Ratio Analysis Sainsburys Vs Morrisons Finance Essay

When considered as a whole, the food market market in the UK hasA steadily growingA in size, being about 4A biggerA today than it has beenA a twelvemonth ago ; A August 2012 update: 12 hebdomads stoping July 8, 2012 growing rate slows from 4.2 % to 2.1 % due largely to a bead in monetary value rising prices: 6.2 % to 3.8 % .A Morrison ‘s is turning more easy so Sainsbury ‘s ; the company is on path to add approx. 20 new storesA in 2012A with most of those locations having aA larger choice of green goods. The UK food market market was deserving ?163.2 billion in 2012, an addition of 3.8 % on 2011, IGD forecast that the UK food market market value will be deserving ?192.6bn in 2017, an 18.0 % addition on 2012. The food market market ‘s portion accounts for 54.3p in every ?1 of UK retail disbursement.

What is the size of the UK food market market Beginning: IGD UK channel prognosiss 2012

1.2 The Companies

1.2.1 Sainsbury ‘s

J Sainsbury plc. is the parent company of Sainsbury ‘s Supermarkets Ltd, normally known as Sainsbury ‘s, the 3rd largest concatenation of supermarkets in the United Kingdom with a portion of the UK supermarket sector of 16.5 % . The group besides has involvements in belongings and banking. It was founded in 1869 and today operates over 1,000 supermarkets and convenience shops and employs about 150,000 co-workers. It is listed on the London Stock Exchange and is a component of the FTSE 100 Index.

1.2.2 Morrison ‘s

The supermarket, which generated gross revenues of ?18.1 billion in the twelvemonth, said it had non done plenty to pass on its publicities and suffered because it still lacked a meaningful presence in the two fastest turning sectors of the market. Morrison ‘s is the UK ‘s 4th largest nutrient retail merchant with over 400 shops. The ace market is chiefly nutrient and food market – hebdomadal store. Morrison ‘s employs 129,000 staff at 498 shops. Their studies show that like-for-like gross revenues dropped 2.1 % in the twelvemonth, while the norm of 11.4 million clients in its shops each hebdomad was down on the anterior twelvemonth.

2. Gearing Ratio Analysis

2.1 Gearing Ratios

Gearing Ratios ( % )

Company/Year

2012

2011

Sainsbury

31.73

30.13

Morrison

22.86

16.25

Beginning: Appendix 1

Sainsbury ‘s

A geartrain between 25 % – 50 % is by and large considered nominal for an constituted concern. It implies that Sainsbury is happy to finance its activities utilizing adoption. Sainsbury focuses more on investing in gross growing instead than net income as the company increased gross revenues gross and non-current assets but suffered a loss in 2012.

Morrison ‘s

The concern is considered “ low geartrain ” as its geartrain is less than 25 % . The concern is turning through reinvestment of net incomes and minimising hazard. However, in 2012, there is an addition in pitching from 16.25 % in 2011 to 22.86 % and this is chiefly because the concern increased long-run adoptions by ?548m and reduced retained net incomes and shared capital.

2.2 Interest Cover Ratio

Interest Cover Ratio

Company/Year

2012

2011

Sainsbury

6.04

7.40

Morrsion

20.59

20.62

Beginning: Appendix 2

Sainsbury ‘s

The ratio indicates that the adoption capital is used efficaciously to bring forth net incomes and that the concern is able to run into its short-run involvement duties from its net incomes. Sainsbury is turning, doing worthwhile investings to go on to spread out.

Morrison ‘s

The ratio suggests that Morrison is bring forthing adequate income to cover its involvement duties and is therefore financially stable. However, such a high ratio besides suggests that Morrison is pretermiting chances to amplify net incomes through purchase.

3. LIQUIDITY RATIO ANALYSIS

3.1 CURRENT RATIO

COMPANY/YEAR

2011

2012

SAINSBURY

.580

.647

Morrison

.545

.574

Beginning: Appendix 3

Sainsbury ‘s

Sainsbury ‘s current assets are well less than the current liabilities in both the old ages as Sainsbury has invested a batch in fixed assets every bit good as in subordinates and joint ventures. Sainsbury is obliged to pay a batch of money as a portion of revenue enhancement and besides in bring forthing its assets so the liability is hence more than the assets. For every 1pound liability they have merely 64.7 pence worth of plus to cover it.

