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    World Wealth Management 1

    M05EFA: FINANCIAL ANALYSIS AND DECISION MAKING

    (October 2011)

    Interpretation & Analysis of Financial Statements

    for

    &

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    World Wealth Management 2

    Team Members:

    Subin (ID: 4037972)

    Shreenath Nair (ID: 3989438)

    Nizil Crasto (ID: 3926709)

    Kevin Doddamani (ID: 2755874)

    Module Tutors:

    Prof. JOHN PANTHER

    Prof. DANNY RYAN

    NB: Definitions, Calculations and Analysis with reference to timebenchmark have been included in the appendices due to the limit of 4000words.

    TOTAL WORD COUNT: 4107 Excluding, Tables, Appendices & Graphs

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    Table of Contents

    1. INTRODUCTION ......................................................................................................................................... 5

    1.1 J SAINSBURY PLC .................................................................................................................................... 5

    1.2 Wm MORRISONS SUPERMARKETS PLC ................................................................................................... 6

    2. Ratio analysis Of Financial Statements ..................................................................................................... 7

    2.1 PROFITABILITY RATIOS .......................................................................................................................... 7

    2.1.1 Return on Capital Employed (ROCE) ................................................................................................ 7

    2.1.2 NET PROFIT MARGIN (NPM) .......................................................................................................... 9

    2.1.3 ASSET TURNOVER (AT) ................................................................................................................... 10

    2.2 LIQUIDITY RATIOS ................................................................................................................................. 12

    2.2.1 CURRENT RATIO (CR) ..................................................................................................................... 12

    2.2.2 ACID TEST RATIO (ATR) .................................................................................................................. 13

    2.3 EFFICIENCY RATIOS .............................................................................................................................. 14

    2.3.1 TRADE RECEIVABLES PAYMENT PERIOD (TRPP) ............................................................................. 15

    2.3.2 TRADE PAYABLES PAYMENT PERIOD ............................................................................................. 16

    2.3.3 AVERAGE INVENTORY TURNOVER ................................................................................................. 17

    2.4 SOLVENCY RATIOS ................................................................................................................................. 19

    2.4.1 Gearing Ratio ................................................................................................................................. 19

    2.5 INVESTMENT RATIOS ............................................................................................................................ 21

    2.5.1 EARNINGS PER SHARE .................................................................................................................... 21

    2.5.2 DIVIDEND PER SHARE ..................................................................................................................... 22

    2.5.3 DIVIDEND PAYOUT RATIO .............................................................................................................. 24

    2.5.5 DIVIDEND YIELD ............................................................................................................................. 26

    2.5.6 PRICE EARNINGS RATIO (P/E)......................................................................................................... 27

    2.5.7 RETURN ON SHAREHOLDERS FUND (ROSF) ................................................................................... 28

    2.5.8 TOTAL SHAREHOLDER RETURN (TSR) ............................................................................................ 30

    3. ANALYSIS OF J SAINSBURY PLC AND Wm MORRISONS PLC WITH REALTION TO THEIR INDUSTRY ...... 31

    3.1 Profitability Comparison ....................................................................................................................... 31

    3.2 Per Share data Comparison .................................................................................................................. 32

    3.3 Growth Rate Comparison...................................................................................................................... 33

    3.4 SHARES COMPARISON .......................................................................................................................... 34

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    3.5 SHARE PRICE FORECAST COMPARISON ................................................................................................ 35

    3.6 EARNINGS, DIVIDENDS AND REVENUES ESTIMATES ............................................................................ 36

    3.7 SEMI ANNUAL AND ANNUAL EARNINGS AND REVENUES GROWTH RATE COMPARISONS ................. 37

    4. CONCLUSION AND RECOMMENDATIONS ............................................................................................... 38

    5. REFERENCES ............................................................................................................................................ 39

    6. APPENDICES ............................................................................................................................................ 40

    6.1 DEFINITIONS & TIME ............................................................................................................................. 40

    6.2 CALCULATIONS ...................................................................................................................................... 48

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    1. INTRODUCTION

    1.1 J SAINSBURY PLC

    (www.fundinguniverse.com/j-sainsbury-plc-company/history.html)

    Sainsburys is the most respected and largest retailer of wine and food in Britain. The company has high

    standards for product, quality and service and has turned out to be a leader in successful development,

    efficient management, marketing and advertising, profitability and outstanding financial performance.

    Incorporated: 1869 as J. Sainsbury Ltd.

