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Company Ana|ys|s
A report ana|ys|ng 1esco p|c and I Sa|nsbury p|c
2006]07
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Contents
lnLroducLlon ............................................................................................................................................ 3
LnLlLy lnformaLlon ................................................................................................................................... 3
8evaluaLlon of asseLs .......................................................................................................................... 3
1he economy ....................................................................................................................................... 3
SlgnlflcanL evenLs durlng 2007 ............................................................................................................ 4
8aLlo Analysls .......................................................................................................................................... 4
ÞroflLablllLy.......................................................................................................................................... 4
uLlllsaLlon ............................................................................................................................................ 3
LlquldlLy ............................................................................................................................................... 6
lnvesLmenL .......................................................................................................................................... 6
Concluslon ............................................................................................................................................... 7
Appendlx 1 .............................................................................................................................................. 8
1.1 SWC1 Analysls ............................................................................................................................... 8
1.2 MarkeL share daLa ......................................................................................................................... 9
Appendlx 2 ............................................................................................................................................ 11
2.1 8CCL 2006/07 ............................................................................................................................. 11
2.2 uebLor & CredlLor days 2007 ...................................................................................................... 11
2.3 PorlzonLal Analysls ...................................................................................................................... 12
2.4 8aLlo Analysls .............................................................................................................................. 13
8lbllography .......................................................................................................................................... 13



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Sub[ect: Company analysls of 1esco plc and ! Salnsbury's plc

Date: 10 uecember 2007
Introduct|on
1he alm of Lhls reporL ls Lo evaluaLe Lwo companles wlLhln Lhe same secLor. lor Lhls purpose !
Salnsbury plc and 1esco plc has been selecLed. 8oLh companles are compeLlng ln a lucraLlve reLall
markeL whlch ls currenLly ln a sLaLe of flux. Lach buslness carrles lLs own sLrengLhs and weaknesses
and ls exposed Lo varlous opporLunlLles and LhreaLs. A SWC1 analysls can be found ln appendlx 1.1.
8oLh companles' annual reporLs were obLalned and analysed by means of raLlo analysls, and
assesslng how each company's eLhos and Lradlng meLhods affecLs Lhelr flnanclal sLaLus. 1he mosL
approprlaLe meLhods of raLlo analysls have been lncluded ln Lhe maln reporL, and Lhere are
supplemenLary raLlos, charLs and Lables for Lhe reader Lo refer Lo ln Lhe appendlces Lo be able Lo
quanLlfy Lhls daLa furLher.
Lnt|ty Informat|on
keva|uat|on of assets
Salnsbury have noL re-valued Lhelr non-currenL asseLs Lhls year, however Lhe neL book value of Lhe
Croup's freehold and long leasehold properLles, currenLly sLands aL £3.2 bllllon. Company dld
lnsLrucL a Leam of lndependenL surveyors Lo carry ouL an lnvesLmenL valuaLlon, Lhls flgure came ln aL
£8.6 bllllon - a 63° lncrease.