Morrison ‘s

Morrison current ratio is smaller than the current ratio of Sainsbury which indicates that Sainsbury is making somewhat better than Morrison in the market. Morrison current liabilities is more than the current assets due to more of adoption that involves short term loans, investing in fixed assets and payment of revenue enhancement. For every 1pound liability they have merely 57.4 worth of plus to cover it.

3.2 ACID TEST RATIO

COMPANY/YEAR

2011

2012

SAINSBURY

.304

.348

Morrison

.239

.247

Beginning: Appendix 4

Sainsbury ‘s

The acerb trial ratio is really less as Sainsbury, being a retail shop, is extremely dependent on sale of stock list. As acerb trial ratio of Sainsbury is.348 that is less than 1 it means that Sainsbury can non pay their current liabilities.

Morrison ‘s

Like Sainsbury ‘s, Morrison besides being extremely dependant on stock lists, acid ratio is expected to be less. Morrison ‘s acid ratio is.247, which is less than 1, intending Morrison can non pay their current liabilities. It would be merely able to bring forth 24.7 % hard currency of its current liabilities.

Both the companies fails in snuff outing its current liabilities but this is non due to their market place or growing but merely due to the nature of the concern ( retail ) .

4. PROFITABILITY RATIO ANALYSIS

4.1 Return on Capital Employed ( ROCE )

Tax return on Capital Employed

Co./Year

2012

2011

Sainsbury ‘s

10.11 %

11.06 %

Morrison ‘s

13.83 %

13.70 %

( Beginning: Appendix 5 )

Sainsbury ‘s

ROCE growing in 2012 was lower than last twelvemonth partially due to the cumulative consequence of Sainsbury ‘s accelerated investing in infinite growing since 2009 ( Sainsbury ‘s, 2011 ) . This ab initio shrank net incomes whilst increasing the value of capital employed.

Morrison ‘s

Morrison ‘s delivered improved returns to its stockholders. For every ?1 capital invested in the concern, the one-year return is 13.83 pence in 2012 and was 13.70 pence in 2011. This profitableness ratio of Morrison is reasonably higher than Sainsbury ‘s, hence Morrison ‘s is able to derive more net income on mean capital employed.

4.2 Return on Equity ( ROE )

Tax return on Equity

Co./Year

2012

2011

Sainsbury ‘s

10.62 %

11.79 %

Morrison ‘s

12.78 %

11.66 %

( Beginning: Appendix 6 )

Sainsbury ‘s

Sainsbury ‘s Return on Equity in 2012 has decreased by 1.17 % compared to 2011 due to worsen in stockholder financess. In 2011, they performed somewhat better than Morrison ‘s as they had better militias and portion capital and the Net income after Tax ( PAT ) was significantly lower than Morrison ‘s.

Morrison ‘s

Morrison ‘s ROE has significantly improved over vitamin D last few old ages and go on to make high values. In 2012, they showed a 1.12 % addition in ROE compared to 2011 and had a 12.78 % stockholder equity. The stockholders invested a batch which resulted in higher returns.

4.3 Gross Profit Margin

Gross Profit Margin

Co./Year

2012

2011

Sainsbury ‘s

5.43 %

5.49 %

Morrison ‘s

6.89 %

6.96 %

( Beginning: Appendix 7 )

Sainsbury ‘s

A moderate diminution in the ratio between 2011 and 2012 explains the fact that the gross net income was lower in relation to gross revenues gross. This means that cost of gross revenues was higher comparative to gross revenues gross within the period.

Morrison ‘s

Morrison ‘s Gross Profit Margin is higher than Sainsbury ‘s as they had a lower gross revenues gross and moderate gross net income compared to the latter. In 2012, 6.89 % of the net gross revenues are available to pay off all the operating disbursals.

