Essays on How Can Ratio Analysis Assist in Determining the Value of Morrisons Co and WJ and Sons Company Case Study

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The paper 'How Can Ratio Analysis Assist in Determining the Value of Morrisons Co and WJ and Sons Company" is a great example of a business case study.   Companies need to evaluate their financial health and stability of their operations. Other than the top management level, financial calculation and evaluation are important for the overall company and its continuity. Managers need information from the finance unit in the resource allocation process and facilitate the routine operations of the company. According to McLaney (2011), financial ratio analysis aids in instilling confidence among managers while they manage the business resources.

Given the financial reports and statements, related contents of the statement can be evaluated to identify business’ performance. Through this, managers can gauge the market performance, liquidity, efficiency, gearing and profitability of the company. Stakeholders can review the performance through ratios expressed in percentage, fractions or statements rather than lengthy financial statements. The usefulness of ratio analysis is attained by comparing Company ratios over different financial periods or against the same ratios of other companies in the industry. This paper discusses how financial ratios analysis assists in determining the value of a private and public company.

Financial data of Tesco or Morrisons supermarket in the UK and William Jackson & Son Limited are used to determine the uses of ratio analysis (McLaney & Attrill, 2010). Investor ratios and market capitalization determine the positions of the two companies in the market. Critical ratio analysis Critical ratio analysis of Morrisons Company (Listed) for the last three years According to investor centre report for Morrisons Supermarket 2013, shares of the supermarket are currently trading at 250.10 after closing at 263 amounting to -10.45% against other drag and food retailers average of 258.5 at 3.98% in December 2012.

This indicates a drop in the share price which reflects lower performance which is still taking a lower trend since the beginning of 2013 (Wm Morrison Supermarket, 2012). Investors’ ratio of the company is indicated by EPS, dividend cover and price per share ratio. This also indicates the market capitalisation of the company. As indicated by Appendix (I), the EPS ratio is increasing over the three years indicating viability in investment. Since 2009 to 2012, there is an upward trend in earnings from 0.1739 to 0.2668.

Increasing investor ratios influence the drop in share price and increase in proposed dividend by directors. The ratios, therefore, depict the true financial position of the business by indicating its market capitalisation. The dividend cover ratio of the company indicates that its stock is in a better position to be purchased as indicated by the movements in investor ratios. The company is in apposition to settle dividends without interfering with its retained earnings. A drop in 2011 and 2012 is still at a safe level; however, the reason for the deteriorating ratio must be established. Increasing debt to equity ratio and capital gearing ratio over the four years period indicates an increasing level of risks in Morrisons Company.

Increase in vulnerability might lead to bankruptcy since the company will have to settle its debts even at low sales. This can be explained by the 45 stores that opened in 2010. The company acquired financial credits from the bank on interest and repaid this over the years (Wm Morrison Supermarket, 2010).

Bibliography

Wm Morrison Supermarket, (2012). Annual report and Financial statements 2011/2012. Wm Morrison Supermarkets PLC < www.morrisons.co.uk/corporate/investor-centre/Financial-reports/>

Wm Morrison Supermarket, (2011). Annual report and Financial statements 2010/2011. Wm Morrison Supermarkets PLC < http://www.morrisons.co.uk/corporate/2011/annualreport/>

Wm Morrison Supermarket, (2010). Annual report and Financial statements 2009/2010. Wm Morrison Supermarkets PLC < www.morrisons.co.uk/corporate/investor-centre/Financial-reports/>

Bodie, Zane; Alex Kane and Alan J. Marcus (2004). Essentials of Investments, 5th ed. McGraw-Hill Irwin. p. 459.

McLaney, E.J., (2011). Business Finance Theory and Practice. 9th Edition, Harlow, England: FT Prentice Hall. (or 8th Edition)

McLaney, E. & P.Attrill, (2010). Accounting an Introduction. 5th Edition, Harlow, England: Financial Times Prentice Hall.

Watson, D. & A.Head, (2010). Corporate Finance Principles & Practice. 5th Edition, Harlow, England: FT Prentice Hall.

TESCO, (2012), Annual report and financial statements 2012. TESCO PLC.< www.tescoplc.com/files/pdf/reports/tesco_annual_report_2012.pdf>

Arnold, G (2007). Essentials of Corporate Financial Management. 2nd Edition, Harlow, England: Financial Times Prentice Hall.

Weetman, P, (2010) Management Accounting. 2nd Edition, Harlow, England: FT Prentice Hall.

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