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monetary Analysis of Sainsbury PLC EssayThis decl are get out focus upon the financial performance everywhere a two year period of a FTSE 100 association. It exit seek to ascertain how well the society has performed by scrutinizing lucrativeness, liquidity, efficiency, gearing residuums and working hood. In admittance to the aforementioned arcdegrees, it will dwell upon sparing factors to discuss the impact they contrive had upon the performance of the business.The FTSE 100 started in the year of 1984 and was outdoor staged upon the 100 life-sizest companies on the London Stock Ex interchange, and it is seen as an emblematic forefinger for the strength of the British economy (iforex, trading section). FTSE 100 companies represent about 81% of the securities industry greatization of the London Stock Exchange (Nationwide Building Society, glossiness section). in spite of appearance it lies a substantial contribution to the UK economy and the economic power o f these firms mean they would get under ones skin a fairly large ripple effect upon the countrys economy should there financial performance reach a state of discontentment.Subject company and historyThe subject company for this tell will be J Sainsbury Plc which was founded in 1869 by John Sainsbury and his wife, Mary Ann Sainsbury in London (Sainsbury Plc, history section).The brass section has graveln to be one of the UKs intimately eminent super commercializes. Some of its remarkable aspects include launching TU clothing in 2004, launching Try Something New To daylight in 2005 to promote healthy eating, and decent the worlds largest fairtrade retailer in the year 2010 (it is understood that almost one in every four pounds spent on fairtrade products is at Sainsbury), in 2012 the organization became the proud sponsor to the Paralympic games (this will be diligently examined afterwards in the report to see what effect, if any it has had upon the companys revenue) (Sainsbury Plc, history section).In an industry predominantly owned by Tesco (a market cover of 29.9% as of January 2012 jibe to BBC Business News), Sainsbury has had to work hard to stay in competition. Its persistency has been a key component to its contrivance in the industry and other ventures to which Sainsbury has embarked upon, namely, its cambering venture (a 50/50 venture with Lloyds TSB) which commenced trading on the 19th day of February 1997 (Sainsbury cuss plc).The firm lost its position as market leader in the year of 1995 to its rival Tesco and subsequently dropped to third in market share after ASDA experienced a 5% rise in lollys (BBC, Business News section). As at March 31 2012, Sainsburys has a summate repress of 440 convenience stores and 572 supermarkets which is currently repayable to increase (Sainsbury, Store Portfolio section). The question is, how much has its expansionary policy supported its attains whilst maintaining equilibrium with costs?ProfitabilityWit hin this report, diligent focus will be shown to the financial year of 2010 and the final year of 2011 as the profitability, liquidity, efficiency, gearing symmetrys and working big(p) is examined. The profit from disposal of properties in 2010 was 27m and 108m in 2011 which shows a dramatic appreciation in profit when compared. Moreover, the company in addition showed an increase in combined profit from 585m in 2010 to 640m in 2011 (Sainsbury, Income teaching 2011 section). This shows that the companys overall performance has improved over the course of 12 months by 9.4%.Further to the aforesaid points, the greater percentage of revenue was derived from the sales event of products and services, standing in at 22,943m in 2011 (Sainsbury, Income control 2011 section). This shows an increase in product purchases and an increase in market share (an increase of 16.1%, Telegraph, September 2011) star(p) to more than sales, demonstrating that the firms strategy has worked for the financial year when compared to the sales of 2010 of 21,421m (Sainsbury, Income Statement 2010 section).Return on Capital Employed can be outlined as follows Return on capital employed is a fundamental bankers bill of business performance as it compares the operating profit with the total capital used to generate that profit. (Black, 2009, p.212). For Sainsbury, this figure was 11% in the financial year of 2010 and 11.1% in the year of 2011 (Sainsbury, one-year field 2011 section). Such a minor change doesnt manifest a huge degree of progress. In the annual report for 2011 p4, the company does give an account for this and state that offshoot was lower than the foregoing year due to the cumulative effect of its intensify investment in office growth which started June 2009.The company also holds seventh place for volume market share in the clothing industry and now has clothing sales growing faster than food, 17% to be exact with year on-year growth (Sainsbury, yearbook Report 2011 section). Celebrity fashion icon, Gok Wan has been a huge support in inciting growth of the TU sucker by launching a clothing float at Sainsbury in 2011 which has been the main source of sales boost. (gok wan, Sainsbury TU section).In addition to the appreciation of sales, the cost of sales rose from 19,964m in 2010 to 21,102m in 2011. Prominent alter factors towards the rise in costs are the variation in Fiscal policy (Sainsburys, Directors report 2011 section) which change