Principles of Finance

In this project different types of ratios have been calculated for the purpose of compare profitability level of J Sainsbury from 2016 to 2017. Comparison of J Sainsbury company from its rivalry company has also been identified in order to analysis how effectively company apply financial principal to generate more gain in global market.

Overview of company

Sainsbury PLC has a network of 502 shops, grocery stores and branches. The Grocery stores of company is the UK's largest food supermarket chain, with its first shop launched in 1869. The Sainsbury product is a legacy that provides nutritious, secure, fresh and tasty food for its consumers. It also aims to exceed consumers' standards for sustainable, fresh, safe and delicious food, facilitating their daily life. Sainsbury's is a public sole trader since they sell stock shares internationally and enable the consumer to buy their share of it, increasing overall profit margin.

J Sainsbury is one of the most famous multinational organisation of United Kingdom. The company perform their functions through applying financial principals. Following are the ratios of J Sainsbury Limited, which are used to identified financial condition of the company compare to previous year.

Profitability Ratio:

It is a tool of financial measurement which helps to analysis profitability level of an organisation Profitability refers to capacity of an organisation to generate profit. Profitability ratio is divided into two parts. Margin ratio and return ratio ( Bailey,  2017). Get Assignment Samples.Talk to our Experts!

Margin ratio:

These ratios are helps to identify profitability level of a product through analysing income earn on selling products. Following are the ratio of J Sainsbury and their rivalry.

Gross Profit Ratio: 

Gross profit/Sales *100%

Interpretation: It has been analysed that total sales have been increased from last year but the ratio of gross margin remain constant.

Operating Profit Ratio:

Operating profit/Net Sales*100

Interpretation: Sales of J Sainsbury has been increases but their profit on operating activities decreases, compare with last year.

Net Profit Ratio:

Interpretation:  Ithas been identified that net profit ratio of J Sainsbury has been decreased due to heavy expenses incurred on advertisement and promotional strategies.

Return Ratio:

These ratio helps to identify level of gearing profit of an organisation through investing in assets.

Earnings per share ratio: 

Net profit/ Total number of shares

Interpretation: After calculating earning per ratio it has been analysis that the rate of earning per share has been decreases due to low level of profitability.

Dividend per share:

Amount of total dividend / Total number of share

Interpretation:  This ratio helps to identified the amount of divided company distribute to their shareholders it has been overserved that the rate of distributing divided is goes down compare to last year. 

Return on assets:

Interpretation: It has been observed that the ratio of gaining profit from assets has been decline due to changes in financial policies and economical condition of business environment.

Liquidity Ratio:

These ratio helps to analysis the ability of an organisation to pay their short term liability and how frequently they convert their assets in cash form (Del Bo and Sirtori, 2016). Following are the ratios of J Sainsbury:

Current Ratio:

This ratio helps to identify value of capital assets in comparison with current liabilities. Organisations use this ratio to identify stock of currents assets available in organisation in compare with current liabilities (Shoup, 2017). 

Current Ratio:  Current assets/ Current liability

Interpretation: It has been analyses that company has more liquidity assets then compare to last year as managers of J Sainsbury invested capital on hiring assets.

Quick Ratio:

This ratio is help to analysis availability of quick assets in organisation at fixed period of time Quick assets are those assets which can be easily converted in cash (Seyadi, 2015). These assets included cash, marketable securities and account receivables.

Quick Ratio:  Quick assets / Current liabilities

Quick assets: Current assets- stock+ Prepaid expenses

Interpretation: It has been observed that the ratio of availability of liquid assets has been increased compare to last year.

Efficiency Ratio:

Organisations used this ratio to identify how effectively an entity used their business assets and business liabilities to generate sales for the company (LU and YANG, 2016).

Assets turnover ratio:

It is a tool which is used by organisations for their financial measurement. Assets turnover ratio used by entities to identify how effectively an organisation use their assets in ordered to increase level of their sales (Kijima, 2016).

Assets turnover ratio     Sales / Average total assets

Interpretation: After calculating assets turnover ratio it has been identified that capability of using assets of the company has been increased from compare to last year.

