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Swot Analysis Of Sainsbury

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7. Evaluation Profitability Ratios: As we can see from Tables 5 & 6 the majority of profitability ratios favour Sainsbury’s with their ROSF and ROCE general trend looking relatively positive in comparison to Tesco’s (particularly when you extend the view into 2014). Sainsbury’s Return on Shareholders’ Funds (ROSF) remained steady throughout the 2012/2013 trading period (with a modest increase of 0.85%), after losing 10.00% in the preceding year’s trading, 2011/2012. This is further strengthened however by a recovery of 11.30% during 2013/2014. Essentially these changes are due to a 6.56% reduction in profit during 2011/2012 and also assisted by an increase of 5.72% in Cost of Sales. Tesco, however, published a small decrease of 1.62% at …show more content…

In contrast, profit at Sainsbury’s for the period remained relatively level showing a small upward trend of 2.68% resulting in an above average ROCE – thus achieving their financial objective. Relative to Tesco their borrowing and thus long term liabilities is much lower whilst operating profit is up. Tesco’s Profits are clearly trending downwards and as such are reflected in the decline in the gross profit ratio from 8.30% in 2011 to 6.31% in 2013/14 and Operating Profit margin ratios from 6.25% in 2011 to 3.38% in 2013 (with partial recovery in 2014 to 4.14%) with asset turnover remaining relatively consistent however at 1.29% in 2011-2013. Sainsbury’s trending gross profits look much steadier at 5.48% in 2013 only down 0.01% from the 2011 figure (and up to 5.80% in 2014). Operating profit is likewise down slightly from 2011 to 2013 (but recovering again in 2014). Overall the trend illustrated by these ratios would suggest that Sainsbury’s ability to generate earnings (over expenses) is more stable than that of Tesco for the period in question. This would suggest that as sales increase, the cost of sales are increasing in an appropriate and scalable way. That is to say, with more goods ordered, more discounts can be earned which will proportionally reduce the rate at which the cost of sales increases. The same cannot be said for Tesco. Overall this …show more content…

In addition Tesco’s cost of sales has been compounded by a disproportional increase in 2010/11 by 7.07% and by 5.92% the following year (with a much smaller increase in from 2012/13). It is difficult to ascertain the reason for this increase in cost of sales, perhaps recent supplier scandals have forced Tesco to pay more of a premium for higher quality goods and thus increase cost of sales, or perhaps it can be traced to the type of goods supplied and the increasing commodity costs across international regions (particularly in light of Tesco’s international trading interests, which Sainsbury’s don’t have) or perhaps it can be put down to the scale of the operation which Tesco manages. It must reach a point where its huge buying power and normal economies of scale, which it has relied on to ensure a relatively high Gross Profit margin (much higher than Sainsbury’s), fails to negate the costs and difficulties of managing such large scale international

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