Income Statement and Statement of Financial Position for

Assessment :

You are presented with the Income Statement and the Statement of Financial Position for the retailer WM Morrison for 5 years, 2010 to 2014. You have been asked by a potential investor to provide information which will help them to decide whether or not to invest in the business.

In particular they have asked you to calculate a selection of accounting ratios for each of the 5 years. These are to be presented as an appendix to your essay in appropriate tables. The required ratios are the Gross Profit ratio; the Mark up ratio; the Net Profit ratio; the Return on Capital Employed for total capital; the Pre-tax ROE; the Post-tax ROE; the Interest Cover; Gearing (both measures); and the Stock Turnover.

Required:

(a) Calculate the required ratios and present in a clearly labelled appendix.

(25 Marks)

(b) Write an essay in which you explain the performance ratios calculated. Your essay should refer to the reliability, or otherwise, of using such analysis. This will require reference to appropriate texts which should be referenced in appropriate Harvard style. You should also explain that other interested stakeholders might be interested in other aspects of the business. (700 Words excluding References)

(50 Marks)

(c) You receive another request from the potential investor. This time he wants you to write a brief account of the liquidity of the business. Furthermore, the investor ratios provided in the accounts need explaining. The investor is particularly interested in the performance of the business compared to its competitors. (350 Words excluding references)

(25 Marks)

The following websites provide information on some of Morrison’s rivals in the retail market to help you make comments on the performance of Morrison in a more vigorous manner:

http://www.j-sainsbury.co.uk/investor-centre/reports/2014/annual-report-and-financial-statements-2014/

http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf

http://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.pdf

Morrison WM Supermarkets

Income Statement and Statement of Financial Position

2010 to 2014

Income Statement For The Year Ending: 02/02/2014 03/02/2013 29/01/2012 30/01/2011 31/01/2010

(Millions) (Millions) (Millions) (Millions) (Millions)

Revenue (Sales): 17,680.00 18,116.00 17,663.00 16,479.00 15,410.00

Gross Profit 1,074.00 1,206.00 1,217.00 1,148.00 1,062.00

Operating Profit / (Loss): -95 949 973 904 907

Net Interest: -82 -70 -26 -30 -49

Profit Before Tax: -176 879 947 874 858

Profit after tax from continuing operations: -238 647 690 632 598

Discontinued Operations:

Profit for the period: -238 647 690 632 598

Attributable to:

Equity holders of parent company: -238 647 690 632 598

Total Dividend Paid: c 13.00 c 11.80 c 10.70 c 9.60 c 8.20

Retained Profit / (Loss) for the Financial Year: c n/a c n/a c n/a c n/a c n/a

Earnings per Share:

Basic: -10.23p 26.65p 26.68p 23.93p 22.80p

Dividend per Share: 13.00p 11.80p 10.70p 9.60p 8.20p

Balance Sheet As At: 02/02/2014 03/02/2013 29/01/2012 30/01/2011 31/01/2010

(Millions) (Millions) (Millions) (Millions) (Millions)

Assets:

Non-Current Assets:

Property, Plant & Equipment: 8,625.00 8,616.00 7,943.00 7,557.00 7,439.00

Intangible Assets: 458 415 303 184 n/a

Investment Properties: 119 123 259 229 229

Investments: 97 31 31 n/a n/a

Other Financial Assets: n/a n/a 1 3 n/a

Other Non-Current Assets: n/a n/a n/a 38 n/a

Total Non-Current Assets 9,299.00 9,185.00 8,537.00 8,011.00 7,668.00

Current Assets:

Inventories: 852 781 759 638 577

Trade and Other Receivables: 316 291 320 268 n/a

Cash at Bank & In Hand: 261 265 241 228 245

Other Current Assets: 1 5 2 4 270

Total Current Assets 1,430.00 1,342.00 1,322.00 1,138.00 1,092.00

Other Assets: n/a n/a n/a n/a n/a

Total Assets: 10,729.00 10,527.00 9,859.00 9,149.00 8,760.00

Liabilities:

Current Liabilities:

Borrowings: 553 52 115 n/a 213

Other Current Liabilities: 2,320.00 2,282.00 2,188.00 2,086.00 1,939.00

Total Current Liabilities 2,873.00 2,334.00 2,303.00 2,086.00 2,152.00

Net Current Assets: c n/a c n/a c n/a c n/a c n/a

Non-Current Liabilities:

Borrowings: 2,480.00 2,380.00 1,600.00 1,052.00 1,027.00

Provisions: 637 547 548 591 615

Other Non-Current Liabilities: 47 36 11 n/a 17

Total Non-Current Liabilities 3,164.00 2,963.00 2,159.00 1,643.00 1,659.00

Total Liabilities: 6,037.00 5,297.00 4,462.00 3,729.00 3,811.00

Net Assets: 4,692.00 5,230.00 5,397.00 5,420.00 4,949.00

Capital & reserves:

Share Capital: 234 235 253 266 265

Share Premium Account: 127 107 107 107 92

Other Reserves: 2,617.00 2,615.00 2,597.00 2,584.00 2,584.00

Retained Earnings: 1,714.00 2,273.00 2,440.00 2,463.00 2,008.00

Total Equity: (Shareholders Funds:) 4,692.00 5,230.00 5,397.00 5,420.00 4,949.00

a. Includes discontinued activities

b. Including assets due in more than one year

c. Not disclosed under IFRS

d. Total fixed assets

e. Includes borrowings