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Financial Analysis of Tesco and Morrison's

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kirstie dransfield

on 8 February 2016

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Transcript of Financial Analysis of Tesco and Morrison's

Financial Analysis of
Tesco Plc and WM Morrisons

Attaic Mohammed 13009784
Kirstie Dransfield 14009674
Muhammed Patel 14009836
Mueen Hyder 14004991
Ramish Razzaq 12014811

Key Findings from ratio analysis
How useful is the information provided in the financial accounts?
Both accounts adhere to the International Accounting Standards.
They also include information on:
Corporate Social Responsibility and governance
Achievements and goals for the coming year
Key summaries of crucial facts and figures
Graphical representations to aid understanding
Tesco is the largest supermarket chain in the United Kingdom, with a 28.1% market share (Statista, 2015a).
WM Morrisons is the fourth largest supermaket in the UK operating a 10.8% share of the market (Statista, 2015b).
2015 ratio Tesco plc WM Morrisons
Gross profit margin
Net profit margin after tax
Overall asset utilization
Stock turnover days
Earnings per share
Return on assets
Current ratio
Quick ratio
Gross gearing
Creditor days
Debtor days

Gross profit margin
Current and Quick ratio
Earnings per share
Gross gearing
Debtor days
Creditor days
Stock turnover
How do the companies appear in the media?
Share price movements
The percentages for Morrisons and Sainsbury's are within the range of 56-67% for both years suggesting this would be
around the industry norm. However the ratio for Tesco is
notably high for 2015 with 84% of their assets
financed by debt. This could be a potential
deterrent for investors and creditors.
Tesco debtor days = 12.58
Morrisons debtor days = 5.52
Tesco debtor days = 12.43
Morrisons debtor days = 5.19
Debtor days have decreased marginally with respect to the previous year for both Tesco and Morrisons.
In general a lower number of debtor days can
facilitate better cash flows.
The debtor days for Tesco is substantially higher
than that of Morrisons which could be due to
their broader product range for example
Tesco mobile and Tesco bank will have
a high volume of customers
paying via credit.

EPS were the lowest in recent
years for both companies

Expected period varies across industries due to the nature of the business and products/services.
Industry median for
Global apparel stores
is reported as
86 days
(Gurufocus, 2016a). Whereas the industry median for
Global discount stores
is only
36 days
(Gurufocus, 2015b).

2015 Tesco Stock turnover period = 17 days
2015 Morrisons Stock turnover period = 15 days
Decrease from previous years figures showing the companies are becoming more efficient.
17 days
30.23 days
12.43 days
15 days
30.23 days
5.19 days
Gross profit margin is the difference between sales and the cost of goods sold divided by revenue (YCharts, 2016).
Tesco plc
WM Morrisons
New chief executives:
Tesco - Dave Lewis 2014
Morrisons - David Potts 2015
Instability in the eyes of the public
Media scandals and window dressing
Decreased consumer trust and loyalty
Fierce competition from rivals
Bloomberg, (2016).
Tesco Surprises as U.K. Grocer Posts Increase in Christmas Sales.
Available from:
[Accessed 14 January 2016].
GuruFocus, (2016a). Available from:

[Accessed 7 January 2016].
GuruFocus, (2016b). Available from:

[Accessed 7 January 2016].
Morrisons, (2015).
Building Momentum Annual Report and Financial Statements 2014-2015.
Available from:
[Accessed 30 December 2016].
Statista, (2015a).
Market share of grocery stores in Great Britain for the 12 weeks ending October 11th, 2015.
Available from:

[Accessed 13 January 2016].
Statista, (2015b).
Market share of grocery stores in Great Britain for the 12 weeks ending October 11th, 2015.
Available from:
[Accessed 13 January 2016].
Tesco plc, (2015).
Annual Report and Financial Statements for 2015.
Available from:
[Accessed 4 January 2016].
TheGrocer, (2015).
Morrisons to cut 720 head office jobs as it boosts shop floor numbers.
Available from:
[Accessed 10 January 2016].
(WM Morrisons, 2015)
(Tesco plc, 2015)
(Bloomberg, 2016)
(TheGrocer, 2015)
Tesco EPS = 32.05p
Morrisons EPS = 23.80p
Tesco EPS = 9.42p
Morrisons EPS = 10.90p
EPS is a measurement of the companies profit however it is not enough
to justify informed investment decisions
on the basis of this alone.
Tesco creditor days = 33.39
Morrisons creditor days = 29.56
Tesco creditor days = 30.23
Morrisons creditor days = 30.23
The analysis shows a slight increase for Morrisons suggesting the business is maintaining strong relationships with suppliers.
On the contrary Tesco observed a decrease of approximately 3 days showing suppliers have
become more strict with their terms and
conditions. Potentially due to high gearing
-high risk.
Full transcript