Financial Ratio Analysis: Superbury's Supermarket PLC

Register to read the introduction… After a fall in 2010, Morrison has maintained a consistent sales revenue to capital employed level up until 2012. In comparison with Tesco, Morrison has a higher value; which suggests that the firm is using their assets more productively than Tesco to generate sales revenue. This is also reflected in Morrison’s lower trade payables rate and inventory turnover period. Morrison’s value is not too high to suggest overtrading on their assets (Atrill and McLaney, 2011). This ratio helps ordinary shareholders and banks monitor the efficiency in the use of their funds.
Overall, it can be shown that Tesco generates more profit than Morrison by their higher OPM rates. However, Morrison generates more of their profit through the efficient use of their capital (see figure 2 in appendices). Therefore, Morrison is still a profitable company to continue investing in, as their high sales revenue to capital employed rate compensates for their low operating profit margin. This can be shown by:
Return on Capital Employed = Operating Profit Margin * Sales Revenue to Capital …show more content…
and Lintner, J. (1962) Bird-In-Hand Theory. Cited in: Brigham, E.F. and Daves, P.R. (2007) Intermediate Financial Management. 9th edn. U.S: Thomson South-Western [online] Available at: http://books.google.co.uk/books?id=6Qnt2UqEFEAC&pg=PT618&dq=Gordon+and+lintner+dividend+preference+theory&hl=en&sa=X&ei=Xh06UeiYG-iL7Abm4oCwDQ&ved=0CDgQ6AEwAQ [Accessed: 27 February, 2013]
Morrison plc. (2012) Annual Reports and Financial Statements 2011/2012. [online] Available at: http://www.studynet2.herts.ac.uk/crs/12/7BSP1109-0206.nsf/Teaching+Documents/06DA864FEC7E3E1780257AFA00521E8B/$FILE/Final-annual-report_2011_12.pdf [Accessed: 23 February, 2013]
Morrison plc. (2011) Annual Reports and Financial Statements 2010/2011. [online] Available at: http://www.morrisons.co.uk/Documents/Morrisons-Annual-Report-2011.pdf [Accessed: 23 February, 2013]
Morrison plc. (2010) Annual Reports and Financial Statements 2009/2010. [online] Available at: http://www.morrisons.co.uk/Corporate/2010/AnnualReport/download-centre/PDFs/full.pdf [Accessed: 23 February, 2013]
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