Profitability and return on investment
The industry is characterised by low profit margins due to the intense competition and price wars. Sainsbury saw its gross profit margin rise by 0.3% to 5.8% in 2014. The company is performing slightly better than its rivals Tesco and Morrison’s both recorded declines. Trading activity averaged for the last three years at 5.57 %. Growth averaged at 20 basis points per year. There is little room for gross margin to increase resulting from pressure of competition.
The operating profit ratio aids the realization of the overall profitability of the company. Operating profit was 3.70% in 2014 in contrast to 3.56% in 2013. Tesco and Morrison’s figures are around the 4% mark. Supermarkets will reduce their operating profit margin to reinvest into strategic plans. The top three using it regain the impact of discounters engaging in long-term by price wars.
Sainsbury’s capital employed climbed by 0.78%. This result follows the consistent trend of marginal increases over the past…show more content… Equity backed companies pay higher dividends to their shareholders. The ratio is considered key for Sainsbury’s shareholders and investors in contrast to Tesco. Conservative investors are attracted to invest in Sainsbury’s based on their consistent dividend yields. The company’s average cover was 1.78 times over the last five years. It has been increasing for four of five years. Sainsbury’s was able to cover its dividend 1.90 times last year. The figure was 1.84 times for the previous year. The company’s is pursuing a policy since 2013 is to have a cover ratio of two (alpha). Sainsbury result is typical of a shareholder funded company. Nevertheless the European retail average is 2.5 times. Morrison’s had the highest dividend cover out of all three. Their results of 2.29 and 2.55 came from revising their dividend policy in 2012 due to investor