Wm Morrison PLC And Sainsbury's Financial Analysis
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1. Terms of reference:
To undertake an analysis of the financial statements of Wm Morrison PLC and Sainsbury PLC for the two years ended 2013 and 2014. The objective of the report is to conclude on which of the two companies is a worthwhile long term-investment. Any references to ratios, vertical and horizontal analysis is related to the information in the appendices.
As mentioned in the Annual Reports and Financial Statements of Wm Morrison Supermarkets PLC (Morrison’s) and J Sainsbury PLC (Sainsbury’s) the grocery market faced a difficult year, with customers having less disposable incomes and financial constraints amidst difficult economic conditions. During 2013-2014 there was a noticeable decline in the share of the grocery…show more content… Liquidity and asset management:
Monitoring liquidity is of utmost importance, as it relates to the going concern status of the company. In extreme situations, a profitable company might go bankrupt because of its inability to meet obligations when they fall due.
Morrison’s current ratio is 0.5:1 in 2014, deteriorating from 0.57:1 in 2013. Its’ acid test ratio has declined to 0.20:1 in 2014. In 2014, Sainsbury's current ratio is 0.65:1 while its acid test ratio is 0.50:1. These ratios have improved since 2013. Both Current Assets and Current Liabilities of Sainsbury’s have also increased over the year, by 129,46% and 117.17% respectively. The increase is mainly the result of acquisition of Sainsbury’s Bank and its inclusion in the financial accounts..It appears that Sainsbury’s is in a better position, facing less potential cash flow problems. With supermarkets, low liquidity ratios are normal as they may operate a just-in-time system and thus carry little inventory, have few debtors as most sales are for cash and may have the ability to negotiate better credit terms with their suppliers resulting in large creditors figures (Kaplan Financial Knowledge bank, nd). It does not necessarily indicate a liquidity