Assignment

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 Table of contents
Introduction 2
Profitability ratios analysis 2
Conclusion 3

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Introduction
Tesco is a public limited company started in the year 1919, one of the finest multinational
groceries and broad merchandise retailers operating in the UK. Sainsbury’s Plc. started in the
year 1869 it is the multinational retailer and the largest supermarket operating in the UK,
Sainsbury’s plc. provide groceries, merchandise and other products like clothing and great
quality of food at reasonable price. The following report will showcase the ratio analysis of both
companies, which are from the same sector and same in size and category. Ratio analysis is an
integral part of the company’s financial statements, the analysis aids in establishing which
company has been performing better in its sector.

Profitability ratios analysis

Profitability ratios refer to a method of analyzing a company's financial position and justifying a
company's profitability position, and it also shows how the company makes use of its assets to
achieve its desirable profits. The profitability ratios is a productive method to examine and
compare different companies, and this report will cover the net profit margin and return on assets
for the year 2020

Ratios Tesco Sainsbury

Net profit margins% 1.5% 5.2%

Return on assets % 1.2% 0.3%

Net profit margins

The net profit margin of Tesco has 1.5% in 2020 and on the other side, the net profit margin of
Sainsbury's is 5.2% in 2020, which indicates that Sainsbury has a higher net profit ratio than
Tesco, Sainsbury had better production than Tesco in terms of generating annual income for the
year 2020. Sainsbury had a much better performance than Tesco in managing its poor pricing
strategies, goods and services. Tesco has a lower net profit than Sainsbury which indicates
financially less efficient than its opponent, Tesco unqualified to expand on merchandise and not
being able to take any risk in expanding its scope of business.
Return on assets

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Return on assets indicates how well the company generates its profits in relation to its total
assets. Tesco has 1.2% in 2020 and Sainsbury 0.3% in 2020, it indicates that Sainsbury has a
lower percentage which means the company is not being able to make maximum use of its assets
to achieve profits. Tesco utilizes its assets more effectively and can expend a significant amount
in equipment and machinery to generate its income. Return on assets can be used by shareholders
to uphold how well a company is structured on converting its assets into net income, the higher
the return on assets the company will generate profit.

Conclusion
From the above report, it can be concluded that Tesco has a lower net profit margin than
Sainsbury, but comparatively, Tesco occupies a better return on assets ratio when compared to
Sainsbury. The calculations of the above profitability ratios helped in understanding both
company’s financial position and performance for the year 2020. Furthermore, any shareholders
can use these profitability ratios to compare companies within the same sector before investing.
Thus, the ratio analysis helps shareholders and management to make knowledgeable decisions.

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