magnitude the rate of VAT from 17.5% to 20% on the quaternary day of January 2011 (HM Revenue and Customs, 2011) along with the increase of the companys workforce due to its addition of 1.5 million square feet of space from 2011-2012 (The Independent, intelligence activity section).As the profitability of the organization is scrutinized, it is important tolook deeper into what has resulted in an increase in profit from the year 2010 to 2011. From an economic perspective, the Bank of Englands Monetary Policy Committee (hereinafter referred to as MPC) changed the discount rate to 0.5% on the 5th day of March 2009, positively influencing public spending and reducing the cost of suck uping (Bank of England, 2009). The concept upon the reduction in the cost of borrowing is that more customers have resorted to using credit to fund their purchases (According to a study conducted by Visa Vanquis, consumer spending on credit increased by 3% in September 2011 when compared with statistics for 2010).It is understood that the variation eluded to above has been of support to the company in its financial borrowing, enabling it to fund its expansion referred to in the above paragraph. The downside is that it has had a fundamental impact upon its banking venture namely, profits attained are not what they could be if the discount rate was higher, notwithstanding the fact that, the bank reported a 9% increase in profits in 2011 (This is money, news section) possibly due to the abovestated resear ch on consumer spending. A higher base rate would mean higher priced loans leading to greater profits accrued (other factors cosmos equal).Taking into consideration the above-mentioned point, the company had the opportunity to utilize the minify interest rate in support of its expansion and other purchases to aid the loss of profit (due to low interest rates) from the sales of loans and credit cards. In rebuke of the 0.5% base rate set by the MPC, Sainsburys Chief Executive stated it was the wrong decision to reduce it, the small businesses that supply Sainsbury were struggling to borrow and this of course had a substantial ripple effect upon the companys financial performance (Daily Telegraph, news section). This gives a clear indication that the profit accumulated for 2011 could of been higher without the economic discontentment. It gives some direction to why the cost of sales were high due to the purchasing price of products from smaller businesses to which supply Sainsbury. Having analyzed the profitability of Sainsbury, its within good reason to compare this data with that of its main competition, namely, Tesco for which happens to be a pivotal comparison due to them standing within similar evidence in terms of business models and future company goals. Tesco UK gained 56,910m in sales for the financial year 2010 and sawing machine an increase for year 2011 with sales in at 60,931m (Tesco, Annual Report 2011 section). There is a substantial difference in sales, however Tesco have 3,054 UK stores in comparison to Sainsburys combined 1,012 stores, in addition it has the greater market share (Tesco, storefinder section).Tescos Return on Capital Employed for 2010 stood at 12.1% and 12.9% for the financial year 2011 (Tesco, Annual Report 2011 section) and consort to the directors report the company has set itself a target to increment this to 14.6% by 2014/15. This, together with its sales exhibits better performance than that of Sainsbury and epitomize s the comprehension to why the company holds the greatest share of the market. It shows clarity that Tesco did better with capital than that of Sainsbury, however Sainsbury used a large amount on expansion which the results of will be shown at a later date.LiquidityWith liquidity being the second focal point, it is necessary to look at the credit facilities available to the organization in question. Sainsbury has overall debt and credit facilities of 3 billion at its disposal, the principle element of Sainsburys core mount comprises of two long-term loans of 1,069m due 2018 and 840m due 2031, secured over property assets (Sainsbury Annual Report 2011). Further to the previous stated loans, the company has unsecured debt of 180m and 50m due between 2012 and 2015 along with 190m of convertible bonds due July 2014 (Sainsbury Annual Report 2011).The Current proportionality for Sainsbury in the financial year of 2010 was 0.64 and 0.58 in the financial year 2011. A Current Ratio may be defined as a measure of an organizations ability to pay its shortterm debts, ideally it should stand in at 21 (Atrill McAllen, 2008). The ratio for 2010 indicates that the company would be in a better position at paying mop up its obligations if they were due at that point in time. However due to the ratio for both eld being under 1, it shows the company is not in a good position. ironically however, having ascertained the available credit to the organization, this states otherwise.In comparison to its competition, Tesco had a current ratio of 0.73 in the financial year 2010 and 0.65 in the financial year 2011. This is somewhat similar with Sainsbury as there is only a gap of .2 in difference. twain companies figures look worrying, however the ability to turn stock into cash is another focal point to which will be later scrutinized.Having revisited the companys balance sheet, its Net debt stood at 1,549m in 2010 and 1,814m in 2011 (an increase of 265m). This difference