Salnsbury sLlll lnLends on exLendlng a furLher 73 sLores by March 2010, whlch wlll agaln lncrease
Lhelr markeL value of Lhe properLles and land. uurlng Lhe nexL 3 years Lhe company plans Lo open 30
new supermarkeLs and 100 new convenlence sLores. Land and bulldlngs are sLaLed aL cosL less
accumulaLed depreclaLlon and any recognlsed lmpalrmenL loss. 1hese lnclude any dlrecLly
aLLrlbuLable cosLs and borrowlng cosLs caplLallsaLlon.
1he meLhod LhaL 1esco uses for depreclaLlon ls LhaL for freehold bulldlngs and leasehold properLles
are depreclaLed on a sLralghL llne meLhod over a 30 year perlod. lreehold land ls noL depreclaLed.
1esco have noL re-valued Lhelr asseLs Lhls pasL years, however reclasslflcaLlon has occurred across
caLegorles, alLhough lL ls noL clear ln Lhe reporL why Lhls has happened, buL lL affecLs Lhe cosL of
ÞroperLy, ÞlanL and LqulpmenL and also wlLh accumulaLed depreclaLlon glvlng a LoLal deflclL of £100
mllllon, Lhese are depreclaLed over Lhelr anLlclpaLed useful economlc llfe. 1he depreclaLlon meLhod
for freehold and leasehold bulldlngs wlLh greaLer Lhan 40 years explred ls aL 2.3° of cosL. Leasehold
properLles wlLh less Lhan 40 years unexplred are depreclaLed by equal annual lnsLalmenLs over Lhe
unexplred perlod of lease. ÞlanL, equlpmenL, flxLures and flLLlngs and moLor vehlcles are
depreclaLed aL raLes varylng from 9° Lo 33°. (See noLe 1 annual reporL).
1he economy
Salnsbury and 1esco appear Lo be ln a vlgorous and growlng parL of Lhe economy due Lo Lhe
conLlnued expanslon of Lhe company ln respecL Lo Lhe growlng number of sLores lL ls openlng. ln
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relaLlon Lo oLhers ln Lhe secLor, Salnsbury's has a markeL share of 16.3° whereas 1esco have 31.3°
(lgd.com 2007). (see oppeoJlx 1.2). Powever, 1esco are expandlng lnLo Lurope, openlng many
sLores ln Czech 8epubllc, Pungary and Þoland and Lxpress sLores ln Lhe uSA. 1esco also offer
flnanclal servlces Lo lLs cusLomers such as lnsurance, credlL cards and loans. Salnsbury have
appeared Lo have suffered flnanclally Lhrough Lhelr experlence ln Lhe banklng servlces, loslng a
furLher £10m lasL year due Lo charges on bad debLs for loans made Lo cusLomers over Lhe prevlous
Lwo and Lhree years. 1hey are now [olnLly owned wlLh P8CS Lo help mlnlmlse Lhls damage and are
on LargeL Lhls year Lo break even.
S|gn|f|cant events dur|ng 2007
uurlng Lhe year Lhere were Lwo poLenLlal Lake-overs for Salnsbury's (8owers & Allen, 2007). 1he flrsL
belng ln Aprll, by consorLlum group CvC, whlch dld noL maLerlallse due Lo Lhe consLralnLs of Lhe
flnanclal crlLerla seL by CvC. 1he second from uelLa 1wo - a CaLarl soverelgn-backed fund who now
own a quarLer of Salnsbury's shares.
20 March 2007, 1esco Croup formed a [olnL venLure wlLh Lhe 8rlLlsh Land Company plc, Lhe llmlLed
parLnershlp conLalns 21 supersLores whlch have been sold from and leased back Lo 1esco. Lucy
nevllle-8olfe has [olned Lhe company of Lhe board of dlrecLors as LxecuLlve ulrecLor of CorporaLe
and Legal Affalrs. 1esco opened 8.2 mllllon square feeL of space ln Lhe lnLernaLlonal markeL, and
have Laken conLrolllng lnLeresL ln Lhe Pymall sLores ln Chlna. new Lechnology has been
lmplemenLed aL Lhe checkouLs ln Lhe uk, allowlng more preclse monlLorlng of cusLomer servlce.
1he CompeLlLlon Commlsslon lnvesLlgaLlon lnLo prlce flxlng lncluded Salnsbury and 1esco. 1he
accusaLlon ls regardlng prlce colluslon beLween Lhe 8lg lour (Asda, Morrlson's, 1esco and Salnsbury),
(Walsh 2007). 1he reporL sLaLes º1esco's purchaslng cosL advanLage ls noL acLlng as a barrler Lo
expanslon by oLher grocery reLallers" (?oung 2007). Powever, several remedles have been puL
forward Lo lmprove Lhe compeLlLlon beLween Lhe 8lg lour and local grocery markeLs. (lull flndlngs
wlll noL be publlshed unLll March).
1here were Lwo new non-LxecuLlve ulrecLors appolnLed Lhls year aL Salnsbury, val Coodlng and
Anna lord. 1hey replace !amle uundas who has served Lwo full Lerms, and Salnsbury are sLlll
acLlvely searchlng for a second replacemenL.
kat|o Ana|ys|s
Þrof|tab|||ty
8eLurn on CaplLal Lmployed (8CCL) shows Lhe revenue generaLed from Lhe lnvesLmenL by Lhe
shareholders. ln 2007, 1esco generaLed a healLhy 13.9° reLurn on Lhe caplLal employed ln
comparlson Lo Salnsbury's, whlch ls comparaLlvely lower aL 7.69°. (5ee oppeoJlx 2.1)
1hls would suggesL LhaL 1esco's managemenL are more compeLenL and are uslng Lhe caplLal
employed more efflclenLly. Powever, desplLe Lhe LhreaL of numerous Lakeovers and a change Lo Lhe
board, Salnsbury's are showlng an lncrease of 137.2° on lLs prevlous year, when 8CCL was as low as
2.99°. 1hls dramaLlc lncrease ls parLlally due Lo Salnsbury's 2006 expenses, whlch lncluded £31m of
buslness revlew cosLs and £63m of l1 sourclng cosLs, of whlch £30m was lncluded ln cosL of sales and
£64m lncluded ln admlnlsLraLlon expenses.
1esco has lmpresslvely malnLalned a sLrong 8CCL desplLe Lhe exLra sLarL-up cosLs and caplLal
lnvesLmenL ln Lhe u.S and 1esco ulrecL, as well as Lhe lnLegraLlon cosL and caplLal employed ln Lhelr
lnLernaLlonal acqulslLlons and lncreased sLake ln Pymall.
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2007
Net Profit Margin
%
Gross Profit
%
Tesco 7.74 8.12
Sainsbury’s 3.03 6.83

1he neL proflL margln ls a good lndlcaLor of how proflLable sales are wlLhln a company. CurrenLly,
1esco ls Lwlce as efflclenL aL generaLlng proflL from lLs revenue. 1hls ls malnly down Lo good cosL
conLrol. 1esco can Lake advanLage of huge economles of scale due Lo Lhe slze of Lhe company, whlch
Lo keep cosLs low. Analysls of Lhe gross proflL and neL proflL marglns show Salnsbury's are noL
managlng expenses effecLlvely, as Lhelr admlnlsLraLlon expenses absorbs nearly 30° of lLs revenues.
Ut|||sat|on
AsseL Lurnover lndlcaLes Lhe value of sales generaLed for every pound of asseLs. 8oLh companles are
conslsLenLly generaLlng sales from Lhelr caplLal base. 1he 2006 and 2007 flgures show LhaL boLh
companles are Lurnlng over Lhelr asseLs approxlmaLely 4 Llmes Lo achleve Lhelr revenues. Plgh asseL
Lurnover ls a characLerlsLlc of Lhe compeLlLlve reLall lndusLry Lhe companles are Lradlng ln, whlch ls
malnly due Lo compeLlLlve prlclng. ln parLlcular, lL ls Lhe vlew of Lhe managemenL aL Salnsbury's Lo
ensure Lhey remaln compeLlLlve on prlclng as parL of Lhelr recovery plan and Lo make sure Lhelr
brand appeals Lo Lhe wldesL range of people.

Non-Current Asset Turnover (Times)
2007 2006 2006 (Excluding
Sainsbury’s Bank plc)
Tesco 2.11 2.12 ------
Sainsbury’s 2.25 1.8 2.16

non-CurrenL asseL Lurnover ls a good lndlcaLor of how many Llmes flxed asseLs can be covered by
revenue. 1he raLlos for boLh companles ln 2007 show Lhey are Lurnlng Lhelr asseLs Lwlce over Lo
generaLe revenue. Powever, 1esco prove Lo be more efflclenL aL malnLalnlng a healLhy raLlo. 1hey
have lnvesLed ln new non-currenL asseLs whlch lncreased by 8.31°, resulLlng ln revenue lncreaslng
by 8.07°, whereas Salnsbury's has seen Lhelr lncrease due Lo a reducLlon of non-currenL asseLs. 1he
reducLlon of non-currenL asseLs ls a resulL of Salnsbury's 8ank plc becomlng a 30:30 [olnL venLure
wlLh P8CS bank. So equlLy, asseLs and llablllLles from lLs operaLlons are no longer consolldaLed
wlLhln Lhe group balance sheeL. 8emovlng Lhls exLraordlnary lLem from Lhe 2006 flnanclal
sLaLemenLs, Lhe raLlo shows only a sllghL lmprovemenL, ln proporLlon wlLh revenue.

