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Interpreting Financial Accounting

This report aims to provide detailed analysis on T & S Stores Plc and Greggs Plc, and to provide recommendations on which company to invest in. It will compare the recent years trading results compared to the previous year and also a comparison between the two companies. T & S Stores Plc is a retailer concentrating on the convenience stores, newsagent, and corner shop market. T & S Stores Plc most popular retail outlets are Dillions Newsagents, One Stop Community Stores and Day & Nite Stores.

Greggs Plc is the leading UK’s leading retailer specialising in sandwiches, savouries and other bakery related products, with a particular focus on takeaway food and catering. Greggs Plc trade under two names, which are Greggs, and Bakers Oven. Both companies have a significantly high return on capital employed (ROCE), compared to industrial averages of 8. 13% in 2001 and 8. 91% in 2000. Both T & S and Greggs have a ROCE three times high than the industrial averages. This suggests that both companies have been using their funds effectively to achieve profits.

However further analysis will be needed, as the ROCE could be high because both companies have mark-ups higher than other retailers in this

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sector. Graph 3 shows the huge difference of the mark-up between the two companies. However this those not indicate whether this is good or bad, as each company will differ depending on the type of business. The graph does show that T & S has fallen behind the industry average in 2001, which reflects how competitive the retail supermarket market has become.

Greggs having maintained their Gross Profit Margin due to being the biggest and leading company in its sector. Graph 4 has shown that Greggs is a healthy company as it could meet its current liabilities at short notice using only its current assets, even when stock has been taken out of the ratio. But examining the balance sheet of Greggs shows that there is a big amount of cash at bank and in hand. This could be seen as not using assets effectively to generate sales, which is reflected in the total asset turnover (above).

Greggs could be keeping a reserve in the bank in order to further expand the business or to refurbish the existing stores as mentioned in its objectives. T & S’s liquidity ratio indicates that the company cannot meet its short-term liabilities even in the current ratio. This reflects the typical nature of its business, as it has huge amount of cash tied up in stocks and has a lengthy stock turnover period. This is can possibly be explained by poor purchasing decisions within the company, or by not being able to negotiate better prices with suppliers compared with bigger purchasing power of Tesco and Sainsbury.

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