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Financial Analysis: Role of Retail (Grocery) in one’s Portfolio Student Name: Ankur Asati

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Financial Analysis: Role of Retail (Grocery) in ones PortfolioStudent Name:Ankur AsatiStudent ID: 5!!"5!5Su#er$isor:%ark &'ittin(tonSu)mission Date: *+t' Au(ust *,-Role Of Retail Sector (Grocery) In Ones PortfolioMasters Dissertation in Msc (Econ) in Finance & Investment Management.a)le of /ontentsExecutive Summary.................................................................. 3Introduction .......................................................................4 Obective of t!e study""""""""""""""""""" "4#ac$%round of t!e Retail Industry""""""""""""" "..4&!at are 'onvenience Store (.........................................................................4'om)any*s +istory"""""""""""""""""""""..,-iterature Revie.""""""""""""""""""""""""""./0ransformation of Retail Industry""""""""" """""/'or)orate Governance"""""""""""""" """"".112inancial Ratios"""""""""""""""""""""".133et!odolo%y"""""""""""""""""""""" """"""...145ata 6nalysis""""""""""""""""""""""""""""..17'ommercial and 2inancial Information"""" """""""."17Porter*s 2ive 2orces"""""""""""""""""""""1/'or)orate Governance"""""""""" """""""""...81Investors Information and S!are o.ners!i)""""""""""882inancial Ratio""""""""""""""""""""""".83'onclusion and Recommendation""""""" """"""""""""..34References""""""""""""""""""""""""""""""..376))endix 1(Income Statement 6S56).......................................486))endix 8(#alance S!eet 6S56).............................................436))endix 3(Income Statement 3orrison*s)................................446))endix 4(#alance S!eet 3orrison*s)""""""""""""""..""""""""""""..446))endix 4(Income Statement Sainsbury)..""""""""""""""""""""""""..4,* 9 P a ( eRole Of Retail Sector (Grocery) In Ones PortfolioMasters Dissertation in Msc (Econ) in Finance & Investment Management6))endix ,(#alance S!eet Sainsbury)...."""""""""""""""""""""""""".4:6))endix :(Income Statement 0esco)""""""""""""""""""""""""""".476))endix 7(#alance S!eet 0esco)""""""""""""""""""""""""""""".4/Executive summary;In t'e #ast fe0 years t'ere 'as )een a ra#id (ro0t' in retail industries 0it'in t'e1232 dueto$ariousreasons liketec'nolo(ical ad$ancementsandc'an(eins'o##in(trendfrom0eeklytodaily2 Des#iteof t'e'ars'economictimesin4uro#e retail sector #ro$ed to )e a su##le for 1232As it continued su##ortin( t'eeconomy and'a$e)rou('t (reat )ene5ts duetoits 'i('lyinno$ati$eandcom#etiti$e nature2 Annual retail sales (e6cludin( automoti$e fuel) 0ere 7!,*28 )illion in *, 0'ic'reac'ed 7!*,28 )illion in *,!9 t'ere is a (ro0t' of 7, )illion 0it'in a year as it0as 7!,2" )illion in *,*2 .'ese stats s'o0 t'e (ro0t' ac'ie$ed )y t'e retailsector in #ast t'ree years2 :o0e$er t'is (ro0t' is tremendous if $ie0ed for last, years as in *,,! it use to )e 7*-28 )illion 0'ic' turned out to )e 7!*,28)illion in *,!9 (ro0t' of !*2";9 0'ic' is *,; of total1232 GDP2 >/9 *,!)*-I0ER60=RE RE>IE&*>>/9 *,!2 **' + #$%& Lritis' Retail system is controlled )y some key traders 'a$in( controlo$er t'efundin( system2 Suc' a 'u(e concentration of #o0er in a fe0 'ands leads to t'ede$elo#ment of #redicta)leformat andacts asadri$in(mec'anismfor allleadin( c'ains in a #reAdetermined manner (:alls0ort'9 ++5)-2 Gate ",s and 4arly +,s 0as reOered as t'e (olden a(e of t'e retail industry ast'ere0asatremendous(ro0t'andincreasein#ro5ta)ilityanddurin(t'at#eriod Sains)ury 0itnessed continuous increase in PreAta6 #ro5t and t'es'are'olders