Analysls of credlLors days raLlo shows an lncreased Lhe amounL of Llme lL Lakes Lo pay lLs credlLors by
3 days. now 1esco's credlLor's day ls 31 days, lL allows Lhe company Lo hold cash for longer and
reduces Lhe opporLunlLy cosL of paylng earller. lL ls noL unusual for buslness Lo pay credlLors
beLween 30- 30 days and wlLh 1esco's hlgh proflle and huge proflLs credlLors wlll feel preLLy sure
LhaL Lhey wlll be pald. 1herefore, ln Lheory 1esco's may look Lo lncrease credlLors days even furLher
wlLhouL loslng Lhe goodwlll of suppllers.

Powever, wlLh Lhe uk medla hlghllghLlng mulLlnaLlonal such as 1esco's flrms are puLLlng small
suppllers ouL of buslness, lncreaslng credlLors days furLher ls llkely Lo damage repuLaLlon. 1esco's
could look Lo reduce lLs credlLors days as lL ls a reLall buslness wlLh debLors days as low as 1 days. So
lL should never flnd lLself shorL of cash. 1hls may lmprove Lhe enLlLy's soclal lmage furLher lncreaslng
lLs revenue. 1hey may also be able Lo Lake advanLage of dlscounLs LhaL are offered ln reLurn of early
paymenLs.
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Average sLock holdlng perlod measures Lhe Llme lL Lakes Lo Lurnover lnvenLory. Salnsbury's sLock
holdlng perlod has decrease by a day, from 14 Lo 13 days. ln comparlson, 1esco has seen an lncrease
from 13 Lo 18 days, due Lo a 31.9° lncrease of lnvenLory, whlch ls noL ln llne wlLh cosL of sales as you
may expecL, whlch has only lncreased by 8°. As a resulL, 1esco's are Lylng up cash ln sLock held for
sale. 1hls money could be lnvesLed elsewhere or ln an accounL earnlng lnLeresL. AnoLher lmporLanL
facLor Lo conslder ls LhaL Lhese companles' lnvenLorles lnclude a vasL ma[orlLy of perlshable lLems
such as food sLock and produce. So lL ls lmporLanL Lo keep sLock Lurnover as hlgh as posslble Lo keep
Lhe sLockholdlng perlod low.
L|qu|d|ty
LlquldlLy ls deflned by McLaney as how well Lhe buslness manages lLs worklng caplLal (McLaney,
2006, p. 33). As we are concenLraLlng on comparlng Lhe supermarkeLs, he lndlcaLes LhaL mosL
supermarkeLs' currenL asseLs conslsL of cash and fasL-movlng sLock ln Lrade, and are Lherefore
usually falrly llquld.

Salnsbury are currenLly £3,282 mllllon down on Lhelr cash generaLed from operaLlons, Lhls lncludes
£240 mllllon of cash pald lnLo Lhe deflned penslon schemes, whlch hlghllghLs Lhe dlfference beLween
Lhe falr value of Lhe plan asseLs and Lhe presenL value of Lhe deflned beneflL obllgaLlon aL Lhe
balance sheeL.
1esco are down 21.47° Lhls year ln cash and cash equlvalenLs. Powever, Lhey have spenL £323
mllllon on acqulslLlons of subsldlarles and have also lncreased Lhelr borrowlngs Lo £184 mllllon Lhls
year. 1hey purchased and cancelled £470 mllllon worLh of Lhelr own shares. 1esco are falrly llquld aL
Lhls currenL Llme, especlally when vlewlng Lhe dlvlded cover raLlo. 8uL llke Salnsbury, mosL of Lhelr
value ls Lled up ln properLy and land.
Investment
1he Larnlngs Þer Share (LÞS) raLlo lllusLraLes Lhe amounL ln pence a company ls earnlng (afLer
lnLeresL and Lax) per slngle share. 8oLh companles have lncreased Lhelr LÞS raLlo (Lhese are
calculaLed ouL of Lhe flgures we have avallable and are noL as sLaLed ln Lhe annual reporL).
Surprlslngly, Salnsbury have ouL-performed 1esco ln Lhls lnsLance aL 18.68p for 2007 (up from a dlre
3.38p ln 2006), Whereas 1esco are runnlng aL 17.48p (up from 14.7p ln 2006) whlch ls ln llne wlLh
Lhe relaLlonshlp beLween proflL afLer lnLeresL and Lax versus number of ordlnary shares for boLh
years. Whereas Salnsbury's are runnlng aL a 20.3° lncrease over 2006 flgures, due Lo Lhe success of
Lhelr recovery program.
ulvldend cover shows how many Llmes Lhe currenL LoLal dlvldend paymenL ls covered by Lhe
company's proflL avallable Lo shareholders. 1esco easlly covers lLs dlvldend by 4.06 Llmes. lL would
be posslble for 1esco Lo pay a hlgher dlvldend ouL of lLs proflL, or Lhey could reLaln proflL Lo relnvesL
ln Lhe company creaLlng a hlgher markeL value per share, elLher way Lhe shareholders wealLh
remalns Lhe same. Salnsbury's have sufflclenL dlvldend cover of 2.3 Llmes, buL are noL yeL able Lo
lncrease Lhelr dlvldend paymenLs, and are beLLer off ln Lhelr currenL slLuaLlon of recovery by
reLalnlng Lhelr proflLs, and carrylng forward Lo Lhe nexL flnanclal year.



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Conc|us|on
Cn reflecLlon, boLh companles have performed well over Lhe pasL year, especlally conslderlng Lhe
raLe of lnLeresL rlse lnfluenclng buyers spendlng power. Salnsbury's are presenLly succeedlng ln
compleLlng Lhelr recovery plan whlch wlll brlng Salnsbury's back ln llne wlLh lLs compeLlLors. 1esco
are conLlnulng Lo expand lLs operaLlon wlLhln Lhe uk and abroad, especlally wlLhln Lhe unlLed SLaLes
wlLh lLs express sLores. keeplng ln mlnd LhaL 1esco are conLlnulng Lo purchase and develop land for
fuLure expanslon, Lhls glves Lhe lnvesLor confldence ln Lhe company's longevlLy. 8oLh companles
had new accounLlng pollcles lnLroduced Lo Lhelr Annual 8eporL Lhough no maLerlal lmpacL was
made. lor Salnsbury's Lhe Chalrman expressed hls pralse for Lhe performance of Lhe flnanclal year.
8oLh companles galned an unquallfled reporL, obLalned by ÞrlceWaLerhouseCoopers and also meL
Lhelr ln-house ob[ecLlves (see appendlx). AfLer gaLherlng relevanL lnformaLlon and comparlng and
conLrasLlng raLlos, lL appears LhaL boLh companles can provlde a solld lnvesLmenL opporLunlLy.


