Financial Accounting and Analysis

Financial accounting and
analysis

Table of Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................3
PART 2............................................................................................................................................4
PART 3............................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9
Appendix........................................................................................................................................10

INTRODUCTION
Financial analysis is the practice of evaluating budgets, businesses, proposals and the
other finance relating transactions for determining their suitability and the performance. It is
been used for assessing stability, liquidity, profitability and solvency of the company which is
sufficient for warranting monetary investment. The present report is based on Tesco and
Morrison, retail sector companies stated as largest supermarket chain and grocery retailers in
UK. Furthermore, the report presents an overview of the companies and financial analysis by
using ratio analysis as a tool in order to make comparative assessment. Moreover, the study
highlights sustainability disclosures made by both the firms.
PART 1
Tesco is counted as one of the leading retail organization and is ranked as third largest
grocery retailer with the outlets within an entire UK. The company head began its business in the
year 1919 with a single man named as Jack Cohen, selling the groceries from the stall in the East
End of the London. The corporation has expanded its business since then by combination of
acquiring retail services, new stores and by way of adapting the needs and the preferences of the
customers. The main or foremost objective is serving customers with best quality products and
the services. Keeping an existing customer as happy seems as very important for an enterprise
because it is more cost effective for an entity as compared to acquiring the new ones. In UK
Company have around 2200 stores that ranges from extra large hypermarket type of stores to the
small express high street kind of outlets (Annual report of Tesco, 2018). Moreover, Original
product of Tesco in terms of grocery and the general merchandise items has been diversified for
including insurance, banking, electrical goods, telephone equipment etc. Tesco has expanded its
customer base by going on to the online channel through its website Tesco.com which had
attracted millions of the users towards the brand. Tesco announced for sales higher than £ 1
billion in a week and gained higher profits greater than £ 3.4 billion in a year in the year of 2010,
despite an effect of global downturn.
Wm Morrison is engaged in an operation of the retail supermarket outlets under a brand
of Morrison’s and attached activities. The brand of the company includes Nutmeg, Naturally
Wonky, Home Cook, Free From and V taste an. The firm is also having food producing
capabilities in respect of fish, fruit, bakery, meat, deli and the flowers. The company was
established in year 1899 in Bradford by William Morrison and took over by Sir Ken Morrison.
He taken over entire operations and enhanced performance of the company in becoming as
fourth largest or leading competitor in UK. Currently, supermarket industry has capture higher
than 15% of the market share in grocery market within UK (Annual report of Morrison, 2018).
The company started as the seller of bread-butter from stall to the counter sells in year 1960 and
created a first supermarket in the year 1961 in the Victoria City, Bradford. After getting listed on
the FTSE 100, an entity had made a continuous growth & expanded their respective branches

across overall UK, providing with collection of several product ranges from bakery to the
groceries & fresh foods to the medicine along with beauty & health. The current strategy of
Morrison is mainly based on the “freshness, value and the service” that reflects selling the
products at lower price from the large stores. An organization has organized majority of its
commercial in the house involving production, processing and packaging. Thus the firm is
making impressive control over operations and seeking for becoming powerful player within the
market.
PART 2
Liquidity ratio
Current ratio- It is the type of liquidity ratio which measures an ability of the company in
paying its current obligations. Higher the current, better is the liquidity position of an entity
while lower ratio depicts that the company does not have sufficient cash funds. As per the
analysis, the current ratio of Tesco is seems as better than Morrisons because its is resulting a
higher ratio (Murad and et.al., 2019). This shows that Tesco is making an effective use of its
current assets for the purpose of making timely payment of its current liabilities. Over the year,
the ratio of the Tesco is declining that is from 0.71 in 2018 to 0.61 in 2019 whereas ratio of its
competitor that is Morrisons is indicated as stable equating to 0.42.
Quick ratio- This is also a liquidity ratio that reflects short term or immediate liquid
position of the firm and measures ability of the company to pay off its short run obligation by
making use of its most liquid assets. It has been represented that quick ratio greater than 1
depicts that an enterprise is having adequate level of quick assets for paying its current debts.
From the results generated it has been analysed that quick ratio of Tesco is far better and higher
than Morrisons which means that Tesco is having larger quick assets by which it could meet its
immediate liabilities.
Profitability ratio
Net profit margin- It depicts the percentage of the revenue that is been left after
deducting all the expenses from the sales. This ratio reveals an amount of the profits earned by
the company after paying off its cost, expenses and taxes. Higher the net profit ratio means that
an entity is more and more efficient in converting the sales into the actual profits gained (Mohn
and et.al., 2017). This mainly depends on the complexity and the size of an entity. From the
assessment, it has been interpreted net profit margin of Tesco is greater than its rivalry which
clearly reflects that the performance of Tesco is better and good as compared to Morrisons. This
in turn indicates that Tesco is earning or attaining larger amount of profitability so that it could
bear its expenses and the cost in effective manner.
Gross profit margin- It means a metric that is utilized by firm for assessing financial
health and the business model by way of revealing an amount of the money that is remaining
over the sales after subtracting cost of sales. It has been identified that greater the gross profit