Report on Ratio Analysis- Tesco and Morison

Added on -2020-02-05

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FINANCIAL MANAGEMENTAND ANALYSIS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3Choice of company and justification for its inclusion................................................................3Ratio analysis of Tesco and Morison..........................................................................................3Weakness of ratio analysis........................................................................................................12Recommendation...........................................................................................................................13CONCLUSION..............................................................................................................................14REFERENCES .............................................................................................................................15INDEX OF TABLESTable 1: Ratio analysis of Tesco and Morison ................................................................................3ILLUSTRATION INDEXIllustration 1: Gross profit ratio of the Tesco and Morison.............................................................5Illustration 2: Net profit ratio of the Tesco and Morison.................................................................6Illustration 3: Current ratio of the Tesco and Morison...................................................................7Illustration 4: Quick ratio of the Tesco and Morison......................................................................8Illustration 5: Working capital turnover ratio..................................................................................9Illustration 6: Debt equity ratio of Tesco and Morison..................................................................10Illustration 7: Earning per share of Tesco and Morison................................................................11Illustration 8: Price earning ratio of Tesco and Morison...............................................................12
INTRODUCTIONRatio analysis is one of the most important techniques which is used to measure the firmperformance. By using this method, company’s performance is evaluated on the basis of variousparameters. The technique is commonly used to compare two or more companies on the basis ofvarious criteria that are operating in the same industry. Financial analysts and equity researchanalysts commonly use this method to do fundamental analysis. Hence, it can be assumed thatthis method has great importance for the firms. In this report, two retail firms will be taken intoconsideration and ratio analysis will be done by taking facts as well as figures of these firms. Bycomparing firms on the basis of some of financial ratios, it will be identified that in which firm,investors must make an investment. In the report, various categories of ratios will be computedlike profitability, liquidity, working capital management, capital structure and stock marketperformance. On the basis of ratio analysis, weak points of the firm will be identified and on thatbasis, recommendations will be made that can be used by the business firms to convert theirweakness into strength. It can be said that in this report, companies will be systematicallycompared with each other.Choice of company and justification for its inclusionIn the present study, two retail companies which are Tesco and Morison are chosen formaking comparison and finding out the best company for the investment purpose. Tesco is oneof the largest players in the retail industry of the UK. Currently, it has the largest market share inthe UK retail industry but even though, its profitability is shrinking on the yearly basis (Tescoplc ADR, 2016). Hence, by doing ratio analysis of Tesco, reasons will be identified due to whichfirm performance is poor. In the report, other firm that is chosen for comparing with Tesco isMorison. WM Morison is also one of the largest retail firms in the UK and one of the maincompetitors of Tesco (Morrison supermarket plc ADR. 2016). Both companies come in theranking of top five and due to this reason, in order to identify the best investment opportunity inthe UK retail industry, Morison is chosen for making comparison with Tesco. Ratio analysis of Tesco and MorisonTable 1: Ratio analysis of Tesco and Morison TESCOMorison2012201320142015201620122013201420152016
Gross profit526140894010-211228541148121712061074761Net sales64539648266355762284544331647917663181161768016816Gross profit ratio8.15%6.31%6.31%-3.39%5.24%6.97%6.89%6.66%6.07%4.53%Net profit2806124974-5741138632690647-238-761Net sales64539648266355762284544331647917663181161768016816Net profit ratio4.35%0.19%1.53%-9.22%0.25%3.84%3.91%3.57%-1.35%-4.53%Current assets128631309615572119581482811381322134214301144Current liability192491898521399198101971420862303233428732274Current ratio0.670.690.730.600.750.550.570.570.500.50Stock35983744357629572430638759781852658Prepaid expenses42041738851644053838611688Current assets128631309615572119581482811381322134214301144Liquid assets8845893511608848511958447480475462398Current liability192491898521399198101971420862303233428732273Quick ratio0.460.470.540.430.610.210.210.200.160.18Sales64539648266355762284544331647917663181161768016816Working capital-6386-5889-5827-7852-4886-948-981-992-1443-1130Working capital turnover-10.11-11.01-10.91-7.93-11.14-17.38-18.01-18.26-12.25-14.88Debt11749128911092125181343810521715242530332519Equity1777516643147157071862654205397523046923594Debt equity ratio0.660.080.751.771.560.190.320.460.650.70Net profit2806124974-5741138632690647-238-761

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