    Employees: 141,000

    Sales: 10.6 billion ($18 billion)

    Stock Exchanges: London

    SICs: 5411 Grocery Stores; 5210 Lumber and Other Building Materials; 5261Retail Nurseries and Garden Stores; 6552 Subdividers and Developers, NotElsewhere Classified; 2030 Preserved Fruits and Vegetables Britains second

    largest supermarket group.

    http://www.fundinguniverse.com/j-sainsbury-plc-company/history.htmlhttp://www.fundinguniverse.com/j-sainsbury-plc-company/history.htmlhttp://www.fundinguniverse.com/j-sainsbury-plc-company/history.htmlhttp://www.fundinguniverse.com/j-sainsbury-plc-company/history.html
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    1.2 Wm MORRISONS SUPERMARKETS PLC

    Principal Competitors: ASDA Group Limited; Boots Company Plc.; Budgens Plc.; Greggs Plc.; Iceland

    Group Plc.; J Sainsbury Plc.; John Lewis Partnership Plc.; Marks & Spencer Plc.; Safeway plc.;

    Somerfield Plc.; Tesco Plc.

    Morrison stores stock some 20,000 items; Morrison's private labels account for more than half of all

    sales. The stores feature a 'Market Street' concept, with specialty shops, including fishmongers, butchers,

    pizza, and baked goods, and American shops--selling doughnuts and hotdogs & mdashoviding a High

    Street shopping experience to Morrison's largely suburban customers. Morrison boasts to be the sole

    grocer in the United Kingdom that offers the same prices in all of its stores. The company also produces

    most of its own products, through its Farmers Boy and Wm. Morrison Produce subsidiaries, enabling it to

    keep its prices--and costs--low.

    Incorporated: 1899 as William Morrison (Provisions) Ltd.

    Employees: 23,294

    Sales: 2.99 billion (US$4.79 billion) (2000)

    Stock Exchanges: London

    Ticker Symbol: MRW.LNAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores

    Englands fifth largest supermarket group.

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    2. Ratio analysis Of Financial Statements

    In order to analyse the financial statements of J Sainsbury PLC and Wm. Morrisons PLC various

    financial ratios have to be calculated which includes Profitability ratios, Liquidity ratios, efficiency ratios ,

    investment ratios , Investment ratios and analyse the ratios with respect to three main benchmarks

    namely TIME, INDUSTRY and EXPECTATION. Analysing these ratios reflects the financial standing,

    profitability and efficiency of these companies.

    2.1 PROFITABILITY RATIOS

    Most investors are concerned about the profitability of the company in which they are investing their

    money because profitability determines the capability of any company to provide returns to lenders and

    its investors. Profitability ratios give the measure of the ability of a business to generate enough cash

    which depends on the profit made by a business. A company which manages its resources efficiently

    produces more profits which imply that much production efficient company can be spotted by analysing

    the profitability ratios.

    2.1.1 Return on Capital Employed (ROCE)

    [Definition and Significance: See Appendix]

    ROCE =

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    Graph 2.1.1

    Time: See Appendix

    Industry Competition and Expectation: Year on year the revenue of J Sainsbury PLC increased by

    5.70% from 20 billion to 21 billion. There has been an increase in the operating profit which is part of the

    net income growth which determines the value of ROCE. The cost of goods sold as a percent of sales

    has been reduced for J Sainsbury PLC. Furthermore, general, administrative expenses and selling

    expenses as a percent of sales and interest paid as a percent of sales is also reduced. These reductions

    contributed around 9.40% increase in the Net Profit and hence resulted in increasing percentage of

    ROCE for three consecutive years The revenues of Wm Morrisons PLC grew from 15.41bn to 16.48bn

    J Sainsburys PLC Wm Morrisons PLC

    2009 7.73% 10.80%

    2010 8.80% 13.72%

    2011 10.06% 12.80%

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    ROCE%

    Return on Capital Employed

    Company 2009 2010 2011

    J Sainsbury (673 8705) 100

    = 7.73%

    (710 8062) 100

    = 8.8%

    (851 8457) 100

    = 10.06 %

    WM Morrison (6716202) 100

    = 10.8 %

    (907 6608) 100

    = 13.72 %

    (904 7063) 100

    = 12.8 %

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    during the period 2010 to 2011 and at the same time its net income increased from 598m to 632m

    giving an overall increase of 5.69% in net income. The comparison of the values of the ROCE

    percentages for three consecutive years for both J Sainsburys PLC and Wm Morrisons PLC shows that

    the return on capital employed is greater for Wm Morisons PLC which indicates that Wm Morrisons PLC

    converts more percentage of their capital employed in to operating profits. J Sainsbury in the coming

    future should think about increasing their ROCE percentages.