quintess entially indicates that the company has been expanding over the course of a year. In the firms annual report for 2011 it shows the increment was due to rapid estate development (the addition of new Sainsbury Convenience stores) which was to an incontrovertible extent funded by the sale of leasebacks and advanced working capital (Sainsbury Annual Report 2011, p5).The appreciation in debt manifests the fact that Sainsbury hanst cleared its existing debt, yet only continued to borrow more. Astonishingly however, the amount borrowed has been piece to positive use in funding the expansion of the organizations convenience stores. According to the Independent in March earlier this year, the company grew its market share of the convenience store market in 2011 with sales up 20% following the opening of 15 new stores.Further to the above-mentioned points, the company pursued further borrowing to enhance its profitability by expanding (proven to be a remunerative venture), enabling the firm to pay back its source of funding when required to do so. The idea of this long-term investment is that Sainsbury will gain a larger market share (forcing other less competitive companies to quit there share of the market) and increased profits both short and long-term.In criticism of the technique, the company should take into consideration the unforeseen changes in the market, namely adopt for its products and services and of course future economic changes. How does it justify itself financially should there be a decrease in take? The epitome lies with XL Airways, according to BBC News in 2008, the company hit financial discontentment after failing to secure further funding (up until that point it was in the process of expanding) due to unanticipated changes in the economy.EfficiencyWith regard to the organizations efficiency, it is difficult to ascertain the overall effectiveness of performance without conducting in-depth research as it can be fairly arduous to gather enough d ata from ratio analysis. However, the businesss average inventory turnover (calculated by sales divided by inventories, Agyei-Boapeah, 2012) for the financial year 2010 was 30.5 (Sainsburys Income Statement 2010, p16), compared with 28.2 for the financial year 2011 (Sainsburys Income Statement 2011, p18) shows a minimal difference.The figures imply a poorer performance from the company in 2011, yet sales had subsequently increased in that year, furthermore, it was part of the organizations goals to increment the sale of non food products which gives an account for the less frequent switch of inventories (Sainsburys Income Statement 2011, p2 Sainsburys Annual Report 2011, notes 16).In post to gain a greater interpretation of the companys efficiency its necessary to look at other ratios. Asset turnover (calculated by revenue divided by total assets, Agyei-Boapeah, 2012) for the financial year 2010 was 1.83 and 1.85 for the financial year 2011 (Sainsbury concourse Income Statement 20 11, p1). The higher the figure, the better. Having scrutinized these figures, it is clear to see a slight inclination in sales generated from assets for 2011. Although, the company has only seen a small contribution of profit accrued from the sale of assets. This may be understood by reviewing the firms growth policy once again and recalling that they have spent more on expanding and accumulating assets than selling assets (Sainsbury Annual Report 2011, p5).A comprehension of the above-mentioned points give clarity that the companys management have conducted there duties efficiently. The swelling lies within sales performance and the ever growing multitude of stores to which the firm has within its ownership. The increased space exhibits a positive rate of expansion (15.9% according to Sainsbury Income Statement 2011, p2), furthermore, only a small percentage in change on the sale of assets and alower inventory replacement.Further to the aforesaid point referring to replacement of inventories, it could be interpreted that as the firm sees a continuity of expansion, more goods are purchased through economies of scale (greater sized orders at lower prices, meaning less reordering) as is it the slickness that the company is introducing further non food products, namely televisions which arent everyday purchases. Yet of course it is likely to be the last mentioned having antecedently identified company intentions (Sainsbury Annual Report 2011, p2).Finally it is prudent to take the ratios and compare them with that of Tesco. In the financial year of 2010, 20.8 was Tescos inventory turnover ratio and 19.2 in the financial year of 2011 (Tesco Annual Report 2011, p94). Again these figures represent an even poorer performance, but Tesco as do Sainsbury, sell a number of non food-products, 22% of sales are non-food products and the company is the UKs largest non-food retailer (Tescopoly.org, Our Business section).Asset turnover for Tesco in the financial year of 20 10 was 1.56 and 3.18 for the financial year 2011 (Tesco Annual Report 2011, p106). This shows some disparity in business efficiency and shows the company performed better in the year of 2011 when compared with 2010 and it also performed much better than Sainsbury (however it is mandatory to consider the companys goals in comparison to that of Sainsbury).Asset Turnover comparison of Sainsbury with Tesco.Gearing RatiosThe gearing ratios (Long-term liabilities) for Sainsbury on