Financial Ratio Analysis of Morrison in Comparison with Tesco

2116 Words Jan 6th, 2011 9 Pages
Financial Ratio Analysis of Morrison in Comparison with Tesco

Introduction

The purpose of this report is to critically analyse the financial ratio results of Morrison 2008 and 2009 as an equity analyst and compare it with like for like by using Tesco supermarket. To achieve this report will be looked at in four main areas. Firstly, we will use financial ratios obtained from annual reports of 2008 and 2009 to analysis and appraise Morrison’s financial performance. This would be followed by a comparative analysis with Tesco, for the same period. In addition, a trend analysis will be done to show the pattern of Morrison’s financial performance over the years 2006 to 2009. Furthermore, a comparison will be made with industry average
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Liquidity ratios Morrison Tesco Current ratio (CR) 0.53 :1 0.49 :1 0.76:1 0.58:1
Quick ratio (QR) 0.28 :1 0.25 :1 0.61:1 0.35:1

A safe margin in liquidity for the retail industry is often below 1:1. Morrisons Current Liability(CL) are far too higher than the current assts and that has greatly affected the ratios. Using long term borrowing to fund current assets will improve this ratio as will profits that generate cash flow. These results mean that Morrison’s ability to meet its short term obligations have improved slightly. The CR was up by 0.4:1 from 2008 to 2009 and the QR by 0.3:2 respectively. However, Morrison may not be able to pay off its bill as quickly as it should and this may keep its suppliers unhappy and unwilling to give eager service.
Over four years the ratio has continued to increase with a slight dip in 2007.
In general, Tesco showed a better growth margin than Morrison in the two years by improving CR by 0.18:1 from 2008 to 2009.
Morrison’s CR figure in 2009 is unfortunately, not in line with the industry average of 0.70:1. and neither is their QR. Morrison results have fallen behind the Industry figure of 0.69:1 (London Stock Exchange, 2009).

UTILISATION OF WORKING CAPITAL
Working capital management
Stock turnover ratio 13.24 days 13.28 days 19.44

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