In Depth Financial Analysis of Morrisons and Asda Finance Essay

Check out more papers on Analysis Debt Financial Analysis

Financial analysis using ratios between key values help investors cope with the massive amount of numbers in company financial statements. For example, they can compute the percentage of net profit a company is generating on the funds it has deployed. All other things remaining the same, a company that earns a higher percentage of profit compared to other companies is a better investment option.

It shows the relationship between profit & investment e.g. return on investment, return on equity capital. Financial Ratios Can Measure Different Things.

The Net Profit to Capital Employed ratio mentioned above measures the success of a company in using funds available to it. There are ratios to measure the company's:

  • Financial health
  • Operating performance
  • Cash flows and liquidity

Under each category, there are multiple ratios that measure different aspects, or fine tune the measurements. For example, different profitability ratios measure profit margins at different stages return on owners' funds and effective tax burden.

Ratio analysis

  • Ratios express a mathematical relationship between two quantities taken from financial statements.
  • TheA studyA and interpretation of theA relationships between variousA financialA variables, byA investorsA or lenders.
  • AA tool to conduct a quantitative analysis of informationA in a company's financialA statements.
  • Ratios areA calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company.A 
  • Ratio analysis is predominately used by proponents of fundamental analysis.

Methods of Ratio Analysis :

There are two methods of Ratio Analysis :

  1.  Time Series analysis
  2. Cross-sectional analysis

Time- Series Ratio Analysis :

  • Time-Series Ratio Anlysis evaluates performance over time.
  • It allows to analyse trends over a number of years and to examine the way in which performance may have changed over time.
  •  For instance time series analysis can make by comparing any company's performance of for two or more years i.e. 2007 and 2008.

Cross-sectional Ratio Analysis :

  • Cross sectional Ratio Analysis allows for comparison with the industry average or with competitors at a single point in time.
  • This comparison allows a judgement to be made about the firm's position within the industry.
  • For instance to make a comparison of any company' performance against its rival (competitor) for the same year.
  • e.g. Shall Company's ratios are compared with British Petroleum company.(both are in same industry and same business).

Advantages of Ratios :

The advantages of Ratios are as follow :

  • Simplifies Financial Statements.
  • Facilitates Inter-Firm Comparison.
  • Helps in Planning.
  • Helps in Investment Decisions.

Profitability Ratios :

  • Measure the ability of profit generations in company.
  • Profitability Ratios are used to assess a business's ability to generateA earnings as compared toA its expenses and other relevant costs incurred during a specific period of time.
  • They are used to measure the overall effectiveness of management to produce the profitability of the company.
  • For most of these ratios, having a higher value relative to a competitor's ratio or theA same ratio from a previous period is indicative that the company is doing well.
  • It is important to note thatA a little bit of background knowledge is necessary in order to makeA relevant comparisons when analyzing these ratios.

For instances, someA industries experience seasonality in their operations. The retail industry, for example,A typically experiences higherA revenues andA earningsA for the Christmas season.

ASDA launched an online retailer in 1998, but from the start had over estimated demand. It started off from a dedicated depot facility based in Croydon but was closed with a number of redundancies shortly after as sales were not as expected. It continued the online retailer service but copied the Tesco store based model instead.

Wal-Mart's corporate stance is anti union, which is refelcted in the stance of Asda. In 2006 A planned five-day strike by Asda warehouse staff was been called off, unions have confirmed. The action had been due to begin on June 30 after thousands of workers voted for industrial action in a dispute over pay and bargaining rights. The decision followed prolonged negotiations between unions and the supermarket chain at the TUC. Asda was about to seek an injunction to block the action, claiming "irregularities" in the strike ballot. In 2006 Supermarket giant Asda said they were to offer staff up to two weeks unpaid leave to "go on a German jolly" during the 2006 World Cup tournament. Its 150,000 workers were to be able to take one or two weeks off in the month starting on 9 June. Requests dealt with on a first come, first served basis depending on staffing needs at individual outlets.

