This content explains the purpose and key components of an annual report using Sainsbury as a case example. It evaluates accounting theory and practice and how stakeholders use annual reports to assess business performance.
Annual report is the comprehensive report that defines the firm’s activities throughout the previous financial years. These reports are intended to offers information regarding the firm’s performance and activities to all the shareholders and interested people. Annual report comprises of several crucial elements which includes letter from CEO, performance highlights, sustainability information, financial statements and outlook of the years. Sainsbury is the second largest chain of supermarket within UK which was established in the year of 1869 by John James Sainsbury. The firm operates through diverse stores which include hypermarket, convenience shop, supermarket, superstores and forecourt shop. The annual profit of Sainsbury accounted for 32721 million and has a market share of 16% in the year of 2024 (Description of Sainsbury, 2024). The current essay is based on evaluating accounting theory & practice and the manner in which stakeholder could utilize annual report.
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Main Body
Financial accounting implies for the branch of accounting which is concerned with summarising, analysing and reporting financial transaction of the entity that aims at offering a transparent view of the firm’s overall working, performance and position. For promoting integrity and transparency in accounting, financial reporting council has offered IFRS framework which also aids in ensuring comparability and consistency across the business entities. However, Traditional accounting usually suffered due to the window dressing that eventually impact overall decision of the stakeholder. To overcome the same, technology has been incorporated in the financial accounting which aids in enhancing timeliness and accuracy within the statements (Breuer, M., 2021). This integration of tools and real time data supports informed decision making and eventually transformed overall traditional accounting. Further, Morden accounting practices includes utilising technology such as AI, cloud computing and data analytic which enhances the overall efficiency of accounting (Overview of Accounting in Modern world, 2025). Along with this, modern accounting also involves sustainability reporting and also consists of over advisory services.
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A stakeholder implies to the group, organization or individual that is positively or negatively influenced by policy, project, initiatives and performance of the organization. These stakeholders are majorly interested towards financial statement such as cash flow, balance sheet & income statement of the firm which aids in determining the overall liquidity, solvency and profitability of the business entity. Sainsbury’s stakeholders are majorly classified into two differential categories which include internal and external stakeholders. Internal stakeholders consist of employees, managers, board of directors and shareholders. On the other side, external stakeholders consists of creditors, suppliers, customers, regulators and investors of the organization (Stakeholder of Sainsbury, 2024).
Internal stakeholder:
Internal stakeholder includes all the individuals that are directly involved in the operations, outcomes and decisions of the business entity. Below are the diverse stakeholders of Sainsbury and the manner in which they use annual reports:
Employees:
They are the integral part of the Sainsbury as the firm’s overall working and efficiency is depended on their skills and competency. Currently, Sainsbury has hired over 152000 employees worldwide that are interested in firm’s annuals report. Employees are involved towards closely evaluating the income statements for identifying the overall profitability as it is directly linked with their job security and increments (Danso et al, 2020). For example; it has been identified that Sainsbury’s Net profit is increased by 0.63% as compared to the year 2024 which is a positive indicator for the employees (J Sainsbury’s Net income, 2024). This additional income denotes that organization could invest towards the welfare of the employees and offers higher career development opportunity. Higher profitability also motivates organization to provide additional financial and non-financial incentives that aids in boosting the employees’ overall financial position. Moreover, high profits denote the firm’s long term stability within the industry which ultimately defines the job security for employees.
Managers:
They are another crucial stakeholder of the organization who concentrated over critically analysing the financial statement based on which the most accurate decision could be initiated. Annual report offers all the crucial information related to the firm’s profitability that are measured by set standard based on which the most prominent decision could be initiated (Dyson and Franklin, 2020). Manager in Sainsbury are involved towards calculating, inventory turnover rate, Gross profit, Net profit, debtors and creditor turnover ratio to determine the profitability as well as efficiency of the business entity. It has been assessed that Sainsbury’s GP ratio is only 9.16% as compared to the ideal ratio of 17.56% which indicates the firm’s inefficiency in generating adequate profits (Gross Profit margin for Sainsbury, 2025).
Further, organization is having inventory turnover ratio of 14 times but firm is unable to attain the industry average which denotes the lower efficiency. This information aids manager in taking accurate decision and formulating effective policies so that all such issues could be resolved. On the basis of such evaluation, manager will focused on attracting larger customer by boosting marketing strategies which aids in attaining economics of scales and thereby enhancing overall profitability. Beside this, manager are also involved towards comparing balance of two or more years as to determine the firm’s financial health and thereby taking the informed decision (Gupta, Crilly and Greckhamer, 2020). Moreover, manager are also involved in evaluating cash flow statement that offers information related to the firm’s liquidity position based on which long and short term investment opportunities could be identified leading to overall organization growth. Along with this, Manager also utilizes annual report for identifying the working capital movement that aids in taking the accurate decision for better funds utilization.
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Shareholders/owners:
These are the owners of the business entity who tend to make focus on evaluating the firm’s annual report to recognize the dividend policies, financial performance and future growth strategies. They are generally involved towards calculating return on equity, earning per share and dividend yield ratio which aids in making informed decision related to the investment (Jiang et al, 2020). For example: Sainsbury’s EPS ratio is decreased by 0.9 pound in the year of 2024 as compared to 23 pound which denotes the lower shareholder’s overall return (Earnings per share of Sainsbury, 2025). Further dividend payout of firm has increased by 0.23% over the previous year which defines the firm’s commitment to offer accurate return to the investors. Moreover, Sainsbury’s share prices are increased by 19.83% from the last five year which define the higher investor’s confidence and ultimately supports in attracting the larger number of investors.
