suggestion offered to investors consists of emphasising on leveraging prospects.

SN

This report has established that financial parameters of Sainsbury’s are highly superior as compared to Marks and Spencer’s, while investors needed to emphasise leveraging prospects to ensure investment sustainability in the industry.

Slide 2: Justification of Company Selection and Ratio Selection

BP

• Sainsbury’s has been chosen as the main company
• Marks and Spencer’s has been chosen as the competitor
• Profitability, Liquidity, Solvency and Turnover ratios have also been selected.
• Justification provided consists of acquiring minute financial details of two well-established retail companies.

SN

The principal justification provided for selection of companies and ratio parameters is considered to be based on finding detailed financial aesthetics for two well-renowned retail giants in the UK.

Slide 3: Analysis of Ratios

BP

• Profitability ratio of Sainsbury’s is higher
• Liquidity ratio of Sainsbury’s is superior
• Solvency ratios of Marks and Spencer’s are superior
• Turnover ratios of Sainsbury’s are better than Marks and Spencer’s.

SN

As per the profitability ratios, it can be considered that the majority of the ratio metrics of Sainsbury's are better than Marks and Spencer's. However, a considerable fall has been witnessed and urgent managerial intervention is required to fetch better financial rewards.

Slide 4: Suggestions Offered to Investors

BP

• Leveraging Prospects are needed to be scrutinised (Fatihnah and Setiawan, 2021).
• Solvency parameters are needed to be studied (Sari and Yasa, 2021).
• A higher concentration of debt is needed to be discouraged.
• Return on Investment and return on equity parameters are needed to be considered.

SN

In order to facilitate healthy propositions of investments, investors are usually encouraged to examine leverage prospects of an organisation. Moreover, adherence to least debt concentration is needed to be considered as a parameter for defining the selection of an appropriate investment.

Slide 5: Commentary on Problems Encountered

BP

• Lack of precision in balance sheet.
• Lack of precision in income statements.
• Lack of accurate data and financial information.
• Lack of interpretation of financial statements with actual business strongholds in the market.

SN

The major problems encountered during the conduct of ratio calculations consist of finding actual balances of income statements and balance sheet items. Moreover, an estimation of actual business prowess in the market could be vaguely established.

References

• Dong, M.C., Tian, S. and Chen, C.W., 2018. Predicting failure risk using financial ratios: Quantile hazard model approach. The North American Journal of Economics and Finance, 44, pp.204-220.
• Fahlevi, E.D. and Mukhibad, H., 2018. Use of Financial Ratios and Good Corporate Governance to Predict Financial Distress. Jurnal Reviu Akuntansi dan Keuangan, 8(2), pp.147-158.
• Fathinah, H. and Setiawan, C., 2021. The Effect of Financial Ratios and Firm Size Toward Stock Price of Consumer Goods Industry Listed in the IDX. Nusantara Science and Technology Proceedings, pp.203-211.
• Ligocka, M., 2019. The effect of financial ratios on the stock prices: Evidence from the Polish stock exchange. Acta VŠFS-ekonomické studie a analýzy, 13(1), pp.44-60.
• Sari, N.M. and Yasa, G.W., 2021. The Effect of Financial Ratios on Changes in Stock Prices of Building Construction Subsectors in Indonesia Stock Exchange During Covid-19 Pandemic in 2020. American Journal of Humanities and Social Sciences Research (AJHSSR), pp.491-497.