di$idend reac'ed u#to *,; #er annum2 Soon after t'e mid of +,st'ere0asasu)stantial s'iftin13foodmarket9 accordin(tot'eresearc'esconducted #re$iously t'e main dri$ers of t'e s'ift 0ere t'e rise andfast (ro0t'!4mmanuel 2&29 ++"2Po0errelationsint'e13(rocerysu##ly c'ainA De$elo#mentsin++,s2 5ourna! of1etai!ing and 'onsumer Services7 5(*)9 ##2 88A"@2- :alls0ort'9 A29 ++52 >ritis' retailin(: t'e institutional conte6t2 5ourna! of 1etai!ing and 'onsumer Services7 *(-)9 ##2 *5A*5"2, 9 P a ( eRole Of Retail Sector (Grocery) In Ones PortfolioMasters Dissertation in Msc (Econ) in Finance & Investment Managementof dee# discounters9 alteration of sunk cost9 #ro#erty $aluation and #eo#le 0ereun0illin( to acce#t t'e (ro0in( dominance of key #layers2 .'is all lead to a ne0era in food industry 0it' is often reOered as JStore &arsK (&ri(ley9 ++-)52Studies conductedin t'e #ast states t'at com#etiton amon(st retailers in 13 isnot u#to t'e same le$el as in some similar leadin( economies2 /on$inence store'a$e)eent'reatenedtolooset'eirmarkets'aretot'esu#ermarketc'ains0'ic' are star$in( to (ra) more and more market s'are (Ronan De 3er$enoaela9*,,@)@2TInno$ation is considered to )e an im#ortant or(an of or(anisation formany industries and similar is t'e case for t'e retailin(2 If one 0ant to sur$i$e insuc' a com#etit$e (lo)al #latform t'ey need to inno$ate2 De$elo#in( )usinessmodel9 #ursuin( de$elo#ment of tec'nolo(y and (ro0t' #ros#ects in t'e (lo)almarket are some #art of inno$ation retailers are tryin( to ac'ie$e2 In order toac'ie$e t'ese (oals retailers need to kno0 0'ic' inno$ation are #ayin( t'em oO90'ic' tec'nolo(y ad$ancement could let t'em e6#and furt'er9 'o0 to meet t'ec'an(es in market and so on (Fenkates' S'ankar9 *,)82 .'e ans0er to t'eseEuestion leads to inno$ation suc' as online s'o##in( or introduction of internetin retailin(2 .'erearet'reema=or factors 0'ic'ledtot'einternet introductionAmarketde$elo#ment o##ortunity9 internet communications and de$elo#mentca#a)ilities2 .'e #ottential for sales in internet se(ment 'as led retailers to )uildan acti$e 0e)site 0it' online sale facility2 All t'e com#anies considered in t'isstudy'a$eacti$e#artici#ationinonlinemarketandtar(etinternetse(ment(Neil Do'erty9 *,,!)"2 In recent years t'ere 'as )een a (reat de$elo#ment inonlinesales and as a resultmarket s'are co$ered )yonlinesalesis)oomin(year )yyear at a'i('rate2 .esco'a$et'eir 0e)site0it'onlinesalesanddeli$eryfacility0it't'ename0002tesco2com9 ASDA0it'clickandcollect9online#urc'aseanddeli$eryfacilityat0002asda2com9 Sains)ury0it'onlinesales and deli$ery facility at 0002sains)ury2co2uk and %orrisons 0it' sales anddeli$eryfacilityat0002morrisons2com2 :o0e$er %orrisonsco$erst'eleastarea for deli$ery amon( all t'e com#anies2 5&ri(ley9 N29 ++-2 After t'e store 0ars (.o0ards a ne0 era of com#etition in 13 food retailin(D)25ourna! of 1etai!ing and'onsumer Service7 ()9 ##2 5A*,2@ Ronan De 3er$enoaela9 A2 :2 I2 /29 *,,@2 %acroAle$el c'an(e and micro le$el eOects: A t0entyAyear #ers#ecti$e on c'an(in((rocery s'o##in( )e'a$iour in >ritain2 5ourna! of 1etai!ing and 'onsumer Services7 !(@)9 ##2 *"A!