Inventory turnover Ratio:

Cost of goods sold /Average Inventory

Interpretation: The ratio of J Sainsbury has been reducing this means that the ability of selling stock is decreases compare to last year due to changes in technologies.

Gearing ratio: This ratio helps in analysing measurement of financial leverage of a business entity. It is the proportion of company’s debt liability to its equity funds (Kahf and Mohomed, 2016).

Debt to equity ratio:

It is the measurement of level of debt and equity in a company at fixed time period. Debt equity ratio helps to analysis the level of equity available in order to pay debt liability of an organisation. This is one of the most essential ratio. Every organisation uses this ratio to identify the ratio of equity enviable in compare to pay deb liabilities of the organisation for particular time period (Homer, 2016). Get help with USA's leading online assignment helper!

Debt to equity ratio:   total debt / Total equity

Interpretation: This ratio helps in identify rate at which creditors and owners claim over the assets of the organisation. Rate of debt equity ratio is increased compare to past year that means company can pay debts efficiently.

Total Debt Ratio:

Total debt / Total assets

Interpretation: Total debt ratio of J Sainsbury has been increases compare to last year which means that company is suffers from more financial risk in 2017.

J Sainsbury is one of the leading corporation of London. It provides supermarket facilities to their customer. Market area of this organisation has been increased over years. J Sainsbury has many competitors in global market area (Gullifer and Payne, 2015). Tesco is one of the toughest competitor of this company. Competitive analysis of these two companies have been done by using following ratios, for the purpose of identifying which company gain higher profitability ratio.

Fixed assets turnover ratio:

Net Sales / Average Total Fixed Assets

Interpretation: It has been analysis that fixed asset turnover ratio has been increase over years of Tesco limited which depicts that the ability of generating sales through fixed assets has been increases efficiently. Fixed assets turnover ratio of J Sainsbury limited is also increase in compare to past year performance but the rate of turnover ratio of Tesco limited is high.

Current Ratio:

Current assets/ Current liability

Interpretation: This ratio helps in analysislevel of liquidity of an organisation.  Current ratio of Tesco limited is higher than compare to its rivalry company. It means that Tesco limited can easily pay their debt liability in compare to J Sainsbury.

Net Profit Ratio:

Net profit / Sales

Interpretation:  Organisations uses this ratio to identify rate of profit over sales in a particular time period. Net profit ratio of Tesco limited has been decreases from 2016 to 2017 as in 2017 company suffers from losses. Net profit ratio of J Sainsbury is also decrease but they earn profit in 2017. Get Finance Homework Help Online!

Gross Profit Ratio: 

Gross profit/Sales *100%

Interpretation: Organisations uses this ratio to identify the rate of earning profit before deducting amount of depreciation and taxes. This ratio helps to analysis profitability level of an organisation. Just like J Sainsbury profitability ratio of of Tesco is remain constant but their sales have been increased.

Also Read- Financial Management Analysis

Comparing all these ratios, it has been analysed that Tesco and J Sainsbury both are leading organisations in global market and they both are rivalry of each other’s. Sales of J Sainsbury has been increase over years but compare to Tesco the rate of their profitability and liquidity ratios of the company is goes down. Even after Tesco suffering from loss in 2017 still their gearing and liquidity ratio are at high level. Due to strong financial position Tesco limited still have in strong position to pay their debt and invest in long term investments. Investors get more benefits investing in Tesco’s shares, because after analysing all the ratios the financial positon of Tesco has been greater then compare with L Sainsbury.

Conclusion

From the above project report it has been concluded that principals of finance have been play essential part in taking decision related to finance. They provide guideline to investors so that they can learn how effectively they collect finance from various resources. Organisations uses this tool to earn maximum income from their portfolio securities.

Principal of finance helps in analysing profitability level of the business entity. Success of an organisation is truly depends on how efficiently they use their resources in business environment. Company can gain competitive advantage by applying best financial policies in marketplace. These   principals help managers to analysing financial statement of their rivalry companies. Managers uses these principles to identifying strength, weakness, of their competitors and they can change them polices to achieve top position in market

Also Read-
Management in Accounting
Unit 19 Finance and Funding Level 4

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