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Append|x 1
1.1 SWC1 Ana|ys|s
Strengths
8oLh companles boasL reLall success and sLrong brands, wlLh Salnsbury belng voLed ºfavourlLe
reLaller of all Llme" (LalklngreLall.com) and 1esco Lopplng 1nS's º8rlLaln's favourlLe reLaller" llsL for
Lhe flrsL Llme aL Lhe 2007 8eLall Week Awards (Lnsglobal.com).
Weaknesses
1esco has had some publlc crlLlclsm ln Lhe press wlLh regards Lo lLs relaLlonshlps wlLh suppllers.
uesplLe pralse for belng Lhe flrsL uk Company Lo break Lhe £2bn proflL, Lhe crlLlcs are puLLlng some
of lL down Lo 1esco squeezlng Lhe value of lLs supply chaln, lmplylng 1esco's buylng power ls forclng
supplles Lo agree Lo lower prlces. CurrenLly lnvesLors and cusLomers are noL agalnsL Lhls pracLlce, buL
lf vlews sLarL Lo change lL may need Lo change lLs deallngs wlLh suppllers.
AnoLher weakness of boLh Lhe companles ls Lhe revealed colluslon of dalry prlce-flxlng, whlch has
damaged Lhelr repuLaLlon and has lnvolved flnanclal penalLles. Salnsbury's have been hlL by a £26m
flne desplLe Chlef execuLlve !usLln klng suggesLlng LhaL lL was Lhe suppllers sharlng Lhelr reLall prlclng
sLraLegles wlLh compeLlLors. 1esco have conLlnued o flghL Lhe case wlLh Lucy nevllle-8olfe of 1esco
sLaLlng ºCur poslLlon ls dlfferenL from our compeLlLors and we are defendlng our own case
vlgorously" (bbc.co.uk).
Cpportun|t|es
1nS's 8esearch LxecuLlve hlghllghLed º1here ls clear Lrend LhaL supermarkeLs are lncreaslngly seen
as a one-sLop shop by consumers for all sorLs of lLems, noL [usL Lhe weekly food shop. MosL have
sLocked non-grocery ranges for a whlle buL we are now seelng Lhem move furLher lnLo new markeLs
and Lhe appeal of low prlces has been a real wlnner wlLh consumers. 1esco even ranked ln Lhe Lop
10 for ul? and 1elecoms!" (Lnsglobal.com). 1hls would suggesL LhaL boLh companles could be qulLe
successful dlverslfylng Lhelr producLs and servlces and Laklng advanLage of such large economles of
scale. 1esco ranked ln 1nS's Lop Len ln all reLall secLors excepL for homeware and furnlshlngs, Lhey
should maybe Lry and Lap lnLo Lhls markeL wlLh a launch of lLs own brand or Lhrough an acqulslLlon.
1hreats
WlLh 1esco's successful globallsaLlon, compeLlLors are also deploylng Lhelr global sLraLegles.
WalLrose - parL of Lhe !ohn Lewls ÞarLnershlp - are plannlng Lo open Lhelr flrsL sLore abroad by Aprll
2008 ln uubal, and are almlng for 20 WalLrose supermarkeLs ln Lhe unlLed Arab LmlraLes by 2010.
Lxpandlng lnLo Lhls emerglng markeL, where domesLlc spendlng ls lncreaslng due Lo Lhe lncreaslng
lndusLrlal ouLpuL, [obs and wealLh, ls a good sLraLegy as lL wlll proLecL Lhe company from a decrease
ln uk consumer spendlng. 1esco have already expanded lnLo Lhe Aslan emerglng markeLs, however
Salnsbury's could flnd Lhemselves vulnerable lf Lhey lgnore expanslon lnLo forelgn markeLs for Loo
long and [usL rely on uk performance.

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1.2 Market share data











1he laLesL markeL share daLa from 1nS for Lhe 12 weeks Lo 28 !anuary 2007, reveals LhaL Lhe
buoyanL markeL seen over Lhe ChrlsLmas perlod has conLlnued lnLo Lhe new ?ear, wlLh food and
grocery reLallers conLlnulng Lo en[oy 3° sales growLh over Lhe equlvalenL perlod lasL year.
1he daLa also revealed LhaL whllsL 1esco conLlnues Lo grow sLrongly, recordlng growLh of 8°, lL ls
seelng solld compeLlLlon from Asda, Salnsbury's and Morrlson's. 8oLh Asda and Salnsbury's conLlnue
Lo grow, wlLh share lncreases Lo 16.8° and 16.3° respecLlvely and Morrlson's remalns sLable wlLh a
sales lncrease of 4° over Lhe lasL year, Lhe nlnLh successlve perlod of growLh.
Motket sbote Joto cootlooeJ oo oext poqe.
Latest Market share Data
12 weeks to 29 January
2006
12 weeks to 28 January
2007
Tesco 30.16% 31.50%
ASDA 16.60% 16.80%
Sainsburys 16.20% 16.50%
Morrisons 11.10% 11.00%
somerfield 3.90% 3.70%
Waitrose 3.70% 3.90%
Morrisons 1.80% 1.80%
Netto 0.60% 0.60%
Lidl 2.00% 2.20%
Aldi 2.30% 2.50%
Other
multiples 1.50% 1.50%
Total Coops


4.70% 4.60%
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hLLp://www.lgd.com/analysls/news/news_deLall.asp?arLlcleld=3379



