The report explains about the two companies and their current position in the market. It takes the concern of Sainsbury plc and Morrison supermarket plc. The report explains that which company is operating its business in better way and what is the investment position of both the companies. The performance has been evaluated by investigating over the financial and non financial factors of the company.
The main aims and objectives of this report are as follows:
Above are few aims and objectives of the report.
The report has been prepared with the help of annual reports, figures and current trends of the company. Though, there are few limitations of the report paper, which are as follows:
Above are few limitations of the report paper.
Sainsbury plc:
Sainsbury plc has been awarded as second largest supermarket chain in UK market. The company has 16.9% share in the supermarket sector. Company has been founded in 1869 in London with a shop. The company has around 1415 stores worldwide. The main products and the services of the company are hypermarket, superstore, convenience, forecourt store, supermarket etc. the main operations of the company is to offer grocery, toiletry, daily use products to the customers through its super market. The current scenario of the company explains that the total num of employees of the company are 162700, operating income of the company is £ 707 million and the total revenue of the company is £ 23.50 billion in 2016. It explains about a better position of the company in the industry (Sainsbury, 2018).
Morrison supermarket plc:
Morrison supermarket plc has been awarded as fourth largest supermarket chain in UK market. The company has 8.7% share in the supermarket sector. Company has been founded in 1899 in England at Rawson market. The company has around 498 stores worldwide. The main operations of the company are to offer grocery, toiletry and daily use products to the customers through its super market. The main products and the services of the company are superstore, forecourt store, hypermarket, supermarket etc (Morrison, 2018). The current scenario of the company explains that the total num of employees of the company are 132000, operating income of the company is £ 468 million and the total revenue of the company is £ 16,317 million in 2017. It explains about a better position of the company in the industry.
Financial analysis:
Financial analysis is a process to determine the various financial related entities of a business such as budgets, new investments, projects, businesses etc to analyze the sustainability and the performance of the business. The financial ratios calculate and measure the financial statement of an organization in order to make a decision about the investment in the company (Horngren, 2009). For evaluating and analyzing the financial statement, income statement, cash flow statement and balance sheet of the company, ratio analysis study has been conducted. Following is the study of ratio analysis of Sainsbury and Morrison supermarket plc:
Profitability ratio:
Profitability ratio of an organization explains about the ability of a company to generate the profits from its functions and the business. It focuses on the return on investment, net profit and other assets of the company (Damodaran, 2011). In the report, net margin and return on equity of the companies have been evaluated to identify the capabilities of the company and the profit position of the business to make it easier for the stakeholder to make a decision about the company.
Profitability ratio of Sainsbury plc has been evaluated firstly and it has been found that the current net margin of the company is 1.47 which has been lowered by 0.39 from last year. It explains about decrement of profit of the company. Further, the return on equity of the comapny explains that the ratio of the comapny is 7.6, 8.81 and -4.71 in 2017, 2016 and 2015 respectively. It explains that the position of the comapny has been lowered in 2017.
|
Profitability |
2017 |
2016 |
2015 |
|
|
Net margin |
Net profit/revenues |
1.47 |
1.75 |
-0.88 |
|
Return on equity |
Net profit/Equity |
7.60 |
8.81 |
-4.71 |
Further, profitability ratio of Morrison supermarket plc has been evaluated and it has been found that the current net margin of the company is 1.99 which has been higher by 0.49 from last year. It explains about increment of profit of the company. Further, the return on equity of the comapny explains that the ratio of the comapny is 8, 5.78 and -22.04 in 2017, 2016 and 2015 respectively. It explains that the position of the comapny has been better in 2017.
|
Profitability |
2017 |
2016 |
2015 |
|
|
Net margin |
Net profit/revenues |
1.99 |
1.35 |
-4.71 |
|
Return on equity |
Net profit/Equity |
8.00 |
5.78 |
-22.04 |
Liquidity ratio:
Liquidity ratio of an organization explains about the capability of a business to pay off all its short term debt through its short term assets. It focuses on the current assets, quick assets and current liabilities of the company (Damodaran, 2011). In the report, current ratio and quick ratio of the companies have been evaluated to identify the capabilities of the company and the liquid position of the business to make it easier for the stakeholder to make a decision about the company.
