Essay on Ratio Analysis of Morrisons

2646 Words Feb 19th, 2013 11 Pages
Table of content

Introduction 2 Financial Analysis of Morrisons 3 Critical Assessment of the ratio analysis of William Jackson Food Group 8 Limitations and recommendations References


This paper deals with the question of how a ratio analysis can help in determining the true value of a company. Therefore a critical ratio analysis of Morrisons, a supermarket which is listed on the London Stock Exchange will be done and then compared with the William Jackson Food Group, another supermarket but a private company in order to figure out if there are any differences or similarities which can help to measure the performance of the companies. At least recommendations of the usefulness of this research will be given
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However a too high ratio is also unwanted because that would mean that the business could be more efficient (Collier, 2009). The liquidity remains almost stable although a slight decrease between 2009 and 2010 of 0,02 occurred due to an increase in the liabilities due to their strategy of growth (Morrisons, 2010). The current ratio indicates that Morrisons is able to pay its short term liabilities from its short term assets because they are almost operating entirely on a cash and carry business model and has therefore very little inventory. The Sainbury ratio is with 0,58 in 2011 comparable to Morrisons and proves that supermarkets tend to have a low current ratio.
The quick ratio is similar to the current ratio although it represents a stricter test. When measuring the liquidity it may be better to exclude the inventories because otherwise it could be argued that they cannot be changed into cash quick enough. Generally it can be said that the minimum level should be 1.0 times but it is usual for food retailers to be below this figure (Atrill and McLaney, 2011). With a slight decrease after 2009 from 0,28 to 0,24 this ratio has remained constant between 2010 and 2011 what is good. The ratio shows that Morrisons is able to just 24% of their upcoming bills what implies that most of their products are financed by creditors or suppliers. Looking at Sainsbury’s ratio of 0,30 it can be

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