    2.1.2 NET PROFIT MARGIN (NPM)

    [Definition and Significance: See Appendix]

    NPM =

    J Sainburys PLC Wm Morrisons PLC

    2009 3.50% 4.62%

    2010 3.50% 5.90%

    2011 4.03% 5.48%

    0%

    1%

    2%

    3%

    4%

    5%

    6%

    7%

    NPM

    Net Profit Margin

    Company 2009 2010 2011

    J Sainsbury (673 18911) 100

    = 3.5%

    (710 19964) 100

    = 3.5%

    (851 21102) 100

    = 4.03 %

    WM Morrison (671 14528) 100

    = 4.62%

    (907 15410) 100

    = 5.90%

    (904 14679) 100

    = 5.48 %

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    Graph 2.1.2

    Time: See Appendix

    Industry Competition and Expectation: The revenues were increased by J Sainsbury PLC from 18bn

    to 20 billion during the period 2009 to 2010 but still the Net Profit Margin remained the same because the

    same percentage of Revenue was converted in to operating profit which didnt help in increasing the

    profitability generally. But , in the year 2011 , J Sainsbury PLC increased its Net Profit Margin which was

    a result of reduction in the expenses of the company which was in line with the view to increase the

    profitability of the company .On the other hand, Wm Morrisons PLC have been effectively converting

    their revenues in to operating profit. Wm Morrisons PLC converts more proportion of its revenue in to

    operating profits and hence is able to pay for its fixed costs and debts more effectively than J Sainsburys

    PLC.

    2.1.3 ASSET TURNOVER (AT)

    [Definition and Significance: See Appendix]

    AT =

    Company 2009 2010 2011

    J Sainsbury (18911 8705) = 2.12 (19964 8062) = 2.47 (21102 8457) = 2.49

    WM Morrison (14528 6202) = 2.34 (15410 6608) = 2.33 (16479 7063) = 2.33

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    Graph 2.1.3

    Time: See Appendix

    Industry Competition and Expectation : The Asset turnover of J Sainsbury PLC have been increasing

    steadily year on year which demonstrates their effectiveness of management and the effective

    implementation of marketing strategies which is definitely helping them to increase their revenue over the

    net capital employed .The slight decrease in asset turnover of Wm Morrisons PLC indicates the slight

    increase in the long term liabilities of the company which have been incurred in order to increase the

    sales but there is no major contrast between the years data which makes Wm Morrisons PLC to appear

    normal in Asset turnover ratio analysis. J Sainsbury PLC is more capable of generating sales and

    revenues. Both companies are showing an increase in their revenues year on year which

    demonstrates their capabilities and indicates that both the companies are trying efficiently to

    meet their target sales and generating enough revenue from their respective capitals employed.

    J Sainsbury PLC Wm Morrisons PLC

    2009 2.12 2.34

    2010 2.47 2.33

    2011 2.49 2.33

    1.9

    2

    2.1

    2.2

    2.3

    2.4

    2.5

    2.6

    Asset Turnover

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    2.2 LIQUIDITY RATIOS

    Liquidity ratios are helpful to analyse the financial standing of a company .It is the measure of the

    company's ability to raise sufficient cash when needed and indicates whether or not the company will be

    able to meet its financial obligation within the stipulated time.

    2.2.1 CURRENT RATIO (CR)

    [Definition and Significance: See Appendix]

    CR =

    Jsainsbury PLC Wm Morrisons PLC

    2009 1.18 0.53

    2010 0.64 0.51

    2011 0.58 0.55

    0

    0.2

    0.4

    0.6

    0.8

    1

    1.2

    1.4

    Current Ratio

    Company 2009 2010 2011

    J Sainsbury (1570 1328) = 1.18 (1797 2793) = 0.64 (1708 2942) = 0.58

    WM Morrison(1065 2024) = 0.53 (1092 2152) = 0.51 (1138 2086) = 0.55

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    Graph 2.2.1

    Time:See Appendix

    Industry Competition and Expectation:

    J Sainsbury PLC held the ability to pay off its short term debts more effectively under stipulated time as

    compared to Wm Morrisons PLC in the year 2009 but the current ratio of J Sainsbury PLC fell steeply in

    the year 2010 which indicates the loss in ability to pay short term debts. J Sainsburys experienced an

    increase in current liabilities year on year from 2009 to 2011 which questioned the ability of J Sainsburys

    to clear off its short term debts. This company was unsuccessful in increasing its current assets

    proportionally with its increasing current liabilities.

    Wm Morrison PLC displays a rather steady change in the values of current ratio which is due to the fact

    that Wm Morrisons PLC increased their current assets fairy enough to tolerate the effect of increasing

    liabilities in order to increase revenues and sales .

