Essay Ratio Analysis of Morrisons

2646 Words Mar 21st, 2013 11 Pages
Table of content

Introduction 2 Financial Analysis of Morrisons 3 Critical Assessment of the ratio analysis of William Jackson Food Group 8 Limitations and recommendations References


This paper deals with the question of how a ratio analysis can help in determining the true value of a company. Therefore a critical ratio analysis of Morrisons, a supermarket which is listed on the London Stock Exchange will be done and then compared with the William Jackson Food Group, another supermarket but a private company in order to figure out if there are any differences or similarities which can help to measure the performance of the companies. At least recommendations of the usefulness of this research will be given
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This shows that the growth of the gross profit was higher in relation to the growth of sales revenue within that period. In comparison Sainsbury has an even lower gross profit margin what could be explained through higher costs of goods sold. The return on capital employed (ROCE) is a measure for the efficiency with which new cash is invested and through which existing capital delivers profit (Collier, 2009). ROCE shows a growth between 2009 and 2010 from 14,85% to 18,33% which is very good showing that there has been a very efficient use of capital because for every £1 used £0,1833 of profit were generated. From 2010 to 2011 there has been a sharp decrease from 18,33% to 12,8%. This is affected by a fall in the sales margin from 5,9% in 2010 to 5,5% in 2011 which was a correction of 2010 (Morrisons, 2011). Sainsbury ROCE ratio is with 11,1% in 2011 slightly lower than Morrisons what hence Morrisons is able to gain a higher profit on the average capital employed.

Table 3 Liquidity Ratios of Morrisons (2009-2011) and Sainsbury (2011) Morrisons | 2009 | 2010 | 2011 | Sainsbury 2011 | Current ratio | 0,53 | 0,51 | 0,55 | 0,58 | Quick ratio | 0,28 | 0,24 | 0,24 | 0,30 |
Source: Authors calculations and companies financial annual reports

The current ratio compares the liquid assets of a company with the current liabilities. Supermarkets tend to have a relatively low ratio because they are holding only

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