Financial Management Report: Morrison Supermarkets Analysis

This report provides a comprehensive analysis of financial management practices within Morrison Supermarkets. It begins by examining various decision-making approaches, techniques, and factors, including formal and informal approaches, cost-benefit analysis, and brainstorming. It then delves into stakeholder management, emphasizing the importance of balancing the needs of internal and external stakeholders. The report explores management accounting techniques for cost control, such as budgetary control and cost accounting, and discusses methods for fraud detection and prevention, including auditing and data mining. The second part of the report presents a financial ratio analysis of Morrison Supermarkets PLC for the years 2020, 2019, and 2018, evaluating liquidity and profitability ratios. It then assesses the usefulness of the financial data in decision-making, examines investment appraisal techniques to maximize ROI, and explores how financial decision-making supports long-term sustainability. The report concludes with recommendations based on the findings.

Financial Management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
SCENARIO A..................................................................................................................................3
1. Evaluation of various approaches, techniques and factors of decision making.................3
2. Stakeholder management ...................................................................................................4
3. Management accounting techniques in cost control...........................................................5
4. Techniques of fraud detection and prevention...................................................................5
5. Reflection of learning.........................................................................................................6
Scenario B........................................................................................................................................6
Financial ratio's analysis of Morrison Supermarkets PLC for the year 2020, 2019 & 2018..6
Usefulness of data obtained in decision making..................................................................12
Evaluating the various investment appraisal techniques utilized to maximize ROI............13
Values of various techniques to inform financial decision making.....................................14
Ways in which financial decision making support long term sustainability........................15
Recommendation .................................................................................................................15
CONCLUSION .............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial management is referred to as the process through which the planning,
organizing, controlling and the directing of all the activities is undertaken in the management of
the financial activities (Chung and Chuang, 2016). The present report is based on Morrison
which is a company based in the retail sector. The present report will discuss about the various
techniques, factors and approaches of decision making used within the company. Also, it will
discuss about the stakeholder management along with the different management accounting
techniques used in cost control. Further the detection of fraud and the reflection of learning will
be provided. In the next part the ratio analysis of the company and the various techniques of
appraisal management will be applied. In the end it will be seen that how the financial decision
making supports the long term sustainability will be assessed.
SCENARIO A
1. Evaluation of various approaches, techniques and factors of decision making
For the business to be successful the most essential thing is the proper and effective
decision making. The decision making is a process through which a person chooses a single best
option from a variety of options.
Approaches of decision making Formal approach- this is a type of approach wherein the formal chain of command is
used in order to take the decision. This is essential because of the fact that if the company
will follow the formal chain of command for the decision making then proper and
accurate decision will be taken as only the top management will be included in the
decision making. Informal approach- this is another approach wherein the company does not follow the
formal chain and rather every person can share their views and suggestion relating to the
area of decision (Bapat, 2019). Thus, this is a better approach as here the company will
have better alternatives to select from as all employees participate within the whole
decision making process.
Techniques of decision making Cost benefit analysis- this is a technique in which the company analyses the benefit and
cost of every alternative and then in the option where there is maximum benefits and
lower cost that decision is being finalised (Herranz and et.al, 2017). This technique is

useful as this will assist the company in taking the most appropriate decision which will
be beneficial for the company. Brainstorming- this is another major important technique of taking the decision wherein
the whole management or the decision making committee sits together and the discuss
over the topic on which decision need to be taken. This is also a better technique as here
all the people discusses and then finally takes the decision.
Factors affecting the decision making process Mind- set of people- this is the major factor which affects the working and the decision
making process by a person. This is due to the reason that every person has their own
way of thinking and perception. Thus, when two or more people takes the decisions then
this factor affects to a great extent.
 Too many option- this is another major factor which affects the working to a great extent.
This is pertaining to the fact that when the decision taker has a lot many options then it
will be difficult for the company to decide which option to be selected.
2. Stakeholder management
The stakeholder management is a process or series of steps which are to be undertaken in
order to manage and monitor and organize for the requirements of the stakeholders of the
company. The stakeholder of the company is the one who are interested in the success of the
company as they have some personal interest within the company. There are different types of
stakeholder generally divided in two categories that is internal and external. This includes
stakeholders like management, employees, suppliers, owners, government, competitors and
many others. For getting success it is very essential for the company to keep all the stakeholder
happy and satisfied.
In contrast to this all the stakeholder have their own need and requirement which is
different from others (Yuniningsih, Pertiwi and Purwanto, 2019). This is pertaining to the fact
that interest and power of every stakeholder is different. For example, the government is a
stakeholder of the company who is interested in the profits of the company as the government
charges tax on the profit earned by the company. In contrast to this the management is interested
in cutting the cost of the company so that the profits of the company can be increased. On the flip
side the employees within the company expects that the company give them better salaries and
incentives (Choonara, Eyles and Morrison, 2020).

