Financial ratio analysis Essay Example | Topics and Well Written Essays - 1500 words

Financial ratio analysis - Essay Example The main value of the company lies in providing tasty and healthy foods to the customers by maintaining good quality and reasonable price. The vision of Sainsbury is to be the most trusted retailer, where the customers and employees prefer to shop and work respectively (J Sainsbury Plc., 2015b). During 2014, the underlying sales and profit before tax of the group increased by 2.8% and 5.3% respectively (J Sainsbury Plc., 2015b; J Sainsbury Plc., 2015c). The graph provided below shows the improvement in confidence of the consumer over the past five years. The financial statements of the company are prepared according to International Financial Reporting System (IFRS) (J Sainsbury Plc., 2015c). The company has adopted IFRS as its accounting policies as it is followed in the European Union. Moreover, financial data in the statements are presented in sterling million. It is also prepared with the help of going concern method under the convention of historical cost (J Sainsbury Plc., 2015c). The main purpose of the report is to highlight the financial performance of J Sainsbury Plc through financial ratio analysis. The ratios during the year 2009-2014 are calculated to get a knowledge regarding the financial strength of the company. However, there are various limitations of ratio analysis, which are also depicted in the report. The ratio analysis of Sainsbury is executed in order to understand the financial status of the company. The profitability, efficiency, liquidity, leverage and investment ratio are calculated in order to depict the financial condition of the company. 1) The gross profit margin has increased over the years from 2009 to 2014 as the sales revenue has improved due to the increase in consumer confidence. The cost of sales and the sales revenue is balanced, which have maintained stability among gross profit margin of the years. 2) The net profit margin has remained steady over the years from 2010- 2014 at 3.0%; however, it has