Liquidity ratio of Sainsbury plc has been analyzed firstly and it has been evaluated that the current ratio position of the company is 0.49 which has been higher from 0.02 from last year. It explains about positive changes into the liquid position of the business. Further, the quick ratio of the comapny explains that the ratio of the comapny is 0.24, 0.24 and 0.23 in 2017, 2016 and 2015 respectively (Bierman, 2010). It explains that the quick position of the company is quite similar in last 3 years.
|
Liquidity |
2017 |
2016 |
2015 |
|
|
Current ratio |
Current assets/current liabilities |
0.49 |
0.47 |
0.46 |
|
Quick Ratio |
Current assets-Inventory/current liabilities |
0.24 |
0.24 |
0.23 |
Further, liquidity ratio of Morrison supermarket plc has been evaluated and it has been found that the current ratio of the company is 0.41 which has been lowered from last year by 0.07. It explains about the bad liquid position of the company. Further, the quick ratio of the comapny explains that the ratio of the comapny is 0.20, 0.25 and 0.25 in 2017, 2016 and 2015 respectively. It explains that the company is required to make few changes into its current assets and liabilities to manage the liquid position and short term debt obligation.
|
Liquidity |
2017 |
2016 |
2015 |
|
|
Current ratio |
Current assets/current liabilities |
0.41 |
0.48 |
0.54 |
|
Quick Ratio |
Current assets-Inventory/current liabilities |
0.20 |
0.25 |
0.25 |
Efficiency ratio:
Efficiency ratio of an organization explains about the ability of a company to manage the assets and liabilities. It focuses on the debtors, creditors, inventory and other assets to evaluate the working capital and the efficient operations of the company. In the report, receivable turnover, payable turnover and assets turnover of the companies have been evaluated to identify the capabilities of the company and the working capital and efficient position of the company to make it easier for the stakeholder to make a decision about the company (Besley and Brigham, 2008).
Efficiency ratio of Sainsbury plc has been evaluated and it has been found that the debtor’s turnover of the company and assets turnover of the company is 1.24 and 3.99 which have been lower by 0.26 and 0.10 days from last year. It explains about less working capital requirement of the company. Further, the creditor’s turnover ratio of the comapny explains that the ratio of the comapny has been higher from last year. It explains that the overall working capital requirement of the business has been lower and the efficiency of the company has been enhanced.
|
Efficiency |
2017 |
2016 |
2015 |
|
|
Receivables collection period |
Receivables/ Total sales*365 |
1.24 |
1.5 |
1.57 |
|
Payables collection period |
Payables/ Cost of sales*365 |
33.19 |
32.79 |
32.51 |
|
Asset turnover ratio |
Total sales/ Total assets |
3.99 |
4.09 |
4.13 |
Further, efficiency ratio of Morrison supermarket plc has been evaluated and it has been found that the debtor’s turnover of the company and assets turnover of the company is 3.06 and 2.68 which have been higher by 0.07 and 0.15 days from last year. It explains about high working capital requirement of the company (Travlos, Trigeorgis and Vafeas, 2015). Further, the creditor’s turnover ratio of the comapny explains that the ratio of the comapny has been higher from last year. It explains that the overall working capital requirement of the company has been lower and the efficiency of the company has been enhanced.
|
Efficiency |
2017 |
2016 |
2015 |
|
|
Receivables collection period |
Receivables/ Total sales*365 |
3.06 |
2.99 |
3.86 |
|
Payables collection period |
Payables/ Cost of sales*365 |
47.56 |
38.26 |
30.32 |
|
Asset turnover ratio |
Total sales/ Total assets |
2.68 |
2.53 |
2.44 |
Solvency ratio:
Solvency ratio of an organization explains about the ability of a company to manage the debt and equity and the optimal capital structure position of the company. It focuses on the debt, liabilities, equity and the assets of the company (Thanatawee, 2013). In the report, debt to equity and debt to asset ratio of the companies have been evaluated to identify the capabilities of the company and the capital structure position of the company to make it easier for the stakeholder to make a decision about the company.
Lastly, the solvency ratio of both the companies have been evaluated and it has been found that the capital structure position of Sainsbury is more competitive and the risk of the Sainsbury is quite lower as the company has managed the debt, equity and assets according to the industry ratio (Davies and Crawford, 2011). At the same time, the solvency position of Morrison supermarket plc has been evaluated and it has been found that the company is also managing its debt, assets and equity at a better level.
|
Solvency |
2017 |
2016 |
2015 |
|
|
Debt to Equity Ratio (Solvency ratio liability based) |
Debt/ Equity |
46.26 |
46.70 |
44.12 |
|
Debt to assets (Solvency ratio asset based) |
Debt/ Total assets |
86.07 |
87.62 |
78.95 |
|
Solvency |
2017 |
2016 |
2015 |
|
|
Debt to Equity Ratio (Solvency ratio liability based) |
Debt/ Equity |
45.38 |
41.22 |
39.21 |
|
Debt to assets (Solvency ratio asset based) |
Debt/ Total assets |
83.09 |
70.11 |
64.49 |
The other financial and non financial factors of both the companies have been evaluated to identify the factors which has affected the financial performance and the non financial position of the company. In case of Sainsbury, it has been evaluated that the net profit of the business has been lowered from last year due to huge investment of the business on advertisement and packaging (Davies and Crawford, 2011). Further, the competitive position of the company has also been affected and the company has lose little market share. The position of profit of both the companies explains that the profitability level of Sainsbury is quite higher. Gross profit margin of Sainsbury is also higher and the profit per employee is also higher then Morrison plc (Appendix). The competitive position of the comapny described that company is required to make new strategic financial decision to enhance the profitability position and manage the competitive position in the market (Yahoo finance, 2018).
