The paper "Exploring the Effects of Inflation on Financial Statements" is a wonderful example of a Business Assignment. Morrisons plc. (Legal Title - Wm Morrison Supermarkets plc. ) is one of the largest supermarket chains in the United Kingdom. Morrisons is basically a food retailer that serves customers throughout the UK by operating over 500 stores. The company also offers online-based order & home delivery facilities to the customers. Morrisons’ headquarters is situated in Bradford (Morrisons-corporate. com, 2016). According to Grocery news Org (2016), based on the data available in June 2015, Morrisons plc.
owned around 11 percent market share of the UK supermarkets’ industry. William Morrison founded the company in 1899 in Bradford. It started as a butter and egg store in the Rawson Market. Morrisons plc. mostly focused on expanding its operations in the northern region of England until 2004. But when the company took over Safeway in 2004, it started growing its presence heavily in the southern region of England, Scotland, and Wales. Currently, Morrisons plc. owns and operates 520 superstores all over England, Scotland, and Wales (Morrisons-corporate. com, 2016). Analyzing the financial performance of a company is very important for all the stakeholders of the business, including its potential investors.
According to Simon et al. (2015), financial analysis demonstrates where the company was in the past and it also helps them to forecast where the company might go in the upcoming financial periods. Spanier (2014) stated that the logical and correct financial assessment also assists the investors to make vital investment decisions as finance is referred to as the ‘ language of business’ . As a result, here we will analyze the financial performance of Morrisons plc.
by using ratio analysis, Horizontal and Vertical analysis. Financial Analysis b1. Ratio & Horizontal Analysis- Presentation of Ratios and Horizontal Analysis Financial Ratios 2015 2014 Variance Industry Ratios Return on Equity -21.20% -5.10% -16.10% 5.74% Return on Assets -8.30% -2.22% -6.08% -9.33% Operating Profit Margin -4.70% -1.00% -3.70% 0.85% Gross Profit Margin 4.50% 6.10% -1.60% 15.77% Asset Turnover Ratio 1.83 1.65 0.18 1.83 Current Ratio 0.54 0.50 0.04 0.68 Underlying Earnings per Share 10.9p 23.1p -12.2p 39.17 Interpretation of Profitability Ratios: Profitability ratios show a business’ capability of generating profit during a fiscal period, taking every kind of operating other costs into consideration. Frequently utilized profitability ratios are - Operating Profit Margin, Gross Profit Margin, Earnings Before Tax (EBT) Margin, ROE (Return on equity), ROA (Return on assets). The greater these ratios are, than the earlier periods’ ratios or the ratios of the other firms from the same industry and also, higher than the industry average, the better it is for the business (Investopedia, 2007). If we look at Morrisons’ profitability ratios from the above table, we can see that all the profitability ratios of the company are worsening day by day.
And all of these ratios (except Return on assets) are below the industry average as well. So it can be said that Morrisons’ profitability potentials are downward sloping. Interpretation of the Asset Turnover Ratio: Tavangar-Hamzehkolaei and Seifi (2014) suggested that the asset turnover ratio shows that how competently the company is utilizing its assets for earning revenues.
And again, the higher this ratio is, than the previous years’ ratios or the competitors’ ratios and also, higher than the industry average, the better it is for the business. Morrisons’ asset turnover ratio improved a bit in 2015 compared to its asset turnover ratio of 2014, and the 2015 ratio is similar to the industry average, which is a positive sign for the company.
Ahmed, W. (n.d.). Analysis of Factors Present in Financial Reporting Standards Leading to Manipulate True & Fair View of an Entity's Financial Statements. SSRN Electronic Journal.
Bezborodova, Y. (2013). The analysis of financial statements as approach to the assessment of financial stability of the enterprise. RAJ, 24(2).
Brinded, L. (2016). Everything that British supermarkets thought was true has turned out to be wrong. [online] Business Insider. Available at: http://www.businessinsider.com/uk-supermarkets-and-british-food-retail-analysis-2015-3 [Accessed 16 May 2016].
Grocerynews.org. (2016). UK supermarkets (market share 2015 2014). [online] Available at: http://grocerynews.org/2012-06-16-08-27-26/supermarkets-market-share/grocery-stores [Accessed 16 May 2016].
Investopedia. (2007). Horizontal Analysis Definition. [online] Available at: http://www.investopedia.com/terms/h/horizontalanalysis.asp [Accessed 16 May 2016].
Investopedia. (2008). Vertical Analysis Definition. [online] Available at: http://www.investopedia.com/terms/v/vertical_analysis.asp [Accessed 16 May 2016].
Ilter, C. (n.d.). Exploring the Effects of Inflation on Financial Statements Through Ratio Analysis. SSRN Electronic Journal.
Morrisons-corporate.com. (2016). Company History - Morrisons. [online] Available at: http://www.morrisons-corporate.com/about-us/company-history/ [Accessed 16 May 2016].
Tavangar-Hamzehkolaei, A. and Seifi, K. (2014). A Diagnostic for Earnings Management Using Changes in Asset Turnover and Profit Margin. Asia. Jour. Rese. Busi. Econ. and Manag., 4(11), p.230.
Zeghal, D. (2014). Firm Size and the Information Content of Financial Statements. The Journal of Financial and Quantitative Analysis, 19(3), p.299.