    Both the companies are less capable of paying off their obligations and are not having satisfactory

    performance when it comes to paying the liabilities within stipulated time or short term. Both companies

    have capabilities to deal with their short term liabilities and increase their current ratio in near future.

    2.2.2 ACID TEST RATIO (ATR)

    [Definition and Significance: See Appendix]

    ATR =

    Company 2009 2010 2011

    J Sainsbury (1570 689 1328)= 0.66

    (1797 - 702 2793)

    = 0.392(1708 - 812 2942)

    = 0.304

    WM Morrison

    (1065 494 2024)

    = 0.28

    (1092 577 2152)

    = 0.24

    (1065 638 2086)

    = 0.20

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    Graph 2.2.2

    Industry Competition & Expectations: It is usually observed that companies having ATC less than 1

    might get into problems paying their current liabilities. The companies must realize and look into the

    matter for improving it. If the working capital ratio is much than ATC, then it states that the current assets

    are dependent on inventory. This is usually noticed in case of most retail stores. According to presentscenario, J Sainsbury PLC has a better ATR compared to Wm Morrisons PLC but both are not liquid

    enough to meet their financial requirements

    2.3 EFFICIENCY RATIOS

    In an organisation there are many resources. We need a proper program and analyse to manage them.

    Efficiency ratio plays a good role in the same. They can be used to analyse how organisations make

    proper use of their assets and lower the liabilities. The ratios can be found out from dynamic statement

    and static statement for income statement and balance sheets respectively. These ratios play an

    important role in achieving short n long terns of an organisation. Better the efficiency ratio better is the

    profit

    J Sainsburys PLC Wm Morrisons PLC

    2009 0.66 0.28

    2010 0.392 0.24

    2011 0.3 0.2

    0

    0.1

    0.2

    0.3

    0.4

    0.5

    0.6

    0.7

    Acid Test Ratio

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    2.3.1 TRADE RECEIVABLES PAYMENT PERIOD (TRPP)

    [Definition and Significance: See Appendix]

    TRPP=

    J Sainsbury Wm Morrison

    2009 4 6

    2010 4 5

    2011 6 6

    0

    1

    2

    3

    4

    5

    6

    7

    Days

    Trade Payables Payment Period

    Company 2009 2010 2011

    J Sainsbury 195 18911 x 365= 4 days

    251 19964 x 365= 4 days

    343 21102 x 365= 6 days

    WM Morrison

    245 14528 x 365

    = 6 Days

    199 15410 x 365

    = 5 Days

    268 16479 x 365

    = 6 Days

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    Graph 2.3.1

    Time: See Appendix

    Industry Competition & Expectation: J Sainsbury and Wm Morrisons are supermarket groups and

    therefore majority of their sales are in cash which is basis of high mortgagor payment figure.

    J Sainsbury had 12.4%, 12% &20% of their current assets related to debtors for 2009, 2010 & 2011

    respectively. The financial statement shows that J Sainsbury Plc. experienced growth in the amount of

    debtors year by year, which was almost double the previous year value in 2011, which resulted in the

    increase in the trade receivable payment period.

    Wm Morrisons had 22.9%, 18%, 23.5% of their current assets related to debtors for 2009, 2010 & 2011

    respectively. The financial statement shows that Wm Morrisons Plc. has a relatively stable trade

    receivable payment period even though there was a slight improvement in the year 2010.

    2.3.2 TRADE PAYABLES PAYMENT PERIOD

    [Definition and Significance: See Appendix]

    Trade Payables Payment Period =

    Company 2009 2010 2011

    J Sainsbury 2488 17875 x 365= 51 days

    246618882 x 365= 48 days

    259719942 x 365= 48 days

    WM Morrison 1915 13615 x 365= 51 days

    1845 14348 x 365= 47 days

    1914 15331 x 365= 46 days

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    Graph 2.3.2

    Time: See Appendix

    Industry Competition & Expectation: J Sainsbury had 85.23%, 88.32% &88.27% of their current

    liabilities related to creditors for 2009, 2010 & 2011 respectively. The financial statement shows that J

    Sainsbury Plc. experienced slight growth in the amount of creditors compared to 2009, which resulted in

    the decrease in trade payable payment period.