Further, the stock price of the business has been analyzed and it has been found that the stock price of the company is quite fluctuating, though; the company’s stock price has been lowered from last year due to less attraction of the inventors towards the industry and the company. Though, the Statista (2017) report of grocery market of UK explains that the Sainsbury is still on the 2nd position in the market. More, it explains that the technological changes have also taken place in the comapny in last 2 years. It has helped the company to manage and attract more customers from the market (the guardian, 2018). The advertisement is also a long term investment which would offer huge return to the stakeholders to the company (Appendix).
In case of Morrison supermarket plc, it has been evaluated that the company’s net profit has been enhanced from last year due to less interest expenses and less operating expenses of the company. Further, the competitive position of the business has been analyzed and it has been determined that the position of the company is changing rapidly and the positive changes have arisen into the position of the company. The competitive position of the comapny described that few more positive changes into the operations and the strategies of the company would assists the company to be leader in the market.
Further, the stock price of the company has been evaluated and it has been found that the stock price of the company is quite fluctuating (Appendix). No huge changes have taken place into the stock price of the company from last year (Yahoo Finance, 2018). Though, the Statista (2017) report of grocery market of UK explains that the Morrison is still on the 4th position in the market. More, it explains that the various environmental and economical changes have affected the position and the performance of the company is last few years.
According to the above study and analysis, it has been found that the profitability position of Morrison supermarket plc is better than the Sainsbury plc. But the other factors of the companies explain that Sainsbury is performing well in the industry as well as in the market. The liquid, efficiency and solvency ratios of the comapny explain that the Sainsbury is maintaining the position according to the industry and thus the associated risk is lower. The dividend position of both the companies explains that Sainsbury is offering great dividend to the shareholders.
To recommended, financial and non financial performance and position of Sainsbury plc is way better than Morrison supermarket plc. And thus, it explains that the management of the company is not required to make huge changes into its operations. Further, the investors are suggested to invest into the Sainsbury plc rather than Morrison plc for short period as well as long period. On the other hand, less risk is associated with the company and thus lenders could lend more money and goods to the company.
References:
Morrison. 2018. Morrison Supermarket plc. [Online]. Available at: https://www.morrisons-corporate.com/about-us/ [accessed on 12th March 2018].
Besley, S. and Brigham, E.F., 2008. Essentials of managerial finance. Thomson South-Western.
Bierman, H., 2010. An introduction to accounting and managerial finance: a merger of equals. World Scientific.
Brealey, R., Myers, S.C. and Marcus, A.J., 2007. FundamentalsofCorporate Finance. Mc Graw Hill, New York.
Damodaran, A, 2011, Applied corporate finance,3rd edition, John Wiley & sons, USA.
Davies, T. and Crawford, I., 2011. Business accounting and finance. Pearson.
Sainsbury. 2018. Sainsbury plc. [Online]. Available at: https://www.sainsburys.co.uk/ [accessed on 12th March 2018].
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
Statista. 2018. Market share of grocery market. [Online]. Available at: https://www.statista.com/statistics/280208/grocery-market-share-in-the-united-kingdom-uk/ [accessed on 12th March 2018].
Thanatawee, Y., 2013. Ownership structure and dividend policy: Evidence from Thailand.
The guardian. 2018. Sainsbury plc. [Online]. Available at: https://www.theguardian.com/business/2018/jan/23/sainsburys-to-axe-thousands-of-store-management-roles [accessed on 12th March 2018].
Travlos, N.G., Trigeorgis, L. and Vafeas, N., 2015. Shareholder wealth effects of dividend policy changes in an emerging stock market: The case of Cyprus.
Yahoo finance. 2018. Morrison Supermarket plc. [Online]. Available at: https://finance.yahoo.com/quote/MRW.L/history?period1=1489301597&period2=1520837597&interval=1mo&filter=history&frequency=1mo [accessed on 12th March 2018].
Yahoo finance. 2018. Sainsbury plc. [Online]. Available at: https://uk.finance.yahoo.com/quote/SBRY.L/history?period1=1489300590&period2=1520836590&interval=1mo&filter=history&frequency=1mo [accessed on 12th March 2018]
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