Sample Essay

The above analysis shows that the company operates in а saturated market. Over 90% of sales revenue is consumed in the cost of goods sold Gross profit generating only 5% -7%. Although other costs are small company creates а net profit of 1,5% to 1,9% of sales in three years, is negligible. Inclusion of horizontal analysis of the income statement shown below, we see that the market is not growing (Davies 2006), apparently, no real growth in sales, as sales growth equal to the average rate of inflation. Profit figures actually declined in the 2008-2009 fiscal year.

J Sainsbury

Horizontal Analysis of Income Statement


Period  2009-2008  2008-2007
Revenue 6.02% 4.00%
Cost of sales 6.18% 5.36%
Gross profit 3.39% -14.51%
Administrative expenses -16.33% -24.96%
Other income 90.00% 76.47%
Operating profit 26.98% 1.92%
Finance income -37.35% 29.69%
Finance costs 12.12% 23.36%
Share of post tax loss from joint ventures 5450.00% -2.00%
Profit before taxation -2.71% 0.42%
Analysed as:    
Underlying profit before tax 11.27% 28.42%
  714.29% 0.00%
Profit on sale of properties -124.00% 0.00%
Investment property fair value movements 150.00% 150.00%
Financing fair value movements -100.00% 114.63%
  -2.71% 0.42%
Income tax expense 18.00% 1.96%
Profit for the financial year -12.16% 1.54%


Although it seems sales are growing, at least nominally, gross profit decreased from 6,83% to 5,62% in the 2007-2008 fiscal year and 5,62% to 5,48% per year, 2008-2009. Similarly, the percentage of operating profit decreased from 3.03% to 2.97% and then rose from 2, 97% to 3, 56% during the year 2007-2008 and 2008-2009, respectively. This shows а decline of profitability of the company for three years. The company has already saturated the market and needs to control costs to remain profitable, as any further increase is not very likely. Returns on invested capital, representing а decrease in 2007 to 2008, from 10.97% to 9.71%, respectively, and with the increase in 2008 to 2009, from 9.71% to 10.65%, respectively, based on of trends operating profit.

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