3. Management accounting techniques in cost control
The cost control is very essential within the success of the company as if the cost will be
low then the profits of the company will be high. Thus, this will assist the company in increasing
the profit and the working capacity of the company. There are various management accounting
techniques which will assist the company in controlling the cost and these are discussed below- Budgetary control- this is a technique which assist the company in estimating the income
and expenses and then direct the whole study towards the completion of that only. This is
of value to the stakeholders as they will know how much they have to spend and how
much they can expect the income form the operations of the company.
 Cost accounting- this is another technique of the management accounting which assist
the company in controlling the cost. Under this technique the company allocates the cost
to the activities of the business. This assist the business in calculating the total cost of the
company and assess the fact that where the company is present.
4. Techniques of fraud detection and prevention
There are many different techniques of detecting the fraud within the company and
detection of fraud is very essential for the company. This is particularly because of the reason
that that the fraud reduces the working efficiency of the company. Thus, it is essential for the
company to identify and detect the fraud so that it can be removed and performance can be
managed. The various ways of detecting fraud and preventing them are as follows- Audit- this is the method in which an auditor is appointed and they check that whether all
the principles of ethical working are followed by the company or not. If not, then the
auditor provides some solution to the company for the improvement of the business.
 Data mining- this is another important technique under which the company records all
the data on some common basis (EKIMOVA and et.al, 2017). This will assist the
company in managing and checking the data from time to time so that there is no problem
within the business and its information and accounts.
The major way of preventing the fraud is providing training to the employees so that they
record all the transaction on the basis of the principles and guidance provided only. This is
pertaining to the fact that when the employees know how they have to record the data then there
will not be any problem at time of managing the accounts and other information (Larson and
et.al, 2016).

5. Reflection of learning
From the above whole discussion, it is clear that the management accounting practices
are very essential to be used by the business. this is particularly because of the reason that when
the company will make use of these management accounting principles the company will be able
to improve its business. With the above study it is clear that decision making must be good and
effective for the company as this will help the company decide for better options for the growth
and development of the company. Also, I learnt that the use of different types of approaches and
techniques of the decision making assist the company in taking effective decision and this
increases the working efficiency of the company. This is majorly because of the reason that id
the company will not be able to take the decision in proper manner then they will not be able to
work in effective manner.
Also, with this study I learnt that the management of the need and interest of the
stakeholder is very essential. This is due to the fact that stakeholders are important as these are
the people who work for the company but the objective of each of the stakeholder is different
from one another. Also, from the report I learnt that the use of management accounting
techniques can be used in order to manage the cost of the company. In addition to this I learnt
that the fraud can hamper the working and growth of the company and for this the detection of
the fraud is very essential. This can be done with help of auditing of books of accounts and other
information to check that whether it is correct or not.
Scenario B
Financial ratio's analysis of Morrison Supermarkets PLC for the year 2020, 2019 & 2018
Morrison's
2020 2019 2018
Liquidity ratio
Current assets 1322 1379 1279
Current liability 3396 3349 3080
Inventory 660 713 686
Quick Assets 662 666 593
Current ratio
Current assets / current
liabilities 0.39 0.41 0.42
Quick Ratio
(Current Assets -
Inventory) / Current
Liabilities 0.19 0.2 0.19