External stakeholder
Creditors:
It includes all the organization and individual to whom business entity is liable for paying the funds. They are interested in evaluating the firm’s financial and liquidity position which provides assistance in taking the lending decision. These stakeholders are also interested in determining the firm’s debt equity ratio which aids in identifying the firm’s overall obligations based on which future decision could be initiated. For example: Current debt equity ratio of Sainsbury is 0.17 indicating low amount of debt and thereby higher financial stability. This denotes that firm is having lower financial liability which indicates the high efficiency in paying off debt.
Further, creditors and lenders are involved towards evaluating the current and quick asset ratio of firm which indicates overall liquidity position of the business entity (Jørgensen, Mjøs and Pedersen, 2022). This ratio aids in identifying the firm’s creditworthiness and supports in taking an accurate lending decision. In this context, Sainsbury’s current and quick asset ratios are 0.66 and 0.57 respectively indicating the lower amount of assets in comparison to the liabilities (Financial Ratio of Sainsbury. 2025). This is not a good indicator for the creditors as it denotes the firm’s inefficiency in paying out its liabilities by utilising the assets which increases the scope of bad debts. However, Sainsbury’s cash balance is increased by 173 million pound which in turn recognized as the positive indicator for the creditors and lenders. Increase in cash balance denotes that there is a regular cash inflow which helps organization in paying out all the interest obligations easily.
Investors: These stakeholders assess the annual report with the aim of determining profitability, financial health and growth potential of the business entity. They are interested in evaluating the firm’s debt equity ratio and profitability ratio that helps in identifying their return on their investments (Kaawaase et al, 2021). This metrics aids in identifying the firm’s ability in attracting the customers, boost sales and thereby gaining maximum return on investments. Further, Debt-Equity ratio is evaluated to identify overall debt in the capital structure which indicates the total funds which will be used for paying out the obligation. For example: Sainsbury’s GP ratio was 10.5% in the year of 2023 and 9.16% in year 2024 that indicates the firm’s inefficiency in managing its overall sales (Gross Profit margin for Sainsbury, 2025). This is not a good indicator from the investor’s point of view as lower GP denotes lower return on their investments. Along with this, Sainsbury net profit was only 0.4% in the year of 2024 which denotes the organization’s inefficiency in managing its expenses and thereby lowers profitability. However, Sainsbury’s debt equity ratio is very low which in turn recognized as a positive indicator as huge amount of company’s profit will be used for paying out the obligation which in turn leads higher amount of profits.
Regulatory and government Agencies:
Government agencies and regulatory bodies are involved towards reviewing annual reports with the aim of identifying the firm’s compliance with regulatory requirement and financial reporting. They are involved towards examining the firm’s sustainability report, risk management and corporate governance (La Torre et al, 2020). Along with this, they are involved towards identifying whether firm is paying out all the tax liabilities or not. For the year ending 2024, Sainsbury has paid an amount of 112.1 million pound towards the tax liabilities which indicates that firm is effectively aligning with its obligation (Tax liability of Sainsbury, 2025). Various NGO’s and environmentalist are also involved towards the evaluation of firm’s annual report with aim to analyse CSR policies of the business entity. CSR information is shared with the aim of defining the firm’s commitment towards environment and society which aids in maintaining transparency and thereby boosts overall goodwill. For example: Sainsbury is focused over cutting down carbon in their operations and aims at attaining net zero carbon emission at the end of 2030 (Corporate social responsibility of Sainsbury, 2025). Further, Sainsbury has claimed to offer colleagues with an opportunity to volunteer for the local cause and thereby supporting community growth. This policy and activities denote the entity’s concern for the overall growth and welfare of local community and environment that aids in developing the positive image.
Competitors:
This stakeholder uses annual report to identify the firm’s strengths and weaknesses based on which the most effective strategic decision could be taken. They are involved towards the financial statement analysis as to gauge the firm’s capital structure and financial health so that suitable changes could be initiated for sustaining the competitive edge (Lakshan, Low and de Villiers, 2021). Moreover, this stakeholder also carefully evaluates the firm’s cash flow which aids in identifying the entity’s ability to invest into new technology and operations that influence the overall competitive landscape.
Suppliers:
Suppliers are also involved towards carefully analysing the firm’s financial statement before taking any decision related to credit. This stakeholders is majorly focusing over analysing the cash flow statement that aids in identifying whether resources could be offer on credit basis or not (Lee and Raschke, 2023). For example: Sainsbury is having higher cash inflow which indicates the firm’s ability in paying out all the liabilities timely based on which decision could be taken. Moreover, they are also involved towards the critically analysis of other statements that aid in identifying the firm’s profitability which denotes overall stability of the business entity.
Customers:
They utilize annual report for determining firm’s commitment to service quality and long term stability. Customers lay emphasis over evaluating financial metrics such as profitability and revenue growth as to identify entity’s ability to offer reliable and consistent services (Monciardini, Mähönen and Tsagas, 2020). Further, they also aim at evaluating CSR strategy which denotes the firm’s concern towards the society’s welfare and development that influences their overall buying decision.
Conclusion
By summing up the report, it has been identified that all the stakeholder have differential motive for evaluating firm’s annual report. Further, it has been accessed that IFRS framework has been established with aim of promoting integrity and managing ethical accounting. With the help of ratio analysis and financial statement analysis, stakeholders are able to determine firm’s financial health based on which necessary decisions are initiated. Employees are interested in annual report as to determine their job security and promotion opportunity. Manager evaluates statement for taking accurate decision and forming strategies to develop competitive edge. Along with this, investors, shareholders and creditors are interested to identify profitability position as to get assurances for accurate and timely payment. Lastly, government and community use annual report as to ensure that entity is fulfilling all the tax liabilities and ethical considerations.
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