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Part 1 Profitability £ Million Tesco plc Profitability % 1999 2000 2001 2002 2003 ROCE 932/5624 16.57 1032/6382 16.17 1179/7343 16.06 1354/8747 15.48 1541/11129 13.85 NPM 932/17158 5.43 1032/18796 5.49 1179/20988 5.62 1354/23653 5.72 1541/26337 5.85 Asset Turnover Ratio 17158/5624 3.05 times 18796/6382 2.95 times 20988/7343 2.86 times 23653/8747 2.70 times 26337/11129 2.37 times GPM 1308/17158 7.62 1431/18796 7.61 1588/20988 7.57 1787/23653 7.56 1997/26337 7.58 Return on shareholders' funds 605/ 4382 13.81 647/4769 13.57 766/5356 14.30 830/5530 15.01 946/6516 14.52 Table 1 Tesco £ Million J Sainsbury Profitability % 1999 2000 2001 2002 2003 ROCE 943/5501 17.14 581/5832 9.96 510/6042 8.44 620/6363 9.74 727/7257 10.02 NPM 943/16433 5.74 581/16271 3.57 510/17244 2.96 620/17162 3.61 727/17430 4.17 Asset Turnover Ratio 16433/5501 2.99 times 16271/5832 2.79 times 17244/6042 2.85 times 17162/6363 2.70 times 17430/7257 2.41 times GPM 1317/16433 8.01 1070/16271 6.58 1162/17244 6.74 1254/17162 7.31 1391/17430 7.98 Return on shareholders' funds 596/4644 12.83 347/4742 7.32 266/4911 5.42 371/4848 7.65 461/5003 9.21 Table 2 J Sainsbury Growth ratios 1999 - 2000 2000 - 2001 2001 - 2002 2002 - 2003 Turnover 9.55% 11.66% 12.70% 11.35% Turnover by segment UK 7.09% 8.34% 9.14% 7.79% Rest of Europe 17.74% 27.80% 25.46% 22.06% Asia 197.44% 85.34% 62.56% 45.42% Operating profit 8.08% 12.56% 13.46% 13.29% Operating profit by segment UK 8.05% 10.78% 10.27% 6.92% Rest of Europe 6.25% 37.25% 28.57% 56.67% Asia -50.00% -500.00% 625.00% 144.83% Return on capital employed -2.40% -0.68% -3.61% -10.53% Return on shareholders' funds -1.74% 5.38% 5.59% -3.26% Table 3 Growth ratios of Tesco Profit Margin (%) The finding shows that Tesco has stably increased net profit margins from 5.4% to 5.9% and gross profit margins remain static by 7.6% over the last five years. This suggests the business is being managed in a stable way. Tesco may have a healthy pricing strategy which is evident in both ratios. Its inventory management is good, its raw materials and factory wages hasn't gone up...

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