Economic and Financial Management Report: Morrisons PLC Analysis

This report provides an in-depth analysis of the economic and financial management of Morrisons Supermarkets PLC. It begins with an introduction to economic and financial management, highlighting the impact of economic factors on business organizations. The report then evaluates financial information, including key financial ratios such as gross profit ratio, net profit ratio, asset turnover ratio, return on capital employed ratio, current ratio, and acid test ratio. The analysis covers the years 2016, 2017, and 2018, interpreting the trends and implications of each ratio for the company's performance and decision-making. The report also discusses the strategic decisions that Morrisons might consider to improve its performance and achieve future growth, and concludes by summarizing the key findings and insights regarding the company's financial health and operational efficiency. The report uses financial statements and ratio analysis to assess the company's profitability, liquidity, and efficiency.

ECONOMIC AND
FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
..........................................................................................................................................................2
INTRODUCTION...........................................................................................................................3
Identification and evaluation of impact of the economy on business organisation...................3
Evaluation of financial information in range of organisational contexts....................................4
Interpretation of key financial information to aid the decision making and performance
monitoring...................................................................................................................................5
Courses of action informed by the accounting tools and concepts...........................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
Online........................................................................................................................................12

INTRODUCTION
Economic and financial management shows the impact of economy on the business and
the financial management relates with the managing the organisational financial transaction in
effective and efficient way for achieving their goal.
Morrisons supermarket PLC is the largest chain of supermarkets in UK which operates retail
supermarket stores under the Morrisons brand and associated and related activities. Company is
listed on London stock exchange
The report will explain about the different ratios which helps to interpret the performance
of company which further used in decision making Furthermore, it will include the different
strategic decisions which are used by the company in order to improve the performance of the
company and for future growth and development.
Identification and evaluation of impact of the economy on business organisation
There are many factors of the economy which have direct and great impact on the
business organisation and its performance. Business must evaluate and identify all the factors so
that they can handle the situations and plan their actions accordingly (Cao, Chychyla and
Stewart, 2015). Business is concerned with the dynamic change of the environment which leads
them to estimate and project the uncertainty so that planned measures can be taken to eliminate
any loss or risk they may suffer.
Economic factors affect the complete business and its operations which includes interest
rates, wage rates and the rate of inflation that is general prices of the goods and services. Some
economic factors which affect the business includes consumer behaviour, growth rates, inflation
rates, foreign exchange rats, taxes, tariffs, employment factor, change in preference and taste,
banking services and rates, government policy, labour costs, management and the overall
economic indicators (Crowther, 2018). These all can be concluded and classified according to
the category in which they lie in business environment as PESTLE that is political factors which
includes all government related factors and policies, legal factors which includes rules and
regulations, social factors includes the taste, preference, culture and belief of nth people
regarding goods and services they consume, technological factors includes change in technology,
introduction of new technology, Environmental factors which constitutes with change in demand

and supply and other growth rates and policies in order to protect the environment say corporate
social responsibility etc. (Edwards, Schwab and Shevlin,, 2015).
Business organisation are affected directly and collectively from the business
environment. Business s organisation must identify and evaluate the various economic factors
and indicators in order to prevent the organization from many losses or nay risk with any cause
sever harm to the organisation (Joshi and Rajpurohit,2016). Some factors affect the organisation
positively as well. The favourable changes open up the path of success, growth and development
for the organisation.
Evaluation of financial information in range of organisational contexts.
Calculation of different types of ratios for Morrisons supermarket PLC
Particulars 2016 2017 2018
Gross profit 617 604 633
Cost of goods sold 15505 15713 16629
Total revenue 16122 16317 17262
Net profit after tax 222 305 311
Current assets 1316 1176 1278
Current liabilities 2755 2864 3081
Opening inventory 658 616 614
Closing inventory 616 614 686
Average inventory 637 615 650
Quick assets 700 562 592
Trade receivables 192 214 250
Trade payables 2518 2837 2981
Total assets 9307 9246 9663
Capital employed 6552 6382 6582