    Wm Morrisons had 94.6%, 85.73%, 91.75% of their current liabilities related to creditors for 2009, 2010 &

    2011 respectively. The financial statement shows that Wm Morrisons Plc. experienced slight growth in

    the amount of creditors compared to 2009, which resulted in the decrease in trade payable payment

    2.3.3 AVERAGE INVENTORY TURNOVER

    [Definition and Significance: See Appendix]

    Average Inventory Turnover =

    J Sainsbury Wm Morrison

    2009 4 6

    2010 4 5

    2011 6 6

    0

    1

    2

    3

    4

    5

    6

    7

    Days

    Trade Payables Payment Period

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    Graph 2.3.3

    Time:See Appendix

    Industry Competition & Expectation: From the given financial statements we have analyzed that both

    companies have a stock turnover period of approximate fourteen days. Fourteen days is high considering

    the lifecycle of vegetables, fruits, dairy products and other food products. These items should be kept

    fresh. Both these supermarket groups also sell entertainment, house wares, electronics and other

    domestic goods. In this case it is good to consider that both groups keep a stock of these. For domestic

    and household items; the spin is expected to be in longer period of time as these stocks take a longer

    J Sainsbury WM Morrison

    2009 14 13

    2010 14 15

    2011 15 15

    12

    12.5

    13

    13.5

    14

    14.5

    15

    15.5

    Days

    Trade Payables Payment Period

    Company 2009 2010 2011

    J Sainsbury 685 17875 x 365= 14 days

    702 18882 x 365= 14 days

    812 19942 x 365= 15 days

    WM Morrison 494 15615 x 365= 13 days

    577 14348 x 365= 15 days

    638 15331 x 365= 15 days

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    time to be rotated.

    2.4 SOLVENCY RATIOS

    Solvency ratios: they are used to calculate the company`s power to service its long term loans. These

    ratios measure the total liabilities of a firm, and indicate a possible over dependency on outside sources

    for long term financial support.

    Solvency Ratios are comprised of the following: -

    2.4.1 Gearing Ratio

    [Definition and Significance: See Appendix]

    Gearing Ratio =

    Company 2009 2010 2011

    J Sainsbury 4376 8705 100=49.70 %

    3096 8062 100=38.40 %

    3033 8457 100=35.80 %

    WM Morrison1682 6202 100

    = 27.10 %

    1659 6608 100

    = 25.10 %

    1643 7063 100

    = 23.30 %

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    Graph 2.4.1

    Time:See Appendix

    Industry:

    Ideally, gearing should not be greater than 50%, although new, small businesses often do exceed this

    percentage. If cash flow is stable and profit is fairly stable, then the business can afford a higher gearing.

    So comparing the gearing ratios of Sainsbury and Morrisons it can be deduced in the year 2009

    Sainsburys gearing ratio started declining through the years 2010 and 2011. Since the profit margins

    were stable at 3.5 % and grew by about 0.53% and gearing ratios have reduced they can effectively

    service their long term loans in the future. Morrisons gearing ratio also has reduced from the year 2009

    to 2011 and their profit margins have shown a growth. In 2009 it was 4.62 % and grew by 1.28% in 2010

    and decreased by 0.42 % so even Morrisonswouldnt face any issues in servicing their long term debts.

    Expectations

    As of 2011 both Sainsbury and Morrisons have shown a reduction in their gearing ratios with increase in

    their overall profit which indicates a good sign for both business, in the future both companies need to

    keep the gearing ratios stable and try to lower it as much as possible.

    J Sainsbury PLC Wm Morrisons PLC

    2009 49.70% 27.10%

    2010 38.40% 25.10%

    2011 35.80% 23.30%

    0%

    10%

    20%

    30%

    40%50%

    60%

    Gearing Ratio

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    2.5 INVESTMENT RATIOS

    Investment ratios help an investor in making intelligent investment decisions. However, it should not be

    considered as an easy way to make quick money. Experts consider some ratios to be an important guide

    to invest in a company. These ratios can guide an investor to choose a stock of high value that endures

    recession because the company has the ability to pay its investors. The investment ratios are as follows:

    2.5.1 EARNINGS PER SHARE

    [Definition and Significance: See Appendix]

    EARNINGS PER SHARE=

    Company 2009 2010 2011

    J Sainsbury 16.6% 18.2% 18.6%

    WM Morrison17.4% 22.8% 23.9%

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    Graph 2.5.1

    Time: See Appendix

    Industry Competition and Expectation

    EPS is used to measure the performance of a companys management which determines the amount of

    earnings the company makes for its investors. Since the EPS of WM Morrison Plc. has shown an upward

    trend and is greater than J Sainsbury Plc. it clearly indicates WM Morrison has better prospects in

    generating earnings for its investors. Shareholders do expect the company to perform better in order to

    increase their capital.