+*28 Fenkates' S'ankar9 %2 S2 ?29 *,2 Inno$ations in Retailin(2 5ourna! of 1etai!ing7 "8S()9 ##2 SAS*2"Neil Do'erty9 F2 42A/2 /2 :29 *,,!2 An analysis of t'e factors aOectin( t'e ado#tion of t'e Internet in t'e 13 retail sector25ourna! of *ussines 1esearch7 5@9 ##2 ""8A"+82 9 P a ( eRole Of Retail Sector (Grocery) In Ones PortfolioMasters Dissertation in Msc (Econ) in Finance & Investment ManagementDes#ite of all eOorts t'ere is al0ays a t'reat of a ne0 com#etitor to enter t'emarket9 like t'e 0orlds )i((est retailer 0almart (Ruddick9 *,-)+ entered t'e13s retail market in +++ 0it' t'e acEuisition of ASDA0'ic' led to t'erestructurin(of t'emarket0it'customersdemandin($alueformoneyandstorescuttin(#ricestoremaininsuc'acom#etiti$emarket2 Des#iteof its#resence o$er - years in 13s (rocery market it failed to 'a$e market s'areleaders'i# 'ere9 .esco continues to dominate 0it' 'i('est market s'are in 13 as0ell as in 4uro#e (No'n Fernie9 *,,@)*,2 :o0e$er t'e le$el of com#etition in 13s(rocerymarket 'as reac'edu#toane0'ei('ts after t'eentryof (erman(rocery(iantsAGDIand GIDG aimin( toca#ture more and more market s'aree$ery year2 ))2 /or#orate Go$ernance:It isdesi(nedinsuc'a0ayt'at 'el#st'ecom#anytocontrol o$er all itso#erations 0it' t'e 'el# of #redetermined set of system9 #rocesses and#rinci#les t'at ultimately assist t'e com#any to ac'ie$e its (oals and o)=ecti$es2In addition to t'at it adds $alue to t'e com#any and is )ene5cial to allstake'olders inlon(term(.'omson9 *,,+)*2It 'as also )eendescri)edas#rocess of su#er$isin( and controllin( t'e 5rmin suc' a 0ays t'at itsmana(ementands'are'oldersinterest remainst'esame(Solomon9 *,,8)**2.'ere 'as )een a #ositi$e relations'i# )et0een Euality of t'e cor#orate(o$ernance and )ene5ts to t'e stake'olders.'e 5rm 0it' (ood cor#orate (o$ernance de5nitely )rin(s )ene5ts to t'e stake'olders and so far t'ere 'as )een a (ood #ositi$e relations'i# )et0een Euality ofcor#orate(o$ernance and)ene5ts to t'e #artners or t'e s'are'olders2 It'as)een found in t'e #re$ious studies t'at t'e 5rm 'a$in( (ood Euality of cor#orate(o$ernance (reatly $alues t'e interests of t'e s'are'olders and is mana(ed int'e0ayt'at 5rm'asa#otential of (ro0t'as0ell ast'estake'oldersare5nancially )ene5ted )y t'e o#eration )een carried out )y t'e 5rm(/'en9*,-)*!2 %orrisons 'as )een consistent in maintainin( s'are'olders return u# toadecent le$el for t'e#ast t'reeyearsand'ascor#orate(o$ernance'ead+Ruddick9 G29 *,-2Te!egra"h Media Grou" Limited #$%&L2:2 12 G242 P2 S2 N2A29 *,,@2.'e Im#act of &alA%arts 4ntryintot'eGermanand13Grocery%arkets2.gribusiness7 **(*)9 ##2 *-8A*@@2*.'omson9 G2 %29 *,,+2+ #$%& *ennett7 'o!eman & 'o Ltd .!! rights reservedLa=#aia9 D2 %2 %29 *,-2 4m#irical Study of >oardand/or#orateGo$ernancePractices inIndian/or#orateSector:Analysis of /G Practices of I./ and usinessFailureRiskAnalysisusin(Financial Ratios2)rocedia< Socia! and*ehaviora!Sciences7 @*9 ##2 8*"A8!*2!, 3atarina 3ociso$a9 %2 %29 *,-2 Discriminant analysis as a tool for forecastin( com#anyWs 5nancial 'ealt'2)rocedia < Socia!and *ehaviora! Sciences7 ,9 ##2 -"A582!%2 4min < cala9 42 G2 29 *,-2 Does transition to IFRS su)stantially aOect key 5nancial ratios in s'are'olderAoriented commonla0 re(imesD 4$idence from t'e 132 .dvances in .ccounting7 incor"orating .dvances in Internationa! .ccounting7 !,9 ##2 *-A*5,2@ 9 P a ( eRole Of Retail Sector (Grocery) In Ones PortfolioMasters Dissertation in Msc (Econ) in Finance & Investment Management#articular (rounds andallo0us to 5(ure out t'ecom#any 0it'ma6imumdisclosure2.'e data analysis section includes t'e re$elation of all t'e four com#anies on t'e)asis of $arious sections2 .'e 5rst section of t'e study is related to t'ecommercialand 5nancial information of t'e com#any t'at includes informationa)out t'eir o#erations in diOerent countries and continents2 &'at is t'e )usinessarea of t'e com#anyD And 0'at t'in(s are )een #ro$ided )y t'em in t'eir annualstatements2 Second section is of cor#orate (o$ernance 0'ic' (i$es an o$er$ie0of t'e num)er of committee mem)er and t'e details a)out