(Morrison (Wm) Supermarkets PLC, 2019)
Financial information is generated from the financial statements which are prepared by
the business organisation. Financial statements are prepared for ascertaining the financial health,
financial position and financial information of the business so that further and useful decisions
can be taken for effective and efficient working of the business (Kanapickienė and Grundienė,
2015). Evaluation of Financial statements will lead to effective evaluation of the financial
information also. The financial information can be generated from various statements that is
income statements, balance sheet, cash flows etc.
The above information is also generated from the financial statements only. Gross profit,
net profit, inventory, capital employed etc. helps to find out the different ratios for the
organisation which helps in ascertaining the financial health and performance of the business
organisation. Through the above financial information Net profit ratio, gross profit ratio, Asset
turnover ratio, Current asset ratio can be found out which further used as measuring tool for
decision making performance (Robinson and et.al., 2015).
Organisation needs to record all the transactions efficiently so that accurate and reliable
information can be generated which helps business regarding their decision making. This also
helps the organisation in planning the actions to face the uncertainties and to eliminate the risk
which can cause severe loss to the organisation.
Interpretation of key financial information to aid the decision making and performance
monitoring
Ratio-Morrison 2016 2017 2018
gross profit ratio = Gross profit/ Net
sales*100 3.83 3.70 3.67
Interpretation:
Gross profit ratio is basically the profitability ratio which shows the relationship between
the gross profit and total net sales revenue. It is considered to be popular tool for evaluating the
operational performance of the business. The gross profit ratio can be obtained by dividing the

gross profit by sales. In the year 2016, Morrisons Gross profit ratios is 3.83 and it continues to
decrease till 2018 with the ratio of 3.67 which depicts that company needs to take effective
decisions regarding their performance so that with increase in sales every year they can also
focus on increasing their gross profit also by earning good amount of profit and to increase the
operational performance of the business by providing good quality and satisfying the business
also by earning good amount-of profit. The ratio showing the decreasing trend from the year
2016 to 2018.
2016 2017 2018
3.55
3.6
3.65
3.7
3.75
3.8
3.85
gross profit ratio
Ratio-Morrison 2016 2017 2018
net profit ratio=Net profit/sales*100 1.38 1.87 1.80
Interpretation:
The net profit ratio is the ratio of net profit after tax to the net sales which reveals the
remaining profit after all costs of production, management, administration, financing which have
been deducted from the sales and also the income tax. It is calculated to measure the ability of
the company to effectively control the cost of the products' and services. The high net profit
ration reflects the company is having the efficient management and they have ability to control
their costs effectively and efficiently.
The above table represents that in the year 2016 company has 1.38 as net profit ratio and
company earn the highest net profit ratio in the year 2017 compressed to 2016 and 2018. It can
be interpreted that Morrisons have greater control over their costs in the year 2017 and earn huge
amount of profit which helps the organisation in achieving their goal effectively and it also helps

in improving the financial health of the business The ratio showing fluctuating trend that is it
increases till 2017 and then decreases through which it may predict that future ration may
increase or may decrease.
2016 2017 2018
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
net profit ratio
Column I
Ratio-Morrison 2016 2017 2018
asset turnover ratio=Total revenue/
Total assets 1.73 1.76 1.79
Interpretation:
The above table representing the Asset turnover ratio which express the value of the
company sales or revenue in relation to the value of its assets. This asset turnover ratio can be
used as the indicator of the company's efficiency is using its assets to generate the revenue.
Higher asset turnover ratio represents that company is more efficient. And if the company has
low asset turnover ratios than it indicates that the company is not using its assets efficiently in
order to generate the revenue. Asset turnover ratio can be calculated as total assets divided by
total sales. Interpretation from above table can be made that company has the highest asset
turnover ratio in the year 2018 compared to 2016 and 2017 as Morrisons earn a 1.79 ratio of
asset turnover in 2018 which indicates that company is highly efficient in using its assets in order
to generate the revenue. The ratio showing the increasing trend year after year through which it
can e estimated that in coming year also company can earn greater asset turnover ratio.

2016 2017 2018
1.7
1.71
1.72
1.73
1.74
1.75
1.76
1.77
1.78
1.79
1.8
asset turnover ratio
Column I
Ratio-Morrison 2016 2017 2018
return on capital employed ratio
=Net operating profit/ capital
employed 3.39 4.78 4.73
Interpretation:
Above table is representing the return on capital employed ratio which basically
computed by dividing the net operating profit or Earnings before interest and taxes by the
employed capital in the business. If the employed capital of the business is not given in the
financial statements of the company than calculation can be made by subtracting the current
availabilities from total of assets of the company. This ratio can be calculated to measure the
relative profitability of companies after considering the amount of capital which is invested in
the company so to ascertain the accurate and actual amount of profit they have earned. This can e
interpreted that Morrisons have higher profitability is in the year 2017 compared to other years
2016 and 2018. They have higher ratio which clearly indicating that their capital employed in
2017 is less compared to the capital employed in the year 2016 and 2018 The ratio showing the
fluctuating trend that is decreasing, increasing and again deceasing which shows instability in the
trend.

