ECOM211 Individual Report 2025-26
(a) Please calculate the following ratios for 2025 and 2024 from Tesco’s and Sainsbury’s financial statements provided in their 2025 annual report (i.e. pages 135-140 and pages 137-141, respectively). Please use the ratio formula sheet included in this document. Please show clearly in your calculations which data/number from the statements you have used and state any assumptions you may make in your calculations.
i. Return on capital employed
ii. Gross profit margin
iii. Operating profit margin
iv. Current ratio
v. Quick ratio
vi. Gearing ratio
vii. Interest cover ratio
viii. Average inventories turnover period
ix. Average settlement period for receivables
x. Average settlement period for payables
xi. Dividend yield ratio
xii. p/e ratio based on a market price of £4.52/share and £3.28/share for Tesco and Sainsbury’s, respectively.
(36 marks)
(b) Based on the ratios that you have calculated above, and any relevant information provided in the financial statements referred to in part (a), write a management report to each of the company’s board of directors commenting on the company’s operations for this financial year end compared to the previous year.
(32 marks)
(c) Based on the ratios that you have calculated above, and any relevant information provided in the financial statements referred to in part (a), are there any significant differences or similarities between the two companies which you would highlight to a potential investor, supplier and/or lender?
(32 marks)
Notes: It is advised to form your answer based on the module material and ratio formulas provided. You are not required to do extensive online market research on the two companies or use ChatGPT. You may submit one file only (Word or PDF type) with your name and university student number indicated on the front page. Word limit 2500 words (excluding calculations).
RATIO FORMULAS:
Profitability Ratios
Return on capital employed (ROCE) (%) = operating profit divided by capital employed x100
*capital employed = share capital + reserves + non-current liabilities
*capital employed should be the year average if available for both comparison years – otherwise use period end
*operating profit = profit before interest and tax
Gross profit margin (%) = gross profit divided by sales revenue x 100.
Operating profit margin (%) = operating profit divided by sales revenue x 100.
Efficiency Ratios
Sales revenue to capital employed (£) = sales revenue divided by share capital + reserves + non-current liabilities
*capital employed should be the year average if available for both comparison years – otherwise use period end
Average inventories turnover period = inventory divided by cost of sales x 365
* inventory should be average if available for both comparison years – otherwise use period end.
Average settlement period for receivables = trade receivables divided by sales revenue* x 365
*or credit sales if known
* receivables should be average if available for both comparison years – otherwise use period end.
Average settlement period for payables = trade payables divided by cost of sales* x 365
*or credit purchases if known
* payables should be average if available for both comparison years – otherwise use period end.
Liquidity Ratios
Current ratio (:1)= current assets divided by current liabilities
Quick or acid test ratio (:1) = current assets less inventory divided by current liabilities
Gearing Ratios
Gearing ratio (%) = non-current liabilities divided by share capital + reserves + non-current liabilities x 100.
Interest cover ratio (times) = operating profit divided by interest payable
Investment Ratios
Earnings per share = earnings available to ordinary shareholders divided by number of ordinary shares in issue
Price / earnings ratio (times) = market value per share divided by earnings per share
Dividend yield ratio (%) = dividends per share divided by market value per share x 100
Dividend cover (times) = earnings for the year divided by dividend for the year