t'e mem)ers andfunction #erformed )y t'em2 .'ird section is in$estors information9 s'areo0ners'i#andmarket #erformance0'ic' (i$e anim#ression a)outt'e stocko0ners'i# and t'eir #erformance2 .esco9 ASDA9 Sains)ury and %orrisons 'a$e )een o#ted for t'e study due to factt'at t'ey are t'e to# four com#anies in terms of market s'ares(>>/9 *,-)!52.'ere are many ot'er com#anies in t'e market like &aitrose9 AGDI9 GIDG 0'ic'are (ro0in( t'eir market s'are in 123 e$ery year )ut are far a0ay from t'e to#four 'ence doesnt makes t'em suita)le to )e considered for t'e study and t'etime limitation con5ned t'e study to )e limited to t'ese four com#anies2.'e study 'as )een done usin( t'e annual re#orts of .esco9 ASDA9 Sains)ury and%orrisons res#ecti$ely and ot'er sources of #u)lic informations suc' as ne0sarticles9 )ooksand=ournals2 Inorder todocom#etiti$eanalysisPorters5$eforces is used 0'ic' is )ased on 5$e sections namely )ar(ainin( #o0er of )uyer9)ar(ainin(#o0erofsu##lier9 t'reatofne0entrants9 ri$alryamon(5rmsandt'reat of su)stitute2 It is lo0 com#le6 model2 %any ot'er models like >/G matri69S&>/9 *,-2 **' + #$%& LIts cor#orate(o$ernanceconsists of +)oardof directors9 'eadof diOerentcommittees andmem)ers in o#eratin( )oard2 .'ey #ro$ide detailof )oardtenure #eriod of nonAe6ecuti$e staO9 #ercenta(e of male and female in )oard9o#eratin( )oard9 senior e6ecuti$e #osition and com#any also includes details like0'en0as last )oard e$aluated2 .'ey#ro$ide details ofeac'committee'eadmem)ers and t'enum)er of meetin(s'eld and attended)yt'e directors2 Inaddition to t'is t'ey also #ro$ide information on e6ternal and internal auditors9riskmana(ement of diOerent di$isions9 ot'er disclosurelikeordinarys'ares9di$idends #aid9 ma=or interest in s'ares9 contracts and #olicies9 directorsremuneration9 lon( term incenti$e #lansas 0ell2Morrison4s>Its cor#orate (o$ernance com#rises of 8 )oards of directors 0'o are mem)ers ofdiOerent committee like Nominations9 Remuneration9 Audit and /or#oratecom#liance and res#onsi)ility9 most of t'e directors are mem)er of more t'anone committeeC and %ana(ement )oard 'a$in( + mem)ers2 .'ey also #ro$ideinformation a)out t'e meetin(s 'eld t'rou('out t'e year includin( t'eattendance of t'e mem)ers9 s'are'older relation9 #ay structure of t'e e6ecuti$edirectors9 #ay #erformance of t'e com#any9 1naudited and Audited information9A0arded s'ares9Annual)onus9 c'an(es of directors9contract of directors andot'er disclosures 0'ic' says com#any is under no arran(ement 0'ic' 0ill resultinterminationor c'an(eof control includin(t'at em#loyee'a$enos'aresc'eme related to ri('ts of control of t'e com#any2.SD.>No information re(ardin( cor#orate (o$ernance 0as found2d)2 INF4S.anknominees9 in$estment trusts9 Pensionfunds9 familyinterests9Insurance /om#any and ot'er Institutions 0it' ,2-!9 ,2@59 ,2@9 ,2,59 ,2,59 2,9 2, and ,2- res#ecti$ely2 (%orrisonSs9 *,!)-- .SD.>No information a)out t'e S'are'olders alt'ou(' its a &alA%art o0n su)sidy2e)2 FINAN/IAG RA.IIt re#resents t'e #erformance of t'e com#any t'at is 'o0 0ell t'e com#any is#erformin( and it is found )y t'e ratios likeAR/9 *,!2 **' + #$%& LritainsA)i((estAsu#ermarket2'tml4lliot9 >2 42 a2 N29 *,*2 Financia! .ccounting and 1e"orting 5 ed2 Gondon: Pearson 4ducation24mmanuel 2 &29 ++"2 Po0er relations in t'e 13 (rocery su##ly c'ain A De$elo#ments in ++,s2 5ourna! of 1etai!ing and 'onsumer Services7 5(*)9 ##2 88A"@2Fen(yi Gina9 D2 G2 42 /29 *,2 Financial ratio selection for )usiness crisis #rediction2 E="ert Systems ;ith .""!ications7 !"(*)9 ##2 5,+-A5,*2:all9 N29 *,,2 Te!egra"h Media Grou" Limited #$%& + L