The first Act of The ASDA Story was set in the old Queen's Theatre, Castleford, West Yorkshire in the early 60s. Its roots can be traced to two branches in twenties.

The Asquith family had a family business, a butcher's shop in Knottingley, W. Yorkshire. The business was eventually expanded to seven butcher shops. The two sons of W.R. Asquith, Peter and Fred were actively involved in the family business and were later to become co founders of ASDA.

At the same period, in the 20s, a group of West Riding dairy farmers joined forces, as Hindell's Dairy Farmers Ltd. These included the Stockdale family (A. Stockdale), and a subsidiary company, Craven Dairies Ltd, was formed.

Through a process of acquisition and diversification, a new public company was formed in 1949 Associated Dairies & Farm Stores Ltd. with Arthur Stockdale as Managing Director. During the 50s and early 60s Associated Dairies expanded the number of pork butchery shops and also created the fascia Craven Dairies for its cake shops and cafés. The son of Arthur Stockdale, Noel, met and struck up an immediate rapport with the Asquith brothers and so became the other co-founder of the future ASDA.

ASDA was founded in 1965 by farmers from Yorkshire. The name is a contraction of Associated Dairies. For a short time in the 80s Asda Stores Ltd was a subsidiary of ASDA-MFI plc follwing a merger between the companies. Other companies in the group were Associated Dairies Ltd, the furnture retailer MFI and Allied Carpets. After the sale of MFI and Allied the company name changed to ASDA Group plc. The dairy division was sold to Northern Foods plc.

The company went through a troubled period in the early 90s, but was revived under the leadership of Archie Norman, who became a shadow cabinet Conservative MP. He was chairman of the company in 96-99. ASDA, which then owned 229 stores, was purchased by Wal-Mart of the USA, on July 26, 1999.

Following the takeover by Wal-Mart, several Asda-Wal Mart Supercentres have opened, creating some of the largest hypermarkets in the UK. The first of these stores opened at Patchway, near Bristol, in August 2000. At first, it was criticised for its scale and condemned as an eye sore, but the format has now become extremely popular. In November 2004 a refurbishment of the hypermarket was completed, addressing some of the complaints.

In March 2006, ASDA launched a format called ASDA Essentials in a former Co-op store in Northampton. With a focus on own brand products on a much smaller floorplate than ASDA's mainstream stores, the Essentials will only stock branded products are perceived to be at the core of a family's weekly shop. This is seen as ASDA's response to the increasing strength of Tesco and Sainsbury in the convenience store sector. If the trial is a success, it will be rolled out nationally.

ASDA is expanding its range of services to include Financial Services sold in store and online. Products currently sold are Child Trust Funds and Credit Cards, Car Insurance Home Insurance, Travel Insurance, Life Insurance, Mortgage Life Insurance, Over 50s Life Cover, Pet Insurance.

In 2006 Supermarket chain Asda took Brazilian beef off its shelves after claims it could have come from areas where foot-and-mouth disease is rife.

In 2006 Supermarket group Asda started selling property through stores. Shoppers were to be able to browse properties for sale via an in store computer terminal. People choosing to sell their homes through Asda will pay lower than average estate agency fees and receive a free Home Information Pack (HIP). The system will be trialled in 10 Asda stores in the Sunderland area during the summer but is planned to be rolled out across the UK by the end of the year.

Asda has sponsor techniques the name has been put on the WRU Asda Leagues: the lower leagues of the rugby system.

Morrison is a mainly food and grocery - the weekly shop. Uniquely source and process most of the fresh food that we sell though own manufacturing facilities, giving us close control over provenance and quality; and have more people preparing more food in store than any other retailer. Every week nine million customers pass through our doors and 124,000 colleagues across the business work hard each day to deliver great service to them. With competitive prices and hundreds of special offers, we are proud to save our customers money every day.

As the 'Food Specialist for Everyone', they are different from their competitors. Their expertise helps them deliver fresher food, which is also great value. Being 'closer to source', they understand where food comes from; and they can talk with authority to their customers about the provenance and freshness of their food offer. It is one of the country's largest supermarket chains, offering a range of goods including both branded and own label products aim is to provide all our customers with the very best value for money wherever they live and uniquely, we have always charged the same prices in every one of our large stores.