Profitability ratio
Employed Capital 7524 7317 7382
Net operating profit 521 394 458
Return on capital
employed
Net operating
profit/Employed Capital 6.92% 5.38% 6.20%
Net Income 348 244 311
Shareholder's Equity 4541 4325 4250
Return on Equity
Net Income / Shareholder's
Equity 8.00% 5.64% 7.32%
Cost of Sales 16907 17128 16629
Sales 17536 17735 17262
Gross Margin
Total Sales — COGS/Total
Sales 3.59% 3.42% 3.67%
Operating profit 521 394 458
Sales 17536 17735 17262
Net profit ratio
Operating Income/ Net
Sales 3.00% 2.22% 2.65%
Efficiency Ratios
Inventory 660 713 686
Trade Receivables 353 347 250
Net Assets 4541 4325 4250
Cost of Sales 16907 17128 16629
Sales 17536 17735 17262
Asset turnover ratio Sales / Net assets 3.86 4.1 4.06
Inventory turnover ratio Sales / Inventory 26.57 24.02 24.24
Account receivable
turnover ratio
Sales / Accounts
Receivable 49.68 51.11 69.05
Debt
Debt 6379 5285 5122
Equity 4541 4325 4250

Debt equity ratio Debt/ Equity 1.4 1.22 1.21
Analysis and interpretation:
Liquidity ratio
The presented charts below depicts the current ratio and quick ratio of the Morrison's.
The both the ratio of the company is very low which indicates the serious issue for managing the
short term liabilities of the business (Sedláček, 2016). Thus, the company should work on either
increasing its current assets or reducing its short term liabilities.
2018 2019 2020
0.375
0.38
0.385
0.39
0.395
0.4
0.405
0.41
0.415
0.42
0.425
current ratio
Profitability ratio
The graph given below shows the increase in trend of both return oncapital employed and
return on equity. Thsi indicates that the company is effectively utilizing its capital employed and
shareholders funds in earning higher income. This means Morriosn's is going towards growth.

2018 2019 2020
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Return on capital employed
2018 2019 2020
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
Return on Equity
As depicted by the below graph, the gross profit margin of the company is declining
which shows increase in the cost of goods sold or reduction in the revenue of the organization. It
ahs reduced from 3.67% to 3.59% in 2020.

2018 2019 2020
3.25%
3.30%
3.35%
3.40%
3.45%
3.50%
3.55%
3.60%
3.65%
3.70%
Gross margin
The net profit margin of the Morrison's has increased to 3% in the year 2020 and has also
shown that the profits have been steady (May, 2017). Therefore, the comapny needs to work on
increasing its profits.
2018 2019 2020
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
Net profit ratio
Efficiency ratio
The asset turnover ratio of the company is fluctuating with minor variation which means
that the company is handling it assets in a consistent manner. The company should make an
effort to increase it further whcih will help in getting better results.

2018 2019 2020
3.7
3.75
3.8
3.85
3.9
3.95
4
4.05
4.1
4.15
Asset turnover ratio
The below stated graph represents inventory turnover ratio of the organization. In case of
Morrison's , there is a increase from 24.24 times to 26.57 times in 2020. This is teh good sign
that company is able to sell out its inventory as quickly as possible.
2018 2019 2020
22.5
23
23.5
24
24.5
25
25.5
26
26.5
27
Inventory turnover ratio
The chart presented below states that the accounts receivable turnover ratio of Morrison's
has declined which means that the company is not able to recover the due money from its
customers to whome goods sold on credit. Morrison's needs to make chnages in its credit policy
and introduced effective collection team.

2018 2019 2020
0
10
20
30
40
50
60
70
80
Account receivable turnover
ratio
Solvency ratio
2018 2019 2020
1.1
1.15
1.2
1.25
1.3
1.35
1.4
1.45
Debt equity ratio
The graphical representation above shows that there is an increase in the financial
leverage in the capiatl structure of the organziation at slow rate. Thus, company needs to ensure
that it pays off its debt quickly to avoid risk.
Usefulness of data obtained in decision making
The data obtained using the fianncial statement of the organization helps in taking
effective business decisions. The information gathered through ratio analysis provides support to
the business organization in effectively evaluating the business organization (Škretović and et.al,

