Using data for Sainsburys plc, critically evaluate the relative Essay

Using data for Sainsburys plc, critically evaluate the relative strengths and weaknesses of internal performance measurement techniques and those relying on external performance measures - Essay Example In its specifics, the graph below depicts the trend of MVA for the company. Writing on the variable for critiquing MVA of companies, Baum , Sarver and Strickland (2004) emphasized the need for the MVA to increase at an even rate with the market value of the company. Rightly so, it can be said that for most of the years, Sainsbury’s MVA has been directly proportional to its market value, which is a major strength for the company. The reason this is an important variable is that when MVA is not proportional to market value, it exposes the company to much external deficit. On the other hand, Bender (2012) also mentioned that it is very important for companies to have a steady growth rate in their MVA. This is a major weakness with Sainsbury as the company has been highly inconsistent with its MVA. Apart from the inconsistency, the rate has been declining sharply since 2009. This is a major weakness for the company as it suggests that the company is not income resourceful when the capital input from investors is taken out. The table below summarizes the strengths and weaknesses of Sainsbury’s MVA. On the second external performance measure which is total shareholder return (TSR), Bender (2012) explained that TSR is calculated by dividing the sum of change in stock price an dividends paid by beginning stock price. The relevance of TSR as an external performance measure is that it highlights the returns that shareholders make from investing in stocks. To have a perfect critique of the TSR of Sainsbury, it is important to relate the calculated TSR to the share price and dividend per share. This is because according to Stern (2011, p. 5), â€Å"firms with high retention ratios (low payout ratios) generally have higher growth rates in earnings than firms with lower retention ratios (higher payout ratios).† In the figure below, the share price, dividend per share and calculated TSR of Sainsbury since 2009 are compared. From the