Free Custom «Financial Comparison of the Two Companies» Essay Paper

Financial comparison of the two companies

The aim of this report is to compare financial trading of two listed company. The report evaluates both financial and non-financial factors that may be affecting the performance of the companies. The report looks various segments of companies, including the market products of each company. The report also presents a brief on each of two companies in terms of recent trading background.

J Sainsbury Plc states its goals as providing healthy, fresh and tasty food at fair prizes. The company is a leading food retailer. The company prides in putting in place measures to cut on energy bill, which stood at 57 million pounds, a milestone in environmental conservation (p.2) the company is also involved in corporate responsibility having used around 100 million. The company was awarded gold accreditations for investing in its staff with an aim of improving business. The company, founded in 1869 boasts of 934 stores, comprising of 557 supermarkets and convenient store numbering 377. The company also has interest in banking industry. The company has a big customer base, with a market share of 16%. The company has a wide range of products, and trades its products online.  The company services around 93% of UK , with support of 150,000 colleagues.

In terms of growth, the company recorded an increase in 1 million customers a week, an increase of about 5%, while their market share in UK increased by 0.2%. The company also introduced about 5,000 new or improved brands. It also opened training colleges for staff. The company also recorded growth in non-food products like cloths. The banking sector also recorded growth to a tune of 50%. The company annual sales stood at I billion pounds.

The growth recorded by company exceeded the target. The company also opened new stores and extensions years in the period covered by the financial reports of 2011 (p.4). The company has been recognized for massively investing in its employees. It is credited for having a consistent development of its employees. Sainsbury’s main competitors are Tesco, Asda and Morrison (Oxbridge Writers).

GlaxoSmithKline on the other hand boated a turn over of 28.8 billion pounds. The company operates globally. GSK has offices in over 100 countries. The company is also listed in the London and New Yolk stock exchanges. GSK invested in research and development. The company has 96,500 employees and commands a 5% of world pharmaceutical market.  The company, in its report identifies generic drugs as one of the challenges towards achieving accelerated presence in the global market. The company reduced its debt to 0.6 billion. The company increased divided by 7%.

Analysis of J Sainsbury Plc performance

This section has analyzed the financial statement of two companies using income statements, cash flow statements and financial ratios. The financial conditions of the two companies have been analyzed using ratios as an indicator of the performance of each entity ().

One of the aspect that will be used to evaluate the companies performance is the profitability ratios. The profitability ratios will be used to gauge the degree of success of each company in achieving its goals. Comparison will be based on return on capital employed.  The other ratio that will help in comparison of the two companies, Sainsbury’s and GlaxoSmithKline is return on equity. The gross profit margin of each of the two companies will also be put on focus. Lastly, net profit will also be used to determine the profitability ratios.

Sainsbury’s underlying operating profit was 738 million pounds. Tax before profit was 665 million pounds. The company turn over was 22,943, an increase of 7.1% from the previous turn-over of 21,421 (i.e., sales inclusive of VAT).  The increase in turn over was significant as it showed that the company had put up marketing strategy that yielded positive results. The sales after deducting VAT were 21, 102, an increase of 5.7% from 19,964. The company’s profit before tax was 827, an increase of 12.8%. The companies profit after tax was 640, an increase of 9.4%.  The company’s net sales growth was 2.3%. The underlying operating margin improved by a ratio of 3.5%. The Sainsbury performance on the value of capital employed cannot be said to have been satisfactory, hence the company can be said to have gotten value for what they had invested. The companies net debt increased by 20%.

The companies return on capital employed was for Sainsbury was 11.1%.  (Sainsbury)

The net profit for Sainsbury was 640, the same as the previous year, hence the company did not record increase in this aspect. Sainsbury has maintained a steady policy on payment of debtors, especially upon delivery of products. The aim of this policy is to ensure that the company timely recovers its debts, in spite of operating in challenging economic environment. The high debt payment figure is because the companies make their sales in cash. The payment to shareholders increased. This was an indication that, the shareholders, had reaped for giving the company time to grow (Scribd, 2011).