    2.5.2 DIVIDEND PER SHARE[Definition and Significance: See Appendix]

    DIVIDEND PER SHARE=

    J Sainsbury PLC Wm Morrisons PLC

    2009 16.60% 17.40%

    2010 18.20% 22.80%

    2011 18.60% 23.90%

    0%

    5%

    10%

    15%20%

    25%

    30%

    Earnings per share

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    (Panther 2011)

    Graph 2.5.2

    Time: See Appendix

    Industry competition and Expectation

    For every share held by an investor J Sainsbury generates a higher dividend compared to W M Morrison.

    Shareholders examine the performance of an industry that earns a better payout that motivates them to

    invest into the business. Shareholders expect a growth in dividends to match up with the level of

    consumer prices which increases the spending power of shareholders.

    J Sainsbury PLC Wm Morrisons PLC

    2009 13.2 5.8

    2010 14.2 9.2

    2011 15.1 9.6

    0

    2

    4

    6

    810

    12

    14

    16

    Dividend Per Share

    Company 2009 2010 2011

    J Sainsbury 13.2 14.2 15.1

    WM Morrison 5.8 8.2 9.6

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    2.5.3 DIVIDEND PAYOUT RATIO

    [Definition and Significance: See Appendix]

    DIVIDEND PAYOUT RATIO=

    Graph 2.5.4

    j Sainsbury PLC Wm Morrison PLC

    2009 79.50% 33.33%

    2010 44.20% 35.96%

    2011 43.80% 40.16%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    Dividend Payout Ratio

    Company 2009 2010 2011

    J Sainsbury(13.2 16.6) 100

    = 79.5%(14.2 32.1) 100

    = 44.2%(15.1 34.4) 100

    = 43.8%

    WM Morrison(5.8 17.4) 100

    = 33.33%(8.2 22.8) 100

    = 35.96%(9.6 23.9) 100

    = 40.16%

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    This means that Sainsbury has a lower cover for paying its dividends to shareholders from profits

    earned. Overall W M Morrison has a stronger cover compared to Sainsbury. Normally it is said that the

    company that has higher cover is said to have a safer dividend. Since both companies are based in the

    United Kingdom, it is important to look at this ratio as this is most commonly used in the UK to analyse

    the liquidity of the business.

    2.5.5 DIVIDEND YIELD

    [Definition and Significance: See Appendix]

    DIVIDEND YIELD=

    Graph 2.5.5

    J Sainsbury PLC Wm Morrisons PLC

    2009 4.27 2.142010 4.26 2.84

    2011 4.3 3.64

    00.5

    11.5

    22.5

    33.5

    44.5

    5

    Dividend Yield

    Company 2009 2010 2011

    J Sainsbury(13.2 309) 100

    = 4.27(14.2 333) 100

    = 4.26(15.1 351) 100

    = 4.30

    WM Morrison(5.8 271) 100

    = 2.14(8.2 289) 100

    = 2.84(9.6 264) 100

    = 3.64

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    Industry Competition and Expectation

    Investors are expected to invest in companies that are well established as they earn higher yield

    compared growing companies. J Sainsbury is comparatively a better established company compared to

    WM Morrison as it earns higher yields for the investor.

    2.5.6 PRICE EARNINGS RATIO (P/E)

    Price to earnings ratio or P/E ratio is the assessment of the existing share price in comparison to the

    price per share of income which in other words is called Earnings Per Share (EPS). An investor looks at

    the P/E ratio to determine which company to invest in. They would look to invest in a company where

    they have a healthy earning compared to the price they pay for the stock. The comparison of companys

    can only be done with those of the same industry. P/E is calculated as the existing share price over

    earnings per share (EPS).

    PRICE EARNINGS RATIO =

    Company 2009 2010 2011

    J Sainsbury(309 16.6) 100

    = 18.61%(333 34.4) 100

    = 10.20%(351 32.1) 100

    = 10.37

    WM Morrison(271 17.39) 100

    = 15.83(289 22.80) 100

    = 12.67(264 23.93) 100

    = 11.03%

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    Graph 2.5.6

    The P/E ratio suggests that the share price for J Sainsburys stock is high and is not earning returns as

    much as W M Morrison. The share price paid by an investor in W M Morrison is much lesser but their

    earnings per share are much higher than J Sainsbury. An investor will be keen to pay less to buy a share

    and receive greater earnings. In this case W M Morrison is a better bet to invest in.

