Morrisons supermarket - financial report - page 6
Keywords: Morrisons,Finanial report,supermarket,performance of morrisons
By maya on 02/05/2008
Level: Master's degree (MA, MBA, MSc, MEng, MRes, MPhil etc)
Page Number: 6 of 14 pages: 1 2 3 4 5 6 7 8 9 10 11 12 13 14
a mass of capitals are required for the completion of Safeway stores conversion programme.
Source: FAME
3.2. Historical Performance
Financial ratios provide a quick and relatively simple means of examining the financial condition of a business. Hereby, the following section will concentrate on Morrison’s financial ratio analysis from the perspective of Profitability, Efficiency, Liquidity, Gearing and Investment, to assess Morrison’s financial strengths and weaknesses against its historical performance. Moreover, “10 years average” figures will credit a more comprehensive analysis in this financial review.
3.2.1. Profitability
ROCF measures how well the management is using shareholders funds to generate profit. The profit will provide new wealth to cover shareholders’ dividend and to finance future expansion of the business. ROCE is a fundamental measure of the profitability of a company that demonstrates how well the management has utilised all sources of long-term finance. Profit margin represents the profit from trading operations before any costs of servicing long-term finance are taken into account. So here cite these measures in table 2 to draw Morrison’s profitability impression.
Table 2
It implies that Morrison’s profitability plays at an extremely stable standard from FY2000 to FY2003, since ROCF, ROCE and Profit margin stick the last 10 years average level, which enables Morrison’s to achieve high utilization efficiency in capital and shareholder funds. Yet all the profitability measures are disappointing in FY2004. The considerably deterioration of ROCF is due to the huge raise of the shareholder capital and long-term loans and also the increasing interest payable (i.e. £149m in FY 2004, but £19m on the 10 years average level) and exceptional items (i.e. £18m in FY2004, but £4m on the average 10 years). Similarly to ROCE that decreased significantly in FY2004 is primarily because of the increased share capital and long-term liabilities from £98m to £1,540m to apply the organization’s acquiring policy.
The supermarket industry normally operates low profit margins in order to stimulate sales and thereby increases the total amount of profit generated. Hence, Morrison’s profit margin is still acceptable, although its prior profit margins are outstanding. Although the current Morrison’s profitability is slightly disappointed for the reason of Safeway takeover and related programme, according to its historical performance, it has potentials to achieve strong growth.
3.2.2. Efficiency
Asset turnover ratio and Stock turnover ratio are selected to illustrate operation efficiency. Table 3 displays 5 years key efficiency ratios.
Table 3
Source: FAME
Asset turnover examines how effective the long-term capital employed of the business has
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