Introduction to Accounting - AAS3 Coursework Example | Topics and Well Written Essays - 1500 words

Introduction to Accounting - AAS3 - Coursework Example (Morrisons Annual Report, 2012) Moreover, it has 475 stores throughout U.K, while the new CEO, Dalton Phillips has quoted to have said to acquire 100 new stores in London and Southeast. (Morby, 2013) According to their latest annual report, Morrisons employ 131 thousand persons who serve 11 million customers every week. (Morrisons Annual Report, 2012) The current year has brought some positives for the chain of stores in form of two major achievements. Firstly, it has been able to strike a very important deal with Ocado to market its food online, and secondly, it has been able to add 200,000 sq feet of space in only 3 months to cop up with the fierce competition that has prevailed within the industry. (The Guardian, 2013) At present, Morrisons is standing tall due to its good practices in supply chain management, which kept it safe from the latest horsemeat scandal that adversely impacted Tesco. (BBC News, 2013) Today, it is growing at a rapid pace as can be seen by their decision to adopt cash management systems, online food business and the opening of new convenient stores. (Neville, 2013) TABLE OF RATIOS Ratio FY2008 FY2009 FY2010 FY2011 FY2012 Industry 2012 Liquidity Quick Ratio 0.25 0.28 0.22 0.21 0.21 0.77 Current Ratio 0.49 0.53 0.51 0.55 0.57 0.95 Efficiency Asset turnover 1.70 1.77 1.76 1.80 1.79 1.49 Inventory turnover 27.43 27.56 24.87 24.03 21.67 17.95 Debtors Collection 5.5 6.1 3.4 4.3 3.9 2.5 Capital Structure Debt to Equity 74.4% 82.0% 77.0% 68.8% 82.7% 100.0% Debt to Asset 42.7% 45.1% 43.5% 40.8% 45.3% TIE 10.2 11.2 18.0 26.0 25.3 Profitability GPM 6.3% 6.3% 6.9% 7.0% 6.9% 29.3% OPM 4.7% 4.6% 5.2% 5.5% 5.6% 6.1% NPM 4.3% 3.2% 3.9% 3.8% 3.9% 3.8% ROCE 10.6% 10.8% 12.2% 12.9% 13.1% RATIO ANALYSIS The very objective of any business is to earn profits, thus financial strength plays a key role in its success. However, profit is not the only measure to assess the strength of the organization as many factors such as its ability to meet its obligations, its growth, its leverage and its efficiency of operations are some important factors in the process. (Brigham, 1998) Thus in order to better understand the Morrisons, not only the trend of the ratios will be considered but its current performance with respect to its industry will be considered as well. Liquidity The ratios of Morrisons indicate its lesser liquid position with a quick ratio that has hovered around 25% only since FY2008. Despite the assumption that Morrisons deals in an industry that prefers keeping large amount of stocks, even then the industrial average of 77% is 3.7 times larger than the 21% of Morrisons. Moreover, the current ratio which ignores the impact of inventory also suggests the same story which increased to 57% from the last year’s 55%, and still has remained considerably below the industry’s average of 95%. However, one may interpret such information in a positive manner as retail sector prefers low amount of cash to ensure minimum cash ly ing idle. Moreover, the size of Morrisons cannot be denied that allows it to stock large amounts of inventory on credit which only depicts the strength of the Morrisons than any liquidity crunch. (Brigham, 1998) Efficiency The efficiency ratios of Morrisons suggest an efficient system of operations. While asset turnover remained stable at 1.8 since last year, the inventory turnover posted a significant decline from 24 to 21.7, which was still better than

Equity valuation& analysis Essay Example | Topics and Well Written Essays - 500 words

Equity valuation& analysis - Essay Example The given quotes indicate that the general principles adapted by the market participants do not include the use of discounted cash flow method. Most of the market participants use their professional judgment in valuing the securities and their judge their returns rather than using more sophisticated methods to value securities. Literature on investment and corporate finance indicates that the best method to find out the value of any investment is to discount the future stream of cash flows that an investor expects to receive with an appropriate discount rate. This discounting of future cash flows i.e. dividends, therefore lead to finding out the intrinsic value of an investment. The critical difference between intrinsic value of any investment and its market price lies in the fact that intrinsic value is what the value of security should have been and market price is the actual money placed by the market on that security. The difference between the two values therefore indicates whether a security is under-valued or over-valued. Value investors therefore often tend to find out this difference in order to make their investment decisions. It is also important to note that the discounted cash flow method takes into account the element of risk which other methods fail to integrate. The discount rate which is used to discount the future streams of cash flows takes into account the risk premium which compensates an investor for taking risk by buying a particular security. Discount rate is often calculated with the help of Capital Asset Pricing model which is based upon the risk free rate, the correlation of individual security returns with that of the market returns and the market risk premium. Thus if an investor uses discounted cash flow method to find the true value of an investment, the element of risk is already