Morrisons Case Study

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Register to read the introduction… It will also be interesting to identify the benefits and disadvantages of an investment in Morrisons in comparison to such a big competitor as Tesco, where allegedly one in every three pounds used on food is spent. However, different companies in the food retail have different strategies, as Morrisons focuses on being a food specialist, Tesco is highly reliant on technology and non-food sales. This offers investors a various choice as each model may have its own benefits (i.e. Technology sales may be more profitable, however, specialising on producing own quality food products may not only attract customers and customer loyalty, but also provide more comfort during a financial …show more content…
Return on equity ratio was from 12.65%, to 12.08% for the observed period. If the return on equity is 12.08% then around 12 cents of assets are created for each pound that was originally invested. This ratio explains the rate that shareholders earn on their shares. If a company obtains high returns in comparison to it’s share equity, this company can easily pay off the shareholders. Comparing to the industry average (0.00) Morrisons has a remarkably high ROE. However, in comparison to Tesco (17.96) , it has a lower value of ROE. The industry Morrisons is evaluated to don’t give us the adequate grounds for comparison because out of many, it’s only actual competitors are Tesco, Asda and Sainsbury. Although for the grocery store’s industry everything over 10% is considered to be a good ROE from management’s point of view and for the shareholders, in comparison to Tesco, Morrison isn’t standing firmly in the terms of ROE. Although it is not a low value, and in reality is considered as desirable, shareholders might be more interested in investing in its biggest competitor, because they are aiming for the highest return on equity …show more content…
Moreover it is more than a measure of a company's past performance that takes into account market expectations for company's growth. To calculate this ratio we used market closing share price taken on the previous day of financial report being published divided by earnings per share figure. Morrisons P/E ratio of 12.70 for 2010 suggests that investors are willing to pay 12.70 GBP for every 1 GBP of earnings that the company generates, or that the capital value of the share is 12.70 times higher than the current level of earnings attributable to it. While comparing Morrisons to Tesco, its P/E ratio is lower by less than 2 points. At the same time Tesco is dominant in the market, whereas Morrison is fourth in market growth and its P/E ratio is only about 12 percent lower than one of Tesco’s, which tells the shareholders that the investment attractiveness of Morrisons is not much lower than the one of industry’s leader. The company’s average growth rate of the Pre-tax profits for the past 4 years have been around 35%, which is quite high for this type of business, also counting the fact that share of debt decreased since 2009. In terms of industry, their P/E ratio is ranked third out of 34 companies after Tesco and Greggs. Based on all mentioned above, we may conclude that Morrisons is an attractive set of metrics and

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