    2.5.7 RETURN ON SHAREHOLDERS FUND (ROSF)

    [Definition and Significance: See Appendix]

    RETURN ON SHAREHOLDERS FUND =

    J Sainsbury PLC Wm Morrisons PLC

    2009 18.61% 15.83%

    2010 10.20% 12.67%

    2011 10.37% 11.03%

    0%2%4%6%8%

    10%12%14%16%18%20%

    Price Earnings Ratio

    Company 2009 2010 2011

    J Sainsbury (466 5982) 100= 7.79%

    (733 7007) 100= 10.46%

    (827 7905) 100= 10.46 %

    WM Morrison(655 4520) 100

    = 14.49%(858 4949) 100

    = 17.34%(874 5420) 100

    = 16.13%

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    Graph 2.5.7

    Time: See Appendix

    Industry Competition and Expectation

    Investors look at industries they have a high return on shareholders funds. ROSF is a more detailed

    examination compared to ROCE, of how profitable the industry is and how much of the profit is

    accessible to its shareholders. WM Morrison clearly has a higher return on shareholders funds and thus

    can be considered more profitable compared to J Sainsbury. On average WM Morrison earns about 16%

    on shareholders investment over three years compared to 9.6% for J Sainsbury.

    J Sainsburys PLC Wm Morrisons PLC

    2009 7.79% 14.49%

    2010 10.46% 17.34%

    2011 10.46% 16.13%

    0%

    5%

    10%

    15%

    20%

    Return on Shareholders Funds

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    2.5.8 TOTAL SHAREHOLDER RETURN (TSR)

    [Definition and Significance: See Appendix]

    TOTAL SHAREHOLDER RETURN =-

    D1 = Dividend per share for the year

    P1 = Share price at the end of the year

    P0 = Share price at the beginning of the year

    J Sainsbury WM Morrison

    2010 12.36 9.66

    2011 9.93 -5.32

    -8-6-4-202468

    101214

    Days

    Total Shareholder Return

    Company 2009 2010 2011

    J SainsburyNot Calculated

    14.2 + (333-309) 309 100 = 12.36

    15.1 + (351-333) 333 100 = 9.93

    WM MorrisonNot Calculated

    8.2 + (289-271) 271 100 = 9.66%

    9.6 + (264 - 289) 289 100 = -5.32

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    Wm. MorrisonSupermarkets

    PLC

    6.89 6.10 3.93 3.47

    X5 Retail GroupNV(EDR)

    23.32 26.76 2.42 - 4.0404

    TABLE 3.1.1 (Market Data adopted from FAME)

    The net profit margin (TTM) for J Sainsburys PLC is currently indicated as 2.73 whereas for Wm

    Morrisons PLC the net profit margin (TTM) for the current year is 1.20 units greater than that of J

    Sainsbury PLC. O Key Group SA and X5 Retail Group NV (EDR) are the companies which operates in

    the same industry which has reportedly higher Gross Margins (TTM) as compared to J Sainsbury PLC

    and Wm Morrisons PLC.

    The Net Profit Margin (TTM) for Wm Morrisons PLC is greater than that of O Key Group SA by 0.30 units

    whereas J Sainsburys PLC lags behind O key Group SA by 0.93 units. The net profit margin (5 yr.

    average) of Wm Morrisons leads J Sainsburys PLC by 1.19 units which indicates that, the 5 year

    average value of the net profit margin (TTM) for Wm Morrisons PLC is greater, the Wm Morrisons PLC

    have been consistently making more profits on their investments as compared to J Sainsburys PLC in

    the same industry

    3.2 Per Share data Comparison

    The per share data comparison of the same industry companies has been displayed in the table below. J

    Sainsbury Earnings per share excluding the extra ordinary items is 0.07 units greater than that of Wm

    Morrisons PLC .The Revenue per share (TTM) of J Sainsbury PLC is 4.96 units above the Revenue per

    share of Wm Morrisons PLC. This comparison indicates that J Sainsbury PLC may provide more

    dividends to the shareholders because of the greater earnings per share by the investors but this can be

    misleading because Wm Morrisons PLC has the capability to increase its EPS and revenue per share.

    The key factor is the growth rate of the companies with respect to earnings and income because the a

    particular company will appear to be doing good presently but it may not be the same case in the long run

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    which is very important for the investor .

    Company EPS (excludingextraordinaryitems )(TTM)

    EPS (includingextraordinaryitems)(TTM)

    Revenue pershare

    (TTM)

    Book value pershare (MRQ)

    J SainsburyPLC

    0.3139 0.3139 11.30 3.00

    O key GroupSA

    0.3756 0.3756 10.38 1.49

    Wm. MorrisonSupermarkets

    PLC

    0.2496 0.2496 6.34 2.07

    X5 Retail GroupNV(EDR)

    1.24 1.24 51.40 8.83

    Table 3.2.1 (Market Data adopted from FT. com)

    3.3 Growth Rate Comparison

    Company Revenue (year-over-year

    change %)

    Revenue(5 yr.growth rate)

    Net income (5yr. growth rate)

    Capitalexpenditure (5yr. growth rate)

    Dividend (5 yr.growth rate)

    J SainsburyPLC

    5.70 5.61 58.49 15.71 13.55

    O key GroupSA

    21.79 -- -- -- --

    Wm. MorrisonSupermarkets

    PLC

    6.94 6.35 -- -1.405 21.01

    X5 Retail Group

    NV(EDR)

    29.40 61.88 56.29 21.70 --

    Table 3.3.1 (Market Data adopted from FT.com)

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    The Growth rate comparison of the companies in the same industry shows that O key Group SA

    and X5 retail Group NV (EDR) have significant values of revenue growth rates and income growth rates.