4.4 Net/Operating Net income Margin

Net/Operating Net income Margin

Co./Year

2012

2011

Sainsbury ‘s

3.74 %

4.07 %

Morrison ‘s

5.48 %

5.38 %

( Beginning: Appendix 8 )

Sainsbury ‘s

Sainsbury accounted to take down Net Net income Margin than Morrison ‘s because of falling gross revenues and lifting costs. The market has a batch of competition where little food markets and convenience shops capture rather a spot of entire UK nutrient retail.

Morrison ‘s

Morrison ‘s performed reasonably good and showed important addition in the operating net incomes from Sainsbury ‘s over the past twelvemonth. It accounted 5.48 % Net Net income Margin in the current fiscal twelvemonth ( Gross saless Gross: ?17663m ) . It is a consequence of superior executing and initiation of higher border merchandises in their gross revenues mix.

Morrison ‘s seems to be more profitable than Sainsbury ‘s across all available profitableness steps.

5.0 Efficiency Ratios

( Beginning of Data, Apendix 9, Financial Reports of Sainsbury ‘s and Morrison ‘s )

5.1 Fixed Assets Turnover

This ratio shows how expeditiously the company is utilizing fixed assets to bring forth gross revenues. Low ratios indicate the company is capital intensive or that company requires a batch of fixed assets to bring forth a given sum of gross revenues. ( Gildersleeve, R. ( 1999 ) p.136 ) .

Efficiency Ratios

Year/Comp.

Sainsbury ‘s

Morrison ‘s

2011

2.40 times

2.18 times

2012

2.39 times

2.22 times

Sainsbury ‘s

In 2012 Sainsbury ‘s shows an addition in Gross saless Revenue for approx 1,100 ?m, which made its ratio somewhat lower comparison to 2011. The ratio remained reasonably similar because the value of fixed assets at net book value increased every bit good. The ground for the addition in fixed assets could be explained by Sainsbury ‘s inclination for opening new shops. The fiscal study provinces that they opened 19 new supermarkets, 28 extensions, and 73 convenience shops, which are merely to get down runing and lending to gross revenues.

Morrison ‘s

On the other manus Morrison ‘s managed to better their ratio by obtaining similar value of their fixed assets from 2011 to 2012, and utilizing them more expeditiously to hit an addition in gross revenues gross of 1,100?m. By and large looking at the industry the Average ratios for Retail – Food companies are between 4-5 ( Wal-Mart Stores USA – 5.00 ) , ( Gildersleeve, R. ( 1999 ) p.136 ) , so Sainsbury ‘s should take to increase the usage of their fixed assets in order to increase the gross revenues.

5.2 Average Inventories Employee turnover

Shows how many yearss company had to stock goods for sale before they were sold. In the retail-food industry this period should be kept reasonably low because of the nature of the concern. Lower ratio indicates that company will pass less financess towards carrying points before seting it on sale and acquiring net income from it.

Average Inventories Employee turnover

Year /Comp.

Sainsbury

Morrison

2011

14.86 Dayss

15.19 Dayss

2012

15.85 Dayss

16.85 Dayss

Sainsbury ‘s

Sainsbury ‘s shows growing in the norm of stock lists held over the class of twelvemonth by about 100 ?m. As costs of gross revenues have increased from 2011-2012, this ratio shows a little growing in figure of yearss goods are kept in stock. The addition of stock list in stock could be explained by Sainsbury ‘s growing of gross revenues in 2012. Higher demand forces company to hold more points in stock in order to fulfill the demands of the clients.

Morrison ‘s

Morrison ‘s shows even higher growing in mean yearss the goods are stocked. Morrison ‘s besides note the addition in cost of gross revenues, even more than Sainsbury ‘s. The fiscal studies of Morrison ‘s province a few grounds, among which progressively higher monetary values of fuel on the market.

5.3 Net income Per Employee

Net income Per Employee

Year/ Comp.

Sainsbury

Morrison

2011

5,572.78 ? per emp.

6,617.50 ? per emp.

