ANALYZING CAPITAL STRUCTURE OF TESCO AND SAINSBURYS Tesco is one the worlds most successful retail operator of groceries

and general merchandise in United Kingdom they are considered as third 3rd worlds largest retailer they also have 14 wide variety stores in Asia, Europe and America founded by John Cohen in 1919. One of the key reasons of success of Tesco is wide range of products, brand preferences and popular product lines they also aggressively committed to expand internationally to gain global customers they also use the power of technology by selling their products online. Sainsburys is also considered as the 3rd largest retail stores in the United Kingdom founded by John James Sainsbury and family in 1869 in London, England. They have ups and down in business until Tesco has taken over their popularity but they still manage to survive the momentum of competition only in the United Kingdom while Tesco has been expanding in other regions. There are various determinant and significant reasons why they have become the customers preferred stores and they also has a good analysis of capital structure included in their program to support various original business plan for growth considering they are experts in cash management and financial system just like in a financing company. Tesco has also decided to put up a banking business. The financing department between the two companies has someone shown a very respectful management scheme in most of their business operation, their financial strategies includes equity, debt, financing and mixed capital investment. The following statement below may show their financial performance within the last 5 years of operation.

Upon analyzing the capital statement of giant companies the most basic analysis should include cost capital and key risk, corporate financial cash flows and the demand and purchase allocated within a year to be able to determine the Weighted Average Cost of Capital (WACC) In the records of Tesco from 2003 to 2007 capital gearing shows an average of 49.21% this means that the average capital that they have earned may have been use to leverage their business to essentially retained earnings, they have used their revenue to invest more diversification of funds to support their expansion and general operation to remain as the leading retail industry while their leverage their income gearing shows an average of 42.52 for interest paid on loan and operating profits paying obligatory debt and rate of interest to secure their balance. While Sainsbury only shows in 2003 to 2007 income gearing average of 43.61% and their income gearing shows only 3.84 which is not a very good mark of obligatory debt payment although it also show a strong investment determinants. In 2005 to 2006 Tesco maintain an average 39% income gearing while Sainsburys performed good enough in 2005 in the current year they have consolidated from other companies to regain a more stable capital structure. Tesco on the other hand, their income gearing still shows a good position in maintaining their obligations while Sainsburys continue tostruggle to meet their obligations up until 2007. The Weighted Average Cost of Capital (WACC) of Tesco is a very good determinant for stakeholders and investors they can expect good returns of their investment the measurement of WACC should be in their favor so more of them will invest in the company because it has shown a

reliable lower risk position. Here is the summary of Tesco WACC during 2007; Risk free rate is 4.61% while market returns average a total of 14.36% Pre tax cost of debt is 5.31% while tax rate is computed to rise as much as 30% the analysis shows a good conditions in the eyes of their investors only in this summary. The Weighted Average Cost of Capital (WACC) of Sainsburys shows the same rate it only differs in Pre tax cost debt which is 5.61% which still also shows a good conditions of investment confidence coming from their investors. TESCO Cost of Debt = 5.31% Cost of Equity 11.65% Market Value of equity 36222.8 m WACC of Tesco 10.7% while WACC of Sainsburys is 13.54% this again shows a good condition of both of the company for investors to put their money in any or both company. Generally the capital structure comparison may have shown that WACC of Sainsburys shows a bigger percentage in TESCO but it does not mean that investors in Sainsburys earn more in TESCO because they differ in stock preferences. The summary and analysis of these companies maychange in time depending in situation of Political, Economic, Social and Technological changes but most company usually maintain their positions for years if they have established long term engagement and customers confidence in their business just like in most businesses.