    Redirecting the focus on Wm Morrisons and J Sainsbury PLC , in which the investor is interested , it is

    apparent from the table above that Wm Morrisons PLC has higher growth rate with respect to

    revenue(year-over-year change%) , Revenue (5 yr. change) and Dividend (5 yr. growth rate) as

    compared to J Sainsbury PLC. The Earnings per share for J Sainsbury PLC was higher but it can be

    predicted from the growth rate comparison of the two companies that WmMorrisons in the near future

    will be a good option to invest in because the dividend (5 year growth rate) of WmMorrisons PLC

    have been increased by 5 units over J Sainsbury PLC and it will further increase in the coming

    years which will inevitably increase the earnings per share for the investors.

    3.4 SHARES COMPARISON

    The latest share price comparison of WmMorrisons PLC shows that the GBX of WmMorrisons

    PLC is greater than GBX of J Sainsbury PLC by 19 units and the number of shares traded of Wm

    Morrisons PLC is 1.50 m which is much greater than J Sainsbury PLC which trades 1.05m shares.

    Wm Plc. J Plc.

    GBX = 310 (Latest price) GBX = 291.7 (Latest Price)

    Todays Change = 0.60 / 0.19 % Todays Change = 0.10 / 0.03 %

    Shares Traded = 1.50 m Shares Traded = 1.05 m

    1 Year change = 13.55 % (increase) 1 Year change = 19.38 % (decrease)

    Beta = 0.4362 Beta = 0.7152

    Table 3.4.1 (Market Data adopted from FT.com)

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    The percentage change in share price over the period of one year shows that the share price of

    WmMorrisons have been increased by 13.55%but , on the other hand, the share price of J Sainsbury

    PLC have been decreases by 19.38 % in previous one year time.

    3.5 SHARE PRICE FORECAST COMPARISON

    (As per 29 analysts over 12 month price targets)

    Wm Plc.

    Median = 325(+5.0%)

    J Plc.

    Median = 310(+6.3%)

    High = 389

    (+25.7%)

    LOW = 279 (-9.8%)

    High = 460.00(+57.8%)

    LOW = 279

    (-17.7%)

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    The share price forecast comparison for Wm Morrisons PLC and J Sainsbury PLC estimates that

    the highest share price reached by J Sainsbury PLC is greater than Wm Morrisons PLC and the lowest

    level of share price is estimated to be the same price for both the companies. Furthermore, it is apparent

    that the Median share price of WmMorrisons PLC is estimated to be 325((+5%) which is greater

    than the median estimated for J Sainsbury PLC which is 310(+6.3%).

    3.6 EARNINGS, DIVIDENDS AND REVENUES ESTIMATES

    Wm PLC J PLC

    Current Dividend 0.10 GBP 0.15 GBP

    Increase in dividend 17.07% over last year 6.34% over last year

    Expected Dividend 0.11 GBP (11.46% increase) 0.16 GBP (3.97 % increase)

    Semi Annual 2012 earnings 0.1166 per share 0.138 per share

    Expected Increase in earnings 7.37 % 6.15 %

    Annual 2011 earnings 0.2254 per share 0.261 per share

    Semi Annual Revenue 8.74 billion (7.40 % increase) 11.69 billion(6.11 % increase)

    Annual 2011Revenue 16.48 billion (6.94 %

    increase)

    21.10 billion(5.70 % increase)

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    3.7 SEMI ANNUAL AND ANNUAL EARNINGS AND REVENUES GROWTH RATE

    COMPARISONS

    Analysis of the growth rates with respect to earnings and revenues for J Sainsbury PLC and Wm

    Morrison PLC shows the clear picture of the standing of the company.

    WmMorrisons PLC have annual revenue growth rate just above 5 % and J Sainsbury PLC annual

    revenue growth is under 5 % and the Annual earnings growth percentage of WmMorrisons PLC

    is more than double the annual growth rate percentage of JSainsburys PLC.

    0.00%

    5.00%

    10.00%