2012

5,256.58 ? per emp.

7,217.60 ? per emp.

Sainsbury ‘s

It is noteworthy that company ‘s net income has been reduced from 2011-2012 for 2.8 m? , which is 3.4 % , even though its gross revenues have risen for 6.8 % . This could be explained by the figure of grounds, but one of them that is of import for this ratio is that they have besides increased the figure of employees. This has negatively influenced their Net income per Employee ratio, go forthing it behind the industry norm and Morrison ‘s.

Morrison ‘s

Unlike Sainsbury ‘s, Morrison ‘s notes the addition in net income and decrease of figure of employees. This is the most desirable state of affairs for a company. Their net income was higher for 8 % in 2012 than in 2011.

5.4 Average Trade Debtor Collection Period

It indicates the period of clip which is needed for company to roll up trade debts. This ratio reveals a great trade about a company ‘s recognition policy and the efficiency which it can roll up money from its clients. ( Fight, A. ( 2006 ) p. 57 ) ) .

Average Trade Debtor Collection Period

Year/Comp.

Sainsbury

Morrison

2011

1.61Days

4.79 Dayss

2012

1.90 Dayss

4.34 Dayss

Sainsbury ‘s

Sainsbury ‘s shows an addition in the mean clip that they needed to roll up the trade dept. Even though their costs of gross revenues remained reasonably similar, there was a significant addition in the sum of trade debt. Even though this negatively influenced the ratio, Sainsbury ‘s has made trades from which they expect to have money in close hereafter. Furthermore their ratio shows efficiency at roll uping debts, comparing both to the industry and Morrison ‘s.

Morrison ‘s

Morrison ‘s have significantly higher mean debt aggregation period. Even though they have managed to somewhat diminish their Trade receivables from 2011-2012, their costs of gross revenues increased by approx 1,000?m which has non made it possible for this ratio to better further.

6. INVESTMENT RATIO ANALYSIS

Formula

* Eearning Per Shares = net income available to shareholders/ no. of portions ranked for dividend

* Dividend Yield= dividend per share/ market monetary value * 100 %

*Dividend screen = Preference Dividend/Ordinary Dividend

SAINSBURY ‘S MORRISON ‘S

2011 2012 2011 2012

( % ) ( % )

EARNING PER Share

33.8

31.5

23.43

26.03

DIVIDEND Output

15.10

16.1

9.60

10.70

DIVIDEND COVER

1.75

1.75

2.40

2.39

6.1 EARNING PER SHARE Year

Sainsbury ‘s

In 2011 Sainsbury ‘s experienced a crisp addition in net incomes per portion traveling up by 33.8 % . And in 2012 the Sainsbury went down with 31.5 % holding a loss of 2.3 % . It is of import that assets are revaluated in order to maintain the existent value of assets on balance sheet. Net incomes per portion in 2011 increased by 2.3 % to 33.8 P, reflecting the betterment in the operating net income and the consequence of the extra portions, more significantly due to the belongings net incomes.

Morrison ‘s

Morrison ‘s net incomes per portion compared to Sainsbury ‘s are lower. This is driven by smaller net income and the fact that Morrison ‘s is a smaller sized supermarket concatenation. The earning per portion has 23.43 % at 2011 chiefly caused by the higher net incomes on concern disposals that the company went through last twelvemonth, so the return to stockholders was a lower rate per portion.

6.2 DIVIDEND YIELD Year

Sainsbury ‘s

The dividend output had a somewhat decreased since the dividend per portion merely increased by 15.10 % from 2011 twelvemonth. This was a determination from the company and it reflects the decrease in the earning per portion already mentioned and the autumn in the dividend screen by 1.75 % in 2011.

Morrison ‘s

Morrison dividend output is much less in 2011 it was 9.6 % and in 2012 the dividend went up to 10.70 % .