2020). These information derived from the financial statement helps in knowing the financial
position and performance of the business organization. It states about the profitability, liquidity
and other aspects of the business which becomes essential for taking effective business
decisions. It identifies the weak areas where business is reqired to focus on which results into
strategic financial decision making.
Evaluating the various investment appraisal techniques utilized to maximize ROI
Payback period
Under this technique, the project is evaluated based on the time period derived (De Souza
and Lunkes, 2016). This approach does not consider time factor and other internal and external
factors such as inflation, impemenattion cost etc. As it excludes all the busienss related factors
while evaluating payback period, it results into getting a wrong outcome and also it ignores the
cash generated after the payback period.
Computation of payback period
Initial investment 275000
Annual cash inflow 85000
Annual cash outflow 12500
Payback period
= Initial investment /( Annual cash inflow –
Annual cash outflow)
= 275000/(85000-12500)
3.79
The project should be accepted as it is half of the life of the project.
Net present value
This technique takes into account all the cashflow generated in a profit in the overall life
of the project (Willigers, Jones and Bratvold, 2017). It considers time value of money and
derives the present value of cash inflow of the future years. Apart from time factor, it
acknowledges inflation and other risks in project evaluation. This technique helps in getting
accurate rate of return which is used for better decision making.
Computation of net present value
Net cash inflow = 85000-12500
= 72500
Year Cash flow per year
Discounting
factor @12% Present value
0 -275000 1.00 -275000.00
1 72500 0.89 64732.14
2 72500 0.80 57796.56
3 72500 0.71 51604.07

4 72500 0.64 46075.06
5 72500 0.57 41138.45
6 113750 0.51 57629.29
NPV of cash inflow 318975.56
NPV 43975.56
The project should be accepted as NPV is positive.
Internal rate of return
In this, the discounting rate is determined which makes teh NPV of the project equivalent
to zero. The internal rate of return does not consider any of the external factors and even not
require discounting rate for evaluation of the rate of return (Patrick and French, 2016). Any small
mistake in it will lead to wrong decision making and might cause losses for the business.
Computation of IRR
Year Cash flow per year
0 -275000
1 72500
2 72500
3 72500
4 72500
5 72500
6 113750
IRR 17.17%
The IRR is more than cost of capital, therefore, project should be accepted.
Values of various techniques to inform financial decision making Cash flow statements- this is a statement which assist the company in taking effective
decision relating to the financial management (Setyawati and Suroso, 2017). This is of
value to the company as this will help the company in assessing the fact that how much is
the inflow of the cash and how much is the outflow of cash. This will assist the company
in formulating the strategies which will increase the inflow of cash and reduce the
outflow of cash. Break- even analysis- this is another important technique to inform the financial decision
making (van Den Berg and Akingbola, 2019). Under this technique the level of
production is identified where the company is in a no profit no loss situation, this
technique is of value to the company as this will help the company in assessing the fact
that whether the company is producing to that level or not.

 Profit and loss account- this is a statement which assist the company in calculating the
profit earned or the loss suffered by the company. This financial statement is of value to
the company as this will assist the company in assessing the fact that at what position the
company is working whether at profitable level or not.
Ways in which financial decision making support long term sustainability
The financial decision making assist the company in managing the business in effective
and efficient manner as this will help the company in properly planning for the ways of
managing the finance. Thus, if the finance will be allocated in proper manner than it will be used
in more effective and optimal manner. Hence, because of this long term sustainability can be
managed by the company. This is particularly because of the reason that when there is stability in
the financial position of the company then they can work on a long term basis and can attain
higher success. In addition to this another method of financial decision making supporting the
long term sustainability is proper planning as the use of proper planning will make sure that the
finance is properly allocated and is optimally used with the business.
Recommendation
There are many different options and ways in which the company can improve the financial
sustainability of company and these are as follows-
 The major recommendation for improving the financial position of the company for long
term sustainability is to take professional help from the experts and professional within
the field of finance.
 Another major recommendation is to invest the money in a diversified portfolio instead
of investing the money in a single type of investment option only. This is necessary as if
in some option there is loss then in the other investment option there will be profit.
CONCLUSION
In the end it is concluded that managing finance within the business is a very important
task as if the finance will not be managed in good manner then it might be possible that company
may suffer loss. Thus, for this the present report stated that there are many techniques which
assist the company in taking effective decision like brainstorming, formal and informal
approaches and many others. Also, it highlighted that all stakeholders are having different need
and interest and detection of fraud is very essential for getting successful.

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