0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
M
a
r
k
e
t

S
h
a
r
e
Retailers
Market share Data of Food and Grocery Retailers
UK 2006/ 2007
12 weeks to 29
January 2006
12 weeks to 28
January 2007
33%
17% 17%
11%
4%
4%
2%
1%
2%
3%
1%
5%
Market Share Data of Food and Grocery
Retailers UK 12 weeks to 28 January 2007
2007
Tesco
ASDA
Sainsburys
Morrisons
somerfield
Waitrose
Morrisons
Netto
Lidl
Aldi
Other multiples
Total Coops
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Append|x 2
2.1 kCCL 2006]07

2.2 Debtor & Cred|tor days 2007

key:
8LuL = 1esco
C8AnCL = ! Salnsbury's

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2.3 nor|zonta| Ana|ys|s



Tesco Analysis 2006/
2007

Sainsbury's Analysis 2006/
2007

Revenue 8.07% increase 6.78% increase
Gross Profit 14.36% increase 9.84% increase
Profit from Operations 20.49% increase 458.62% increase
Non-Current Assets 8.51% increase 0.09% decrease
Current Assets 16.76% increase 113.25% increase
Current Liabilities 0.63% decrease 42.66% decrease
Net Assets 11.94% increase 15.60% increase
Total Equity 11.94% increase 15.60% increase
Net Cash from Operating Activities 3.05% decrease 19.23% increase
Net Cash used in Investing Activities 19.41% increase 271.71% increase
Net Cash used in Financing Activities 8.33% increase 21.55% increase
Cash & Cash equivalents at end of
year 21.47% decrease 189.77% increase
Inventory 31.89% increase 2.43% increase
Retained Earnings 14.84% increase 12.11% increase
EPS* basic 18.78% increase 405.26% increase
EPS* diluted 18.94% increase 397.36% increase
*as stated in Annual Report
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2.4 kat|o Ana|ys|s

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8|b||ography
8owers, S. & Allen, k. (2007). 5olosboty´s plommets oftet oootbet tokeovet folls tbtooqb. 8eLrleved
uecember 1 2007, from hLLp://www.guardlan.co.uk/buslness/2007/nov/06/supermarkeLs1
compooles lloooclol 5totemeots (n.d.). 8eLrleved uecember 3 2007, from 8uslness Week webslLe:
hLLp://lnvesLlng.buslnessweek.com/research/sLocks/flnanclals/flnanclals.asp?symbol=S88?.L
compooles lloooclol 5totemeots (n.d.). 8eLrleved uecember 3 2007, from 8uslness Week webslLe:
hLLp://lnvesLlng.buslnessweek.com/buslnessweek/research/sLocks/flnanclals/flnanclals.asp?symbol
=1SCC.L
cox. u (200J) ´lloooclol kecotJs & Accooots 1ototlol´ LdlLlon: unknown. London. Þubllsher: Csborne
8ooks.
LllloL, 8. LllloL, !. (2007). lloooclol Accoootloq ooJ kepottloq. (12Lh ed.). London: llnanclal
1lmes/ÞrenLlce Pall.
lloooclol kotlo Aoolysls (n.d.). 8eLrleved uecember 3 2007, from 8lz/ed webslLe:
hLLp://www.blzed.co.uk/compfacL/raLlos/lnvesLor10.hLm
lrldon, M.S. eL al (2002) ´lloooclol 5totemeot Aoolysls. A ltoctltooet's ColJe´. 1hlrd edlLlon. new
?ork. Þubllsher: !ohn Wlley & Sons lnc
lotest Motket 5bote uoto (n.d.). 8eLrleved uecember 1 2007, from lCu 8eLall Analysls webslLe:
hLLp://www.lgd.com/analysls/news/news_deLall.asp?arLlcleld=3379
McLaney, L. (2006). 8osloess lloooce 1beoty ooJ ltoctlce (7
Lh
ed.). Parlow: l1 ÞrenLlce Pall.
Notloool 5opetmotket News.(n.d.). 8eLrleved november 29 2007, from uorklng SCS SupermarkeL
news webslLe: hLLp://www.dorklngsos.org.uk/naLlonal.shLml
5olosboty´s voteJ fovootlte tetollet of oll tlme. (n.d.). 8eLrleved !anuary 4 2007, from 1alklng 8eLall
webslLe:-http://www.talkingretail.com/news/6176/Sainsburys-voted-favourite-ret.ehtml
1N5 oomes 1í5cO 8tltolos fovootlte tetollet fot tbe fltst tlme ot ketoll week AwotJs (n.d.). 8eLrleved
!anuary 4 2007,from 1nS Clobal webslLe: http://www.tnsglobal.com/news/news-
DA7736B5AF494FCC876144DAD27AC6AA.aspx.
Walsh, llona. (2007). 5opetmotkets foce boqe floes. 8eLrleved uecember 1 2007, from
hLLp://www.guardlan.co.uk/money/2007/sep/20/buslness.supermarkeLs
Wood, l. SangsLer. A. (2003). 8osloess Accoootloq. v. 1. (10
Lh
ed.). London: llnanclal 1lmes/ÞrenLlce
Pall.
?oung, 8. (2007). CompeLlLlon Law AnLlLrusL Law and Þollcy ln a Clobal MarkeL lnslghL. ´1be
competltloo commlssloo lopolty loto tbe Ctocety Motket´. 8eLrleved uecember 2 2007, from
hLLp://www.eer.co.uk/download/CC°20lnqulry.pdf


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TESCO PLC RATIO FORMULA YEAR
2006

2007
Profitability Ratios:

Return On Capital Employed:
Operating Profit x 100 2648 x 100 = 25.05% 2280 x 100 = 24.14%
Non-Current Assets+Current Assets-Current Liabilities 10571

9444



Return On Shareholders Fund:


Profit Before Tax x 100 2653 x 100 = 25.1% 2235 x 100 = 23.66%
Total Equity 10571

9444



Mark-up On Cost:


Gross Profit x 100 3463 x 100 = 8.89% 3028 x 100 = 8.31%
Cost of Sales 39401

36426



Gross Profit Margin:


Gross Profit x 100 3463 x 100 = 8.12% 3028 x 100 = 6.67%
Revenue 42641

39454



Net Profit Margin:


Operating Profit x 100 2648 x 100 = 6.72% 2280 x 100 = 6.26%
Revenue 39401 36426

Efficiency Ratios:

Creditor Days:
Trade Payables x 365 3317 x 365 = 31 days 2832 x 365 = 28 days
Cost of Sales 39401

36426




Debtor Days:


Trade Recievables x 365 128 x 365 = 1 day 86 x 365 = 0.79 days
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Revenue 42641

39454




Inventory Turnover:


Cost of Goods Sold 39401 = 20.62 times 36426 = 25 times
Goods held for Resale 1911

1457




Non-Current Asset Turnover:


Revenue 42 641

39454 = 2.12 times
Non-Current Assets 20231 = 2.11 times 18644

Non-Current Asset Turnover (minus goodwill):
Revenue 42641

39454

Non-Current Assets-Goodwill 20231 - 2045 = 2.34 times 18644 - 1525 = 2.3 times

Asset Turnover:
Revenue 42641 = 4.03 times 39454 = 4.18 times
Net Total Assets 10571 9444

Administrative Expense Turnover:
Administrative expenses x 100 907 = 2.13% 825 = 2.1%
Revenue 42641 39454


Liquidity Ratios:

Current Ratio:
Current Assets £4,168 = 0.512 : 1 £3,751 = 0.504 :1
Current Liabilities (within one year) £8,152

£7,452




Interval Measure:


Cash + short term Securites + Trade Recievables 104.2 + 1052 +768 = 31.9 days 132.5 + 1204 + 642 = 27.77 days
Average Daily Running Costs (Cost of Sales + Admin Expense +
Distribution Expense - Depreciation)/ 365
39401 +(902) + (878)/365

36426 + (825) + (838)/ 365







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Times Interest Covered:


Profit before Interest and Tax £2,437 = 11.28 times £1,994 = 8.27 times
Interest Charges £216

£241

Investors Ratios:

Earnings Per Share (EPS):
Profit after Interest and Tax £1,899 = 18.68 pence £1,576 = 3.38 pence
Number of Ordinary Share 10,858

10,700




Price / Earnings Ratio:


Current Market Price per Share 480.75 =27.50 pence

Earnings Per Share 17.48 pence






Dividend Cover:


Profit after Interest and Tax £1,899 = 4.06 times £1,576 = 3.57 times
Total Dividend £467

£441


Dividend Yield:


Dividend Per Share (Grossed up for tax) X 100 9.64 = 2.005% 8.63 = 1.795%
Current Market Price Per Share 480.75 pence

480.75 pence






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J SAINSBURY PLC RATIO ANALYSIS YEAR
2006

2007

Profitability Ratios:

Return On Capital Employed:
Operating Profit x 100 520 x 100 = 7.69% 229 x 100 2.99%
Non-Current Assets+Current Assets-Current Liabilities 6855

7937



Return On Shareholders Fund:


Profit Before Tax x 100 477 x 100 = 11.07% 104 x 100 = 2.62%
Total Equity 4349

3965



Mark-up On Cost:


Gross Profit x 100 1172 x 100 =7.33% 1067 x 100 = 7.12%
Cost of Sales 15979

14994



Gross Profit Margin:


Gross Profit x 100 1172 x 100 =6.83% 1067 x 100 = 6.64%
Revenue 17151

16061



Net Profit Margin:


Operating Profit x 100 520 x 100 = 3.03% 229 x 100 = 1.43%
Revenue 17151 16061

Efficiency Ratios:

Creditor Days:
Trade Payables x 365 1706 x 365 = 39 days 1419 x 365 = 35days
Cost of Sales 15979

14994




Debtor Days:


Trade Recievables x 365 30 x 365 = 0.64 days 33 x 365 = 0.75 days
Revenue 17151

16061

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Inventory Turnover:


Cost of Goods Sold 15979 = 27.08 times 14994 = 26.03 times
Goods held for Resale 590

576




Non-Current Asset Turnover:


Revenue 17151 = 2.25 times 16061 = 1.80 times
Non-Current Assets 7636 8902

Non-Current Asset Turnover (minus goodwill):
Revenue 17151 = 2.30 times 16061 = 1.84 times
Non-Current Assets-Goodwill 7461 8711

Asset Turnover:
Revenue 17151 = 3.94 times 16061 = 4.05 times
Net Total Assets 4349 3965

Administrative Expense Turnover:
Administrative expenses x 100 669 = 3.90 % 839 = 5.22 %
Revenue 17151 16061

Inventory Turnover:
Closing inventory 590 = 13 days 576 = 14 days
(Cost of Sales/365) (15979/365) (14994/365)

Current Asset Turnover:
Revenue 17151 = 8.96 times 16061 = 8.31 times
Current Assets 1915 1932

Non-Current Asset Turnover (minus Sainsbury Bank Customers):
Revenue 16061 = 2.16 times
Non-Current Assets-Sainsbury Bank Customers 7429

Liquidity Ratios:

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Current Ratio:
Current Assets £1,915 = 0.703 : 1 £3,820 = 0.794 :1
Current Liabilities (within one year) £2,721

£4,810




Interval Measure:


Cash + short term Securites + Trade Recievables £1,128 + £363 + £30 = 37.43 days £1,028 + £236 + £33 = 34.54 days
Average Daily Running Costs (Cost of Sales + Admin Expense +
Distribution Expense - Depreciation)/ 365
(£15979 + (£669) -£479)/365

(£14,994 + (£839) - £449)/365







Times Interest Covered:


Profit before Interest and Tax £584 = 5.45 times £259 = 1. 67 times
Interest Charges £107

£155





Investors Ratios:

Earnings Per Share (EPS):
Profit after Interest and Tax £324 = 18.68 pence £58 = 3.38 pence
Number of Ordinary Share 1,734

1,711




Price / Earnings Ratio:


Current Market Price per Share 442.25 pence =23.68 pence

Earnings Per Share 18.68 pence









Dividend Cover:


Profit after Interest and Tax £324 = 2.31 times £58 = 0.44 times
Total Dividend £140

£131





Dividend Yield:


Dividend Per Share (Grossed up for tax) X 100 7.35 = 1.66% 5.85 = 1.32%
Current Market Price Per Share 442.25 pence

442.25




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=< = < 3 . < / .Tesco Sainsbury’s 2007 Net Profit Margin Gross Profit % % 7.12 3. Sainsbury’s Bank plc) -----2.25 2.12 1. !""# 3 < % = .03 < ' 6.11 2. .83 < < 8 < ' )"A . . = ' < Non-Current Asset Turnover (Times) 2007 2006 2006 (Excluding Tesco Sainsbury’s H >' < < ' 0 "#A =< > < < 92 ' = % H < ' < < < =< ' 3 ' ' 3 (I = ' < . < = . 3 3 ' < < / = < ' < + = ' . ' ' 9 < =< ' 3 ' . .8 < < ' 0 )/A = .74 8. $ < !"". ' % ' . 3 ' "> )" < ' < . ' . < 3 ' . 9 3 ' = < !""# ' 2. = ' > .16 ' < ' > )" )" D !"".