6.3 DIVIDEND COVER Year

Sainsbury ‘s

Dividend screen of Sainsbury ‘s says that net incomes available for dividend screen is 1.75 % in 2011 and besides in 2012 so there was non alteration in the divided screen over the past two old ages. In footings of dividend screen, Sainsbury ‘s has its policy based on their computations to keep the dividend screen between 1.50 – 1.75 times. The ground behind it is that if the dividend screen is excessively low, there is a possibility that the company will non be able to pay out the investors.

Morrison ‘s

In Morrison ‘s divided screen, it showers that in 2011 it has 2.40 % whereas in 2012 it has 2.39 % , which is still more than Sainsbury. For the twelvemonth 2011 Morrison ‘s dividend screen is 2.4 times, claim that it is in line with the European nutrient retail sector norm ( Morrison ‘s, 2011 ) .

7. Future Perspectives and Schemes

Both Sainsbury ‘s and Morrison ‘s have their concern schemes for future outlined in their fiscal statements. Morrison ‘s fiscal scheme continues to present improved borders whilst positioning long term growing. They wish to increase their client entreaty and growing of gross revenues, which is meant to be converted into profitable growing.

They have realized the potency in on-line retail, so they will eventually come in the online groceries market to dispute Tesco, Asda and Sainsbury ‘s, doing it the last of the major supermarket groups to hold an cyberspace presence, but merely after describing its first autumn in net incomes for six years.C: UsersUSERDesktopfinancial management1.JPG

Sainsbury ‘s based their concern scheme on run intoing consumer demands, taking into the history the ongoing rising prices over the past four old ages. The economic downswing has changed how and what consumers buy, and these alterations appear to be enduring. In 2012 they have launched their Live Well for Less run based on presenting trueness and supplying the best quality possible for optimum monetary value. Through Nectar trueness strategy they have a wealth of informations about their clients ‘ behavior. Degree centigrade: UsersUSERDesktopfinancial management2.JPG

Beginning of the tabular array: Morrison ‘s fiscal statement 2012.

Beginning: Sainsbury ‘s Financial Statement 2012

8 Decisions

Fiscal statements suggest that Morrison ‘s fiscal public presentation was really good. They had a profitable twelvemonth ( net income of ?58m ) while Sainsbury ‘s public presentation was non good compared to 2011 ( loss of ?42m ) . Morrison ‘s fiscal public presentation was strong, and they continued to put in long term growing of the concern, and to present increasing returns to stockholders.

Even after holding steady addition in gross revenues gross and gross net income, Sainsbury suffered loss compared to old twelvemonth chiefly because their involvement and revenue enhancement disbursals increased while net income from joint ventures reduced. Though Sainsbury ‘s acquisition of non-current assets was underfinanced with long term beginnings of finance, they still managed to bring forth more gross revenues and cover the debt collectible easy.

Alternatively, Morrison ‘s fiscal direction was first-class as they covered all their non-current assets with long term beginnings of finance. High involvement screen ratio indicates that there is no kind of force per unit area on the company and is really profitable.

Mentions

Fight, A ( 2006 ) Flow Forecasting, UK: CFrion Tec. Pvt.

Stickney C.P ( 2010 ) Financial Accounting: an debut to concepts methods and uses USA: South Western Cengage Learning

Smart B.S & A ; Megginson W.L ( 2009 ) Introduction to Corporate Finance USA: South Western Cengage Learning

Alberth S.W ( 2011 ) Accounting, Concepts & A ; Applications, What, Why, How of Accounting USA: South Western Cengage Learning

Gildersleeve R. ( 1999 ) Wining Business: How to utilize Fiscal Analysis and Benchmarks to outpoint your competition Houston: Tex Gult Pub. Co.