the 20th day of March 2010 were 32.86 compared with 30.79 on the 19th day of March 2011 (Telegraph shares, p1). This implies the companys rate of borrowing to fund its activities was higher in the year of 2010 and as a result of the increase in profit for 2011 as eluded to above, activities were self-funded more often.The ratios referred to in the above paragraph doesnt have the greatest of difference, meaning there was still a substantial amount funded by borrowed funds in 2011. A contribution to the high rate of borrowing is carefully examined by looking at the exponent of National Statistics for 2010 and 2011.According to the Office of National Statistics, Consumer Price Index (hereinafter referred to as CPI) in the 12 months up to September 2010 saw a 5.2% increase in alcohol and tobacco products, a 5.1% increase in food and non-alcoholic beverages, 4.4% increase in communication and a 2.5% increase in other goods and services, including fuel (Office of National Statistics 2010/2011 Report, p1). Such increases may have caused customers to abstain from certain purchases or make less frequent purchases, this as a ripple effect would significantly impact upon the organizations functioning.Ironically however, in 2011 CPI was at 5.2% in September, compared with 3.1% in September 2010 (Office of National Statistics 2011 Report, p1). A significant increase would anticipant further borrowing, yet this isnt the case due to above-mentioned facts in this report. Sainsburys strategy to invest in expanding has given support to its profits for 2011 and enabled the business to reinvest these into its activities. This therefore negates the argument/concern over economic impact upon trading for 2011 and shows a return on investment when compared to company sales and profits with an amalgamated comparison of 2010/2011 financial performance (Sainsbury Income Statement 2011, p1-p5).Working Capital ManagementMoving on to the final focal point in this report, working capital. This is the measure of both a companys efficiency and its short-term financial health (Agyei-bopeah, 2012). The working capital of the organization has seen a substantial increase in the financial year of 2011. The firms working capital increased by 78m for 2011, which it states was primarily due to increased inventories which is 110m higher than that at March 20th 2010 (Sainsbury Annual Report 2011, p1).An examination of ratios will help to ascertain the effectiveness of the firms working capital management, ho wever it appeared difficult to derive this information from Tesco due to discrepancies to way in which data was laid out. Working Capital to Sales ratio can be calculated by taking working capital and dividing it by sales X 100 (Agyei-Bopeah, 2012). In the financial year of 2010 this figure was 1.5.7 and 1.2.8 for 2011. This manifests a less appreciated rate of performance for the year 2011, however the company did introduce a substantial number of non-food products.The company successfully managed to make cost savings of 50m in the year 2011 (Sainsbury Interim Results 2011, p1). In an argument against this successful business practice, is it honest for the company to pay farmers the minimal amount per gallon of milk to keep its customer wants satisfied? Herein lies a troubleatic offspring to which the organization faces in its ever growing desire to reduce costs. As a result it has led to pragmatism in critics of the firms fairtrade brand image and to what extent it coincides wi th the image.British farmers are forced to pay the price of supermarket price wars (The guardian, Saturday 2 July 2011, p48). With such concern over how much the firm should be saving on costs to attain a better position with working capital, it fails to take into consideration its ethos on fairtrade. It transpires to be the case that in order to make huge savings to support its growth in working capital, the company must continuously force its suppliers to drive the price of their products down as other factors change (cost of production, economic variations, energy/fuel prices and the cost of raw materials).On a more positive note, the company has managed to increase its working capital from the financial year of 2010 to 2011, this indicates positive changes in its business activity and demonstrates that it has good working capital management. As a result of the increase, 12m in debt was paid off in the year of 2011. Yet as this section happens to coincide with efficiency, it epit omizes the effectiveness of the company strategy for 2011.ConclusionSainsbury has set itself a fair number of targets to which are laid out in the company annual report for 2011. One being to increase space growth of 15% in two years set in the year of 2009 (Sainsbury Annual Report 2011, p1).The company exceeded this target percentage by .9% (Sainsbury Annual Report 2011, p1) which indicates its able to meet its targets, yet it also indicates more capital was spent on expanding and possibly more than it intended.As eluded to in the above sections, Sainsburys decision to rapidly expand has proven to be a remunerative venture and shown a slight increase in company profits for short-term comparisons between the financial years 2010 and 2011 where sales have grown by 9.4% (Sainsburys Income Statement 2011, p1). Such developments in the business will only give adequate comparisons after a greater detachment enabling the researcher to comprehend as to how