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' ' + < 8 < > . .*+ +. ' J K - @!. < < < 3 .. ' < =' < ' 1 C 3 %< B ' =< H . . H . % ( ' ' % ' ' % ' !"/" < 3 = 3 < (I . ' ' : I < < * H > < . ' < ' ' J = ' C . . (I ' > < MK B H . < ' < < ' D < 3 3 < 3 ' + < + = 3 . > 3 /" 6L 3 ' % 1 1 !""0 . + % 9 ' KB 3 !""# / ' 6 < < % < 3 < J2 K B'' . D : ' * < = & !" 1 3 =< = ' F 3 < . =< ' (I ' < 3 = @!' = . 3 < < 3C . J9 C ' . F 6 ' = =D ' .

00% 2. )A .20% 2.50% 4.90% 3.10% 11.70% 3.70% H D )A < % /! < < < = /.80% 1.60% 2.50% 11. 0A = ' N /. 9 3 + = % .80% 0.50% 16.60% !""#= H < L =< Tesco ASDA Sainsburys Morrisons somerfield Waitrose Morrisons Netto Lidl Aldi Other multiples Total Coops 3 ' 3 < =< $A .60% 16. 0 / % Latest Market share Data 12 weeks to 29 January 12 weeks to 28 January 2006 2007 30.50% 4.50% 1.16% 31.00% 3.30% 2.90% 1.+. < < ' 0A = N ' < !0 : 1.80% 16.60% 0.70% 3.20% 16.

00% Market share Data of Food and Grocery Retailers UK 2006/ 2007 12 weeks to 29 January 2006 12 weeks to 28 January 2007 Retailers 2% Market Share Data of Food and Grocery Retailers UK 12 weeks to 28 January 2007 3% 1% 5%2007 1% 2% 4% Tesco ASDA Sainsburys Morrisons somerfield Waitrose Morrisons Netto Lidl Aldi Other multiples Total Coops 4% 11% 33% 17% 17% 55< < < 5 5 < 5 < O P Q )#4 ! .00% 30.00% 20.00% Market Share 25.00% 0.00% 15.00% 10.00% 5.35.

* . . . I 9*( Q 2 %H ? Q : 1 ' . " + .

49% increase 8.63% decrease 11.78% increase 18.94% increase 3.26% increase 397.62% increase 0.07% increase 14.51% increase 16.77% increase 2.36% increase .33% increase 21.09% decrease 113.71% increase 21.41% increase 8.11% increase 405. 3 2 4 Tesco Analysis 2006/ 2007 Revenue Gross Profit Profit from Operations Non-Current Assets Current Assets Current Liabilities Net Assets Total Equity Net Cash from Operating Activities Net Cash used in Investing Activities Net Cash used in Financing Activities Cash & Cash equivalents at end of year Inventory Retained Earnings EPS* basic EPS* diluted *as stated in Annual Report 8.89% increase 14.84% increase 458.25% increase 42.05% decrease 19.94% increase Sainsbury's Analysis 2006/ 2007 6.76% increase 0.43% increase 12.66% decrease 15.78% increase 9.60% increase 15..60% increase 19.84% increase 18.55% increase 189.36% increase 20.94% increase 11.23% increase 271.47% decrease 31.

5 ..

.

0 ! !""#= . * : 1 7 + 5 B C 6 5 < 5 < O * 0 # H 35 ' P 2 ' / !""#= ?6 Q )#4 B# C < 6 3 % & 2 < ' = B!"".aspx 1 1 = B!""#C 55< < < = & 35 ' 5!""#5 / ' 5!"5' 1( B/" 6 C* ' 3 / !""#= 5& B C % B!"")C 6 = B!""#C *< % *< L ) & ) && <= # 4 # 55< < < 35 < 5--A !" + & $ ? ' 6 3 ' .com/news/6176/Sainsburys-voted-favourite-ret.5 9 P 9 5 & ' 3 / 1 3< ' ' Q 9 L* 1 3< ' P 2 ' ' =: B!""#C * %/ - B/! C* %/ 55< < < ' 8 % # B 35 C 5 % 6 5 & / ' ) !""#= /" % 1/ 2 # 9 85 34 < ' $ H < = L 3 & ' 5 55< < < * B!""!C.6 9 < 6 ) & 55 ) & 55 Q -2 * ) 9 + 3 =9 5& * !! * % = 7 % =I B!""#C " #$ % & & ' / !""#= 55< < < * ' % ' .talkingretail.ehtml 07 & 09 ): 6 '( % ' ' & %.C 6 & 7 % H < < ' 7 8 B C 55< < < 3 !4 !""#= 3 " #$ ( '( % ' % & B % C : $ !""#= 3 < ' >http://www. * % & < 3 & < 3 %B 5 B 5' . /8 : $ !""#= H ? ' < ' http://www.tnsglobal.com/news/newsDA7736B5AF494FCC876144DAD27AC6AA./ C < 0 C 5 ' 35' 6 35 6 35 % $ ' ' 5!""#5 ) !""#= 5 ) !""#= 5 35 ( 3 < * ( '% % 5".