2016 2017 2018
0
1
2
3
4
5
6
return on capital employed
ratio
Column I
current ratio = Current assets/
current liabilities 0.48 0.41 0.41
Interpretation:
Current ratio also called liquidity ratio which measures the company's ability to pay short
term obligations or the dues which are to be payable within one year. It acts as an indicator for
the company that how they can maximise the current assets on the balance sheet so that they cab
be able to pay off their current debt or other payables. Current ratio can be calculated by dividing
the current assets by the current liabilities of the company. Potential creditors use the current
ratio so that they can measure the company's liquidity or ability of paying off their debts so that
accordingly decision can be made regarding the credit given to the companies by the creditors.
Above current ratio of different years is interpreting that in year 2016 the company is higher
current ratio which shows high efficiency and ability of company to pay its current and short
term obligations compare to the other two years of 2017 and 2018 The ratio interpreting the
decreasing and the constant trend which means that the current ratio is first decreases and its
remains stable and constant since 2017 to till 2018 which predict the current ratio may show
constant trend in coming year.

2016 2017 2018
0
0.05
0.1
0.15
0.2
0.25
0.3
Acid test ratio
Ratio-Morrison 2016 2017 2018
Acid test ratio =Current assets-
Inventory)/ current liabilities 0.25 0.20 0.19
Interpretation:
Acid test ratio generally defines and acts as an indicator of weather the company having
sufficient short term assets to cover its immediate liabilities. Quick ratio, acid test ratio, liquidity
ratio, all the ratios measures the ability of the company to meet its current obligations or short
term liabilities when it comes due with only quick assets, as quick assets are the assets which can
be converted into cash within 90 days or in the short term. Interpretation can be made from
above table that acid test ratio is highest in the year 2016 that is 0.25 comparative to 2017 and
2018 which shows that company's efficiency is much better in the year 2016 for paying off its
current liability from its quick assets. Acid test ratio is showing the decreasing trend in the given
years thorough which company can predicts that their future year's acid ratios can also get
decrease according to trend.
2016 2017 2018
0
0.05
0.1
0.15
0.2
0.25
0.3
Acid test ratio

Ratio-Morrison 2016 2017 2018
receivable turnover Ratio =trade
receivables/Total revenue)*365 days
4 5 5
Interpretation:
Account receivable turnover ratio is the number of times per year that a business collects
its average account receivables, the account retrievable turnover ratio is used to compare the
efficiency of the company that how efficiently they issue credit to their customers and collect
funds from them on timely basis. The above interpretation shows that the maximum number of
times Morrisons have its account receivables in the year of 2018 compared to the other two
years. As high ratio implies that either the company operating on a cash basis or their extension
of credit and collection of the account receivables is efficient and effective. The company has the
lowest ratio in year 2016 which implies that company is not making the timely collection of the
receivables. Trend of increases dan than constant ratio is interpreted from the above table which
shows that in previous years its ratio get increase and then it followed to constant.
2016 2017 2018
0
1
2
3
4
5
6
receivable
turnover Ratio
Column I

Ratio-Morrison 2016 2017 2018
payable turnover ratio= Trade
payable/cost of goods sold)*365 days 59 66 65
Interpretation:
Payable turnover ratio is short term liquidity measures which is used to quantify the rate
at which company pays off to its suppliers. Account payable turnover ratio shows that how many
times a company is paying off its account payable to its suppliers during a period. The above
table depicts that company has the highest account payable turnover ratio in the year 2017 that is
the more number of time company pays off is payables within a year The ratio is showing trend
of increasing, and then it decreases with low rate which predicts that in future their ratio either
get decreased or, may increase.
2016 2017 2018
54
56
58
60
62
64
66
68
payable turnover ratio
Column I
All these ratios help the business organisation in interpreting their financial performance
and financial information according to which they will be able to judge and ascertain the
financial position so that they can make decisions accordingly and helps the business in making
the further plan for further growth and development of the organisation. The ratios also leads in
ascertaining financial position which helps business in operating and directing their activities
towards the direction of the goal so they will able to achieve their goal and satisfy the need and
wants if the customers in order to capture larger share of the market and to generate strong brand
value which resulting in long run retention of the customers and increasing profitability of the
business.