Sainsbury's Balance Sheet Analysis

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The balance sheet does not show what the company worth. It is essentially a snapshot of a company's financial condition at a single point in so it is an important consideration about that company (Sutton, 2000). The strength of a company's balance sheet can be evaluated by three main ratios below: Current and quick ratios Current ratio illustrates a company's ability to pay its short-term obligations from its current assets. Quick ratio deducts inventory from current assets because inventory turns over extremely slowly in some industries. (Walton & Aerts, 2009) Sainsbury | 2008 | 2009 | 2010 | 2011 | Current ratio | 0.65 | 0.55 | 0.64 | 0.60 | Quick ratio | 0.39 | 0.31 | 0.39 | 0.32 | (Onesource - Global Business Browser, 2011) The current ratio was approximately the same in 2008 and 2010. In 2009 and 2011, it dropped to 0.55 and 0.60 respectively. This is due to a decline in current assets and an increase in current liabilities of the company in both 2009 and 2011. Similar pattern happened to the quick ratio as inventory increased from year to year. Both ratios less than 1 could indicate that the company may have difficulty meeting current liabilities (Sander & Haley, 2008). Nevertheless, it is not a critical problem to Sainsbury because it has few receivables. It also receives cash instantly from sales so it has no need to deposit many cash at the bank to pay creditors (Walton & Aerts, 2009). Moreover, its inventory turns over much more speedily than accounts payable become delinquent (University of Notre Dame, 2011) Gearing Gearing shows the company’s ability to pay its debt by using its equity. The lower this ratio the better the company’s position (Stolowy & Lebas, 2006) Sainsbury | 2008 | 2009 | 2010 | 2011 | Debt (£m) | 2202 | 2331 | 2430 | 2413 | Equity (£m) | 4,935 | 4,376 | 4,966 | 5,424 | Gearing (Debt/equity) |

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