They view resource efficiency as integral to sustainability and delivering better value to our customers. They approach to CSR recognises both responsibility and opportunity, enabling us to make a difference in ways that are good for the environment and good for business.

They have made considerable progress in meeting our challenging targets. Carbon emissions have been reduced by 56% better than they planned; there's much less waste going to landfill and they have cut packaging. They are also running their own farm, which is being used as a base for research projects looking at the sustainability of food supplies and the efficiency of agriculture. They research will provide benefits to their businessA and will also strengthen our relationships with the farming community.

Morrison's Fresh Food Academy offers training and progression for all their staff, providing them with the opportunity to grow from shop floor to top floor and means they can deliver more knowledgeable service to their customers.

CSR is embedded into their operations and plans. They do not claim to have all the answers but aim to do all they can to make a real difference by being both practical and persistent.A 

Many of the issues they address are wide ranging, complex and sometimes very challenging. Solutions may develop over the long term and they can sometimes prove elusive for a variety of reasons, including cost effectiveness, practical application, or they lack direct benefits. However, many projects and initiatives have come to fruition successfully to deliver tangible results that areA making a real difference.

They offer a number of useful services for your convenience, so you can save time and money while visiting them.A To find out when your local store is open, visit our store finder, type in your postcode and you'll find all the information you need.

On 11th March 2010 the Board comprised a Chairman, four Executive Directors andA six Non-Executive Directors. With the retirement of the Chairman and the planned recruitment of an additional Non-Executive Director, at least half of the Board will ultimately comprise of independent Non-Executive Directors.

The Board is responsible for setting and approving the strategy and key policies of the Group, and for monitoring the progress towards achieving these objectives. It monitors financial performance, critical operational issues and risks. The Board also approves all circulars, listing particulars, resolutions and correspondence to the shareholders including the Annual Report, Half yearly financial report and Interim management statements. The "Formal Schedule of Matters Reserved for the Board" can be found in the Corporate Governance Compliance Statement.

The CEO and the Group Finance Director meet regularly with analysts and institutional shareholders. The Investor Relations Director also maintains a programme of work that reports to the Board the requirements and information needs of institutional and major investors. This is part of the regular contact that the Group maintains with its institutional shareholders. All Directors, Executive and Non-Executive attend the AGM. The Chairs of the Audit, Nomination, Remuneration and CCRA Committees are available to answer any questions. Additionally, the Group's brokers sought independent feedback from investors following the Annual and Interim results in 2009. This feedback was reported to the Board.

Conclusion and Recommendation :

After doing ratio analysis and commented on both companies, I can now conclude that there was not much difference between the performance of both companies. As far as ASDA is concerned, it did reasonably well. Although despite the fact that we have recently come out of the recession. In terms of liquidity and activity, it performed well. In terms of solvency, it could not perform a good job. The same case turned out be for the profit. Now if we have a look at Morrison, it performed more of less the same as ASDA. It did well in terms of liquidity, but as far as solvency, market and profitability are concerned, it suffered the same set back.

Although, the recession can be easily blamed for not so good performance, the companies need to make sure that they are fully ready to meet any challenge they might face in post recession scenario. Both companies should also prepare themselves if there is another recession comes, as being mentioned by some economists.

References :

Did you like this example?

Cite this page

In Depth Financial Analysis Of Morrisons And Asda Finance Essay. (2017, Jun 26). Retrieved July 13, 2024 , from

Save time with Studydriver!

Get in touch with our top writers for a non-plagiarized essays written to satisfy your needs

Get custom essay

Stuck on ideas? Struggling with a concept?

A professional writer will make a clear, mistake-free paper for you!

Get help with your assignment
Leave your email and we will send a sample to you.
Stop wasting your time searching for samples!
You can find a skilled professional who can write any paper for you.
Get unique paper

I'm Amy :)

I can help you save hours on your homework. Let's start by finding a writer.

Find Writer