much the accelerated growth has had on the firm.In addition to the companys growth in size it saw a huge appreciation in demand for its clothing brand, TU. It is understood that since fashion icon Gok Wan introduced a range of clothing, sales saw a growth of 17% as a year on year comparison for 2011 (Sainsburys Media, Latest Stories, p1). It is likely that this will continue to grow and complement the companys expansion.Further to the above points, the liquidity ratios of the company are poor at this point in time which is due to accelerated growth (therefore negates the argument of poor performance). However when the firm finishes its expansion it is highly likely that the ratio will improve which is subject to no further large projects. Further to information ascertained from the company Annual Report of 2011, the company should be capable of repaying its loans as of there due dates thanks to its increased number of stores accumulating further profit.In addition to aforementioned points in the beginning of the c onclusion, Sainsburys have five focus areas, great food at fair prices, accelerating the growth of complementary non-food ranges and services, reaching more customers through additional channels and growing supermarket space (Sainsburys Annual Report 2011, p3). Having already acknowledged the prosperity of its space growth, this also happens to coincide with its focus on reaching customers through additional channels as 37 new convenience stores were opened in the latter part of 2010 to the beginning of 2011 (Sainsburys Media, Latest Stores section).Since analyzing the company gearing ratios and how much it has in long-term debts, it is clear to see it could be a perilous problem for Sainsbury. The firm has made an audacious decision to invest in expanding in the hope for substantial returns in the not to distant future, yet this is not guaranteed income. If demand falls for the companys products and services or there is a problem to which later impacts upon its brand image (the com pany is disproved to be a fairtrade retailer for example) the firm may find itself being liquidated if it is unable to repay the loans.Points eluded to in the above paragraph are a matter of deep concern to the organization and from research administered it doesnt transpire to be the case that the firm has a contingence plan to support them with potential depreciation in demand. A contingency plan and in addition, a contingency fund is something to which Sainsbury should take into the highest of consideration should one not have already been devised (yet it is unlikely this would be the case). It will be of support to the firm in planning for unforeseen changes.ReferencesIn this report the following sources were dwelled upon for guidance in ascertaining facts, extracting data and for the purpose of comparison.BooksAtrill, P., McAllen, E. (2008) Accounting and Finance For Non-Specialists. ordinal edition. Prentice Hall. Harlow.Datta, S. (2011) Economics, Making sense of the modern economy. Third edition. Profile Books. London N, Gregory Mankiw. (2001) Principles of Economics. Second Edition. Harcourt College Publishers.ImagesJames Blake (2012) Sainsbury Supermarket. image online Available at http// www.jbiwebdesign.co.uk/website-marketing/7-marketing-tips-we-can-learn-from-sainsburys Accessed 12 December 2012.Lecture NotesAgyei-Boapeah, H (2012). Financial Statement Analysis 2. Lecture notes distributed in the topic BMAIE001AZ2012/3 Managing Finance. Liverpool Hope University, Liverpool on 02 November 2012. Agyei-Boapeah, H (2012). Working Capital Management 1. Lecture notes distributed in the topic BMAIE001AZ2012/3 Managing Finance. Liverpool Hope University, Liverpool on 09 November 2012. Agyei-Boapeah, H (2012). Working Capital Management 2. Lecture notes distributed in the topic BMAIE001AZ2012/3 Managing Finance. Liverpool Hope University, Liverpool on 16 November 2012.WebsitesBBC News (2004) Sainsbury Loses Out To Rivals. ONLINE Available at http//news.b bc.co.uk/1/ hi/business/3682544.stm Accessed 24 October 2012.BBC News (2012) Tesco Market Share Dips Below 30%. ONLINE Available at http// www.bbc.co.uk/news/business-16817254 Accessed 18 October 2012. BBC News (2008) Thousands Stranded By XL Collapse. ONLINE Available at http// news.bbc.co.uk/1/hi/7611639.stm Accessed 21 October 2012. Bank Of England (2009) Statistical Interactive Database formal Bank Rate History. ONLINE Available at http//www.bankofengland.co.uk/boeapps/iadb/Repo.asp Accessed 19 October2012.Guardian (2011) British Farmers Forced To Pay The Cost Of Supermarket Price Wars. ONLINE Available at http//www.guardian.co.uk/environment/2011/jul/02/british-farmers-supermarketprice-wars Accessed 23 October 2012. Gokwan (2011) Sainsbury Collection Press . ONLINE Available at http//www.gokwan.com/ goks-video-blog/sainsbury-collection-press-launch/ Accessed 23 October 2012. iforex (2012) FTSE 100. ONLINE Available at http//www.iforex.com/ftse-100 Accessed 18 October 2012.Ind ependent (2012) Small Store Openings Boost Sainsburys Profits. ONLINE Available at http// www.independent.co.uk/news/business/news/small-store-openings-boost-sainsburysprofits-7579664.html Accessed 20 October 2012. J Sainsbury (2012) About Us, Store Portfolio. ONLINE Available at http//www.jsainsbury.co.uk/about-us/store-portfolio/ Accessed 25 October 2012. J Sainsbury (2011) Annual Report 2011. 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