Liquidity analysis for the Sainsbury

                                        Current Assets

Current Ration=     ----------------------- 

                                        Current Liabilities

Assets = 5,424

Current Liabilities = 1,814

Current Ration = 5424 / 1814

Current Ration = 1:3

                                                            Net Working Capital

Net Working Capital Ratio =     ----------------------- 

                                                           Total assets

 Net Working Capital = 252 million pounds

Total Assets = 5424 million pound

Net working capital Ratio = 252 / 5424 = 0.05

Profitability Ratios 

Return on Assets (RAO) =    Net Income / Average total Assets

Return on assets = 738 / 5424 = 0.136

Profit Margin = Net Income / Sales

Sales: 21,943

Net Income:  738

Profit Margin = 738 / 21,943 = 0.034

Shareholders Funds: 5,424

The GlaxoSmithKline sales increased by 4.5%. The companies target was to undertake effective capital allocation to achieve increased return on investment. The company managed to cut 1.7 billion pounds in terms of cost. The gross turn-over for the company grew by 1%. The company operating profit recorded a decline of 55%. The ratio of profit after taxation stood at 71 to 61. The companies basic earning per share stood at the ratio of stood at 75 to 71. The company’s net turn-over was 71 to 73, signifying a decrease from the previous years. The companies total liabilities stood at ratio of 32.4 to 32.1, signifying an increase. On the other hand, net assets stood at 9:10, indicating a decrease in net assets.  The company paid 65 pence divided per share (). 

By comparing the financial performance of the two companies, GlaxoSmithKline seems to have succeeded in cutting running cost compared to Sainsbury. The increased operating cost seems to have affected the latter’s profit.

Sainsbury seems to have faced challenge in effort to achieve growth compared to GlaxoSmithKline despite the latter having a major presence in the global market. Sainsbury did not did not show significant improvement, going by the profitability ratio. The company also disposed various assets and leased out some retail outlets. Both companies recorded variation (UK Essays, 2011). Both Sainsbury and GlaxoSmithKline maintained a healthy current ratio. The ratio between liabilities and assets for both companies showed that both marched their liabilities and assets. The performance of the two companies, going by the financial statement showed that the shareholders could expect the companies to continue performing well.

Liquidity analysis for the GlaxoSmithKline (in Billions)

                                        Current Assets

     Current Ration=     ----------------------- 

                                        Current Liabilities

Current Assets = 16,036

Current Liabilities = 12,794

Current Ration = 16,036 / 12,794

 = 1.25

                                                           Net Working Capital

Net Working Capital Ratio =     ----------------------- 

                                                           Total assets

Net Working Capital = 9,257

Total Assets = 42,230

Net working capital Ratio = 9,257 / 42,230

= 0.22

Profitability Ratios 

Return on Assets (RAO) =    Net Income / Average total Assets

Return on assets = 70,000,000 / 42,320,000,000

= 0.0017

Profit Margin = Net Income / Sales

Sales: 28,400,000,000

Net Income:  70,000,000

Profit Margin = 405

Factor that influenced J Sainsbury GlaxoSmithKline financial performance

There are various internal and external factors that influenced the performance of J Sainsbury Plc, as the company works towards the goal of being the first choice for food shoppers. One of these factors was the raise in business rates. The Company anticipated an increase of 5.6% because of inflation.The other challenge to the company is ensuring that the employees are well equipped to give the best services to the customers.  The company is testing sales lead recovery plan (). 

The other cited challenge is unavailability in all the stores, in spite of high number of employees.Fuel impacted on the Sainsbury performance, leading to prize inflation. High cost led to increase in cost inflation, leading to lower customer spending.  The challenging economic times impacted on the community affected Sainsbury’s performance.The company experienced increased cost related to environmental regulation, especially the carbon reduction commitment. The Sainsbury Company operates in an environment characterized by competition for best talents from competitors.  To ensure than high turn-over was kept on check, the company needed to ensure that investment in training was increased. Turbulent financial market affected the availability of long-term and short-term funds.  The regulatory policies and legislation determined the statutory responsibility that the two companies had to meet (Sainsbury).The Sainsbury Company is a labor intensive industry, with many employees whose terms are also dictated by the government regulation governing labor regulation. GlaxoSmithKline continued to face competition from generic drug. However some of the companies products are protected by patent rights.