RATIO ANALYSIS OF MORRISONS

Ratio Analysis of Morrisons (UK)

Wm Morrison Supermarkets plc, also known as Morrisons, is one of the largest and most famous supermarkets in the United Kingdom, having its headquarters in Bradford, West Yorkshire. The store has been around since 1899, and it started its operation as a butter and egg stall in Rawson Market, Bradford. Today, the company has its physical locations in Gibraltar, Scotland, Wales and the South of England. In order to determine the ratio analysis of Morrisons, we will first look at its profitability ratio. Various investors are concerned about the profitability of this company as profitability helps them determine the long-term goals of the brand and allows them to understand what will be the returns for their investments. If Morrisons manages its resources carefully, it will automatically be able to produce more profits and to come up with the expectations of both customers and investors.

Return on Capital Employed (ROCE)

The Return on Capital Employed for the last three years are as follows:

ROCE =

Company Name	2015	2016	2017
WM Morrison	(671÷6202) × 100 = 10.8 %	(907 ÷ 6608) × 100 = 13.72 %	(904 ÷ 7063) × 100    = 12.8 %

From this table, it is evident that the financial status of Morrisons in 2015 was not as efficient as it was the next year, in 2016. Again, in 2017, it went down by 1 percent compared to the previous year. At the same time, the revenues of Wm Morrison’s PLC have grown from 15.40 billion to 16.47 billion, and its net income has increased from 597 million to 633 million, giving the company good net income.

Net Profit Margin (NPM)

The net profit margin of Morrisons is as follows:

NPM =

Company Name	2015	2016	2017
WM Morrison	(671 ÷ 14528) × 100 = 4.62%	(907 ÷ 15410) × 100 = 5.90%	(904 ÷ 14679) × 100          = 5.48 %

Wm Morrison Supermarkets’ PLC has been converting the revenues into profits efficiently. From this table, it is evident that the company is capable of converting its revenues into operating profits and hence can pay a fixed price and debt.

Asset Turnover (AT)

AT =

Company Name	2015	2016	2017
WM Morrison	(14528 ÷ 6202) = 2.34	(15410 ÷ 6608) = 2.33	(16479 ÷ 7063) = 2.33

A slight decrease in the asset turnover of Morrisons has been found, which indicates that the company may have to revise its policies and terms and conditions. The company has shown a slight increase in its revenues, which demonstrates its capabilities and interest in selling something nice and extraordinarily special to the customers.

Liquidity Ratios

Liquidity rations help analyze the financial position of a company. It can be regarded as the measure of a company’s ability to increase enough cash whenever in need, indicating whether itcan fulfill its financial requirements or not.

Current Ratio (CR)

The current ratio of Morrisons is as follows:

CR =

Company Name	2015	2016	2017
WM Morrison	(1065 ÷ 2024) = 0.53	(1092 ÷ 2152) = 0.51	(1138 ÷ 2086) = 0.55

In the year 2015, the current ratio of Morrisons was 0.53, which decreased the next year (0.51), and then increased in 2017 (0.55). It indicates that the company held the ability to pay off its short-term and long-term debts within a set timeframe. From 2015 to 2015, Wm Morrison PLC displayed a steady change in the value of its current ratio and may maintain this balance in coming years too. It proves that the company is paying utmost attention to tolerating the effect of increased liabilities in order to generate more revenues and to double its sales.

Acid Test Ratio (ATR)

The acid test ratio for Morrisons is as follows:

ATR =

Company Name	2015	2016	2017
WM Morrison	(1065 – 494 ÷ 2024) = 0.28	(1092 – 577 ÷ 2152) = 0.24	(1065 – 638 ÷ 2086) = 0.20

It is a common observation that companies with ATC lesser than one may get into trouble as they will not be able to pay their liabilities in a better way. On the other hand, if the working capital ratio is more than ATC, then it will show that the current assets are dependent on inventory.In 2015, Morrisons’ acid test ratio was 0.28, which continued decreasing in 2016 and 2017.

Financial Gearing

Financial gearing is the relative proportions of equity and debt that Morrisons or another company uses for supporting its operations. The information obtained in this process is used for evaluating the risks of failure of the business. It should be noticed that a high proportion of debt to equity means the business will be highly geared. The formula for financial gearing is as follows:

(Short-term debt + Long-term debt + Capital leases) ÷ Equity

Gearing Ratio (GR)

The gearing ratio for Morrisons is as follows:

Gearing Ratio =    

Company Name	2015	2016	2017
WM Morrison	1682 ÷6202 × 100 = 27.10 %	1659 ÷ 6608 × 100 = 25.10 %	1643 ÷ 7063 × 100 = 23.30 %

It is evident that Morrisons’ gearing ratio has decreased from the year 2015 to 2017 and its profit margin has shown growth. For instance, in 2015, it was4.62 percent and grew by 1.28 percent in 2016, followed by a decrease of 0.42 percent the very next year, in 2017. In the future, the company will be required to keep its gearing ratio stable in order to be ensured of success in this competitive environment.

In conclusion, Morrisons is doing good business, but compared to the previous years, the rate of its growth looks slow to me, which is a matter of serious concern. I strongly believe that the company should improve the quality of its products, has to keep the prices to a minimum, must develop a strong relationship with investors, and may have to revise some of its policies in order to align them with the current market trends and demands. The overall performance of Morrisons, as well as its financial position, is stable, but if they pay attention to these simple things, it will be easy for the company to defeat its rivals.

References

Anon, 2014. Tesco and Morrisons School Report. Strategic Direction, 30(2), pp.18–20.

Adewuyi, A.W., 2016. Ratio Analysis of Tesco Plc Financial Performance between 2010 and 2014 in Comparison to Both Sainsbury and Morrisons. Open Journal of Accounting, 05(03), pp.45–56.

Kalmárová, Z., 2012. Sainsbury’s vs. Morrisons - An Investment Decision Based on Financial Analysis. Financial Assets and Investing, 3(3), pp.17–28.