72% x 100 3463 42641 x 100 = 8.89% x 100 2653 10571 x 100 = 25.12% x 100 3463 39401 x 100 = 8.26% 2832 36426 x 365 = 28 days 86 x 365 = 0.79 days .31% 3028 39454 x 100 = 6.66% 3028 36426 x 100 = 8.TESCO PLC RATIO FORMULA 2007 Profitability Ratios: Return On Capital Employed: Operating Profit Non-Current Assets+Current Assets-Current Liabilities Return On Shareholders Fund: Profit Before Tax Total Equity Mark-up On Cost: Gross Profit Cost of Sales Gross Profit Margin: Gross Profit Revenue Net Profit Margin: Operating Profit Revenue Efficiency Ratios: Creditor Days: Trade Payables Cost of Sales Debtor Days: Trade Recievables x 365 128 x 365 = 1 day x 365 3317 39401 x 365 = 31 days x 100 2648 39401 x 100 = 6.1% x 100 2648 10571 x 100 = 25.14% 2235 9444 x 100 = 23.67% 2280 36426 x 100 = 6.05% YEAR 2006 2280 9444 x 100 = 24.

751 £7.34 times 39454 18644 .62 times 36426 1457 = 25 times 42 641 20231 = 2.1% Liquidity Ratios: Current Ratio: Current Assets Current Liabilities (within one year) Interval Measure: Cash + short term Securites + Trade Recievables Average Daily Running Costs (Cost of Sales + Admin Expense + Distribution Expense .2045 = 2.18 times 907 42641 = 2.9 days 132.152 = 0.13% 825 39454 = 2.Depreciation)/ 365 104.03 times 39454 9444 = 4.Revenue Inventory Turnover: Cost of Goods Sold Goods held for Resale Non-Current Asset Turnover: Revenue Non-Current Assets Non-Current Asset Turnover (minus goodwill): Revenue Non-Current Assets-Goodwill Asset Turnover: Revenue Net Total Assets Administrative Expense Turnover: Administrative expenses Revenue x 100 42641 39454 39401 1911 = 20.452 = 0.3 times 42641 10571 = 4.77 days £4.12 times 42641 20231 .11 times 39454 18644 = 2.5 + 1204 + 642 36426 + (825) + (838)/ 365 = 27.2 + 1052 +768 39401 +(902) + (878)/365 = 31.504 :1 .1525 = 2.168 £8.512 : 1 £3.

576 £441 = 3.700 = 3.576 10.38 pence £2.75 pence = 2.437 £216 = 11.28 times £1.57 times 480.899 10.48 pence =27.27 times .899 £467 = 4.68 pence £1.63 480.64 480.858 = 18.50 pence £1.005% 8.75 pence = 1.06 times £1.994 £241 = 8.75 17.795% £1.Times Interest Covered: Profit before Interest and Tax Interest Charges Investors Ratios: Earnings Per Share (EPS): Profit after Interest and Tax Number of Ordinary Share Price / Earnings Ratio: Current Market Price per Share Earnings Per Share Dividend Cover: Profit after Interest and Tax Total Dividend Dividend Yield: Dividend Per Share (Grossed up for tax) Current Market Price Per Share X 100 9.

99% 104 3965 x 100 = 2.64 days x 365 1706 15979 x 365 = 39 days x 100 520 17151 x 100 = 3.75 days .03% x 100 1172 17151 x 100 =6.07% x 100 520 6855 x 100 = 7.83% x 100 1172 15979 x 100 =7.64% 229 16061 x 100 = 1.12% 1067 16061 x 100 = 6.43% 1419 14994 x 365 = 35days 33 16061 x 365 = 0.69% YEAR 2006 229 7937 x 100 2.62% 1067 14994 x 100 = 7.J SAINSBURY PLC RATIO ANALYSIS 2007 Profitability Ratios: Return On Capital Employed: Operating Profit Non-Current Assets+Current Assets-Current Liabilities Return On Shareholders Fund: Profit Before Tax Total Equity Mark-up On Cost: Gross Profit Cost of Sales Gross Profit Margin: Gross Profit Revenue Net Profit Margin: Operating Profit Revenue Efficiency Ratios: Creditor Days: Trade Payables Cost of Sales Debtor Days: Trade Recievables Revenue x 365 30 17151 x 365 = 0.33% x 100 477 4349 x 100 = 11.

30 times 16061 8711 = 1.80 times 15979 590 = 27.08 times 14994 576 = 26.22 % 17151 4349 = 3.25 times 16061 8902 = 1.94 times 16061 3965 = 4.84 times 17151 7636 = 2.Inventory Turnover: Cost of Goods Sold Goods held for Resale Non-Current Asset Turnover: Revenue Non-Current Assets Non-Current Asset Turnover (minus goodwill): Revenue Non-Current Assets-Goodwill Asset Turnover: Revenue Net Total Assets Administrative Expense Turnover: Administrative expenses Revenue Inventory Turnover: Closing inventory (Cost of Sales/365) Current Asset Turnover: Revenue Current Assets Non-Current Asset Turnover (minus Sainsbury Bank Customers): Revenue Non-Current Assets-Sainsbury Bank Customers Liquidity Ratios: 16061 7429 = 2.16 times 17151 1915 = 8.90 % 839 16061 = 5.05 times 17151 7461 = 2.03 times ! .96 times 16061 1932 = 8.31 times 590 (15979/365) = 13 days 576 (14994/365) = 14 days x 100 669 17151 = 3.

31 times £58 £131 = 0.Depreciation)/ 365 Times Interest Covered: Profit before Interest and Tax Interest Charges £584 £107 = 5.35 442.32% .028 + £236 + £33 (£14.38 pence Dividend Cover: Profit after Interest and Tax Total Dividend £324 £140 = 2.43 days £1.85 442.66% 5.721 = 0.711 = 3.820 £4.44 times Dividend Yield: Dividend Per Share (Grossed up for tax) Current Market Price Per Share X 100 7.25 = 1.703 : 1 £3.994 + (£839) .25 pence 18. 67 times £1.915 £2.54 days £1.810 = 0.Current Ratio: Current Assets Current Liabilities (within one year) Interval Measure: Cash + short term Securites + Trade Recievables Average Daily Running Costs (Cost of Sales + Admin Expense + Distribution Expense .45 times £259 £155 = 1.25 pence = 1.734 = 18.£449)/365 = 34.68 pence £58 1.68 pence £324 1.128 + £363 + £30 (£15979 + (£669) -£479)/365 = 37.68 pence =23.794 :1 Investors Ratios: Earnings Per Share (EPS): Profit after Interest and Tax Number of Ordinary Share Price / Earnings Ratio: Current Market Price per Share Earnings Per Share 442.

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