Company's Financial Statement Essay

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Financial Statement Analysis

In this particular essay, I undertake the financial analysis of five companies, all of which are set in the retail industry. Three of the companies, Tesco Plc, Sainsbury's and Wm Morrison Supermarkets plc are some of the largest food retailers in the United Kingdom. Ocado which is the fourth company is the largest online food retailer in the whole world and lastly Crawshaw Group PLC is also in the business of operating a chain of retail food stores. Every company will be discussed individually and it will encompass information regarding the history of the company, the products and the services, the consumers and also other information.

Tesco Plc is a company that is based in Britain and is the largest food retailer in the United Kingdom. It is one of the biggest retailers in the globe as it is the third in position in the retail industry below Carrefour which is based in France and Wal-Mart which is based in the United States. At the outset, Tesco begun its business operations with grocery retailing but at the present moment has massively expanded and also retails health and beauty products, electrical goods, household goods, stationary and also intermittent products that are sold seasonally such as garden furniture during summer periods. Tesco has its business operations in over fourteen nations with over three thousand retail store outlets. The company has its largest geographical market base in the United Kingdom as more than two thirds of its retail stores are located in the U.K. Tesco operates by means of different forms of its stores which encompass hypermarkets, supermarkets, Metro, and also Express. It has to be said that Tesco has grown immensely to become one of the largest independent retailers of oil in the United Kingdom. More so, the company has also started offering financial services as well to the consumers as it made a joint venture agreement with the Royal Bank of Scotland which in turn has grown to become a successful venture for the operations of the company. The main purpose of the company as pointed out on the company website is to create value for consumers and to earn their lifelong loyalty (Tesco PLC Website).

Sainsbury plc, which was established in the year 1896 is one of the main competitors of Tesco and is also deemed to be one of the leading retailers of food in the United Kingdom being ranked third. It is a publicly traded company that is registered in the FTSE 100 and also the London Stock Exchange. Aside from being a major player in the food retailing sector, the company has also played a part in the property sector and also the financial sector. However, on the basis of the amount of turnover generated by the company, it has to be agreed that the retail food chain is the major operation of business. At the present moment, Sainsbury plc consists of over five hundred supermarkets and just about three hundred practicality necessities. The company is also the partial owner of Sainsbury's Bank with the other owner being Lloyds Banking Compilation. In addition, the company also has possession of twofold ventures with Ground Securities Collection PLC and also the British Soil Corporation Plc. Being the third largest retailing company for food in the United Kingdom, Sainsbury currently boasts of having about seventeen percent of the total market share. Having been the main leading food retail company in the United Kingdom for several years, the company experienced a decline during the 90s period and is at the present day making an attempt to reclaim its position and status in the United Kingdom market as well as expand its market share internationally. It is actually during that when Tesco claimed the number one position and Asda became second in the food retailing industry (Sainsburry, 2015).

Morrison Supermarkets is another company that operates as a food retailer in the United Kingdom. However, the company deals with online selling of groceries and selling of groceries in-store. The company has over five hundred stores and also undertakes home retail delivery services for the consumers that purchase the products online. The Company has its business operations in 7 regional distribution centers which usually service its main supermarkets, and two convenience distribution centers (Bloomberg, 2015).

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Ocado is the biggest online supermarket in the whole world and not just in the United Kingdom. It is an independent business operation but is registered on the London Stock Exchange (Ocado Group Website, 2015). Crawshaw Company Information together with its branches undertake business operations of a business chain of retail food stores that are purely focused on delivering all kinds of meat in the United Kingdom. The company offers fresh, raw and cooked meats and also hot meals. These encompass beef, lamb, chicken and also pork meat. The company only has two centers for distribution which service all of its 20 retail locations in the different expanses of the United Kingdom (Bloomberg, 2015).

Ratio Analysis

Return on Net Operating Assets

Return on net operating assets (RNOA) is a financial ratio that not only measures the profitability of a company but also its financial health. This ratio, in particular, places emphasis on measuring the profitability of the assets that are only used to generate revenue for the company. RNOA is calculated through dividing Net Operating Profit After Taxes (NOPAT) by the Average Net Operating Assets (NOA) subsequent to the separation of the operating activities from the financing activities in the statement of comprehensive income and the statement of financial position and recognize their distinct efficiency.

Return on Net Operating Assets

2014

2013

2012

2011

Tesco

6.00%

1.53%

11.96%

12.22%

Sainsbury

10.96%

9.02%

9.13%

9.81%

Ocado

5.78%

-2.22%

0.49%

2.00%

Crawshaw

8.34%

0.79%

0.19%

4.69%

Morrison

-2.18%

9.92%

11.02%

10.93%

In the year 2012 and 2011, the return on net operating assets for Tesco which is the main company was the highest compared to the other companies being analyzed. However, in the year 2013 the RNOA of Tesco declined in a considerable manner to 1.53%. The rate did rise up to 6.00% in the subsequent year 2014. In the analysis of the other companies, Sainsbury which is the main competitor of Tesco can be seen to be the most consistent in terms of the returns generated with the RNOA ranging between 9% and 11%. Morrison has also been consistent over the years but in 2014, the return of the company dropped in an alarming rate from 9.92% to -2.18% and making negative returns which are losses to the underlying assets. Ocado and Crawshaw have shown considerable growth as the return on net operating assets between 2013 and 2014 rose from -2.22% to 5.78% and from 0.79% to 8.34% respectively.

Operating Profit Margin

The operating profit is also referred to as the Earnings Before Interest and Tax (EBIT) as would be perceived in the income statement. In addition, the operating profit margin is also referred to as the profit margin which is obtained by dividing the earnings generated by the company before the deduction of interest as well as taxation by the net sales of the company which can also be attained from the statement of comprehensive income which considers EBIT to be included in the sales revenue. This particular ratio is employed in measuring and analyzing the efficiency level of a company's operating activities by relating all of the costs of the average business activity. In addition, the operating profit margin demonstrates the revenue and the costs of the company that are incorporated and defines the operating income as a proportion of the net revenue. This therefore implies that the higher or the more superior the operating profit margin, the more profitable the company is and the better it is for the users of the financial statements.

Operating Profit Margin

2014

2013

2012

2011

Tesco

2.21%

0.60%

4.69%

4.84%

Sainsbury

3.44%

3.00%

3.05%

3.21%

Ocado

1.74%

-0.72%

0.16%

0.47%

Crawshaw

3.95%

0.43%

0.11%

2.57%

Morrison

-0.92%

3.90%

4.09%

4.01%

The operating profit margin of Tesco though slightly decreased was the highest compared to the other companies in the years 2011 and 2012 with 4.84% and 4.69% respectively. This basically implies that for every dollar that was invested in Tesco, the company made a return of 4.84 cents in 2011 and 4.69 cents in 2012. However, in the subsequent year 2013, the profit margin of Tesco dropped considerably to 0.60%. However, the company's profit margin did improve as it rose to 2.21%. On the other hand, Sainsbury which is the main competitor.....

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