Unknown ( 2010 ) An rating of the concern and fiscal public presentation of Morrisons. Available at: hypertext transfer protocol: //www.ukessays.com/dissertations/business/financial-performance-of-morrisons.php # ixzz2NhjC0HdW ( Accessed: 15/03/2013 )

London Stock Exchange ( 2013 ) London Stock Exchange Available at: www.londonstockexchange.com ( Accessed: 20/03/2013 )

Morrison Group ( 2013 ) Financial Reports Available at: hypertext transfer protocol: //www.morrisons.co.uk/Corporate/Investor-centre/Financial-reports/ ( Accessed: 18/03/2013 )

Sainsbury ‘s Group ( 2013 ) Annual Report and Financial Statements 2011 Available At: hypertext transfer protocol: //www.j-sainsbury.co.uk/ar11/ ( Accessed: 10/03/2013 )

Unknown ( 2013 ) Forces analyses of Sainsbury Available at: hypertext transfer protocol: //www.oxbridgewriters.com/essays/management/forces-analyses-of-sainsbury.php ( Accessed at: 18/03/2013 )

Appendix 1

Gearing Ratio = Long Term Loans + Value of Preference Shares

— — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — —

Share Capital + Reserves + Long term Loans + Minority Interest

Sainsbury ‘s

2012

2011

2617 + 0

538 + 5091 + 2617 + 0

2339 + 0

535 + 4889 + 2339 + 0

= 31.73 %

= 30.13 %

Morrison ‘s

2012

2011

1600 + 0

253 + 5144 + 1600 + 0

1052 + 0

266 + 5154 + 1052 + 0

= 22.86 %

= 16.25 %

Appendix 2

Interest Cover Ratio = Net income before involvement and revenue enhancement

— — — — — — — — — — — — — — — — — –

Interest payable

Sainsbury

2012

2011

834

138

859

116

= 6.04

= 7.40

Morrison

2012

2011

968

47

887

43

= 20.59

= 20.62

Appendix 3

Current ratio = current assets / current liabilities

Sainsbury ‘s

2011

2012

Current assets = 1708

Current liabilities = 2942

Current ratio = 1708/2942

= .580

Current assets = 2032

Current liabilities = 3136

Current ratio = 2032/3136

= .647

Morrison ‘s

2011

2012

current assets = 1138

current liabilities = 2086

current ratio = 1138/2086

= .545

Current assets = 1322

current liabilities = 2303

current ratio = 1322/2303

= .574

Appendix 4

Acid trial ratio = liquid plus / current liabilities

Liquid plus = current plus – stock lists

2011

2012

Current assets = 1708

stock lists = 812

liquid plus = 1708 – 812

= 896

current liabilities = 2942

acerb trial ratio = 896 / 2942

= .304

Current assets = 2032

stock lists = 938

liquid plus = 2032 – 938

= 1094

current liabilities = 3136

acerb trial ratio = 1094 / 3136

= .348

Sainsbury ‘s

Morrison ‘s

2011

2012

current assets = 1138

stock lists = 638

liquid plus = 1138 – 638

= 500

current liabilities = 2086

acerb trial ratio = 500 / 2086

= .239

current assets = 1322

stock lists = 759

liquid plus = 1322 – 759

= 569

current liabilities = 2703

acerb trial ratio = 569 / 2703

= .247

Appendix 5

Tax return on Capital Employed ( ROCE )

ROCE =

For Sainsbury ‘s

2012

2011

834 X 100

538 + 5091 + 2617 + 0

859 X 100

535 + 4889 + 2339 + 0

= 10.11 %

= 11.06 %

For Morrison ‘s

2012

2011

968 X 100

253 + 5144 + 1600 + 0

887 X 100

266 + 5154 + 1643 + 0

= 13.83 %

= 13.70 %

Appendix 6

Tax return on Equity ( ROE ) = Net income after Tax X 100

Share Capital + Militias

For Sainsbury ‘s

2012

2011

598 X 100

538 + 5091

640 X 100

535 + 4889

= 10.62 %

= 11.79 %

For Morrison ‘s

2012

2011

690 X 100

253 + 5144

632 X 100

266 + 5154

= 12.78 %

= 11.66 %

Appendix 7

Gross Profit Margin = Gross Profit X 100

Gross saless Gross

For Sainsbury ‘s

2012

2011

1211 X 100

22294

1160 X 100

21102

= 5.43 %

= 5.49 %

For Morrison ‘s

2012

2011

1217 X 100

17663

1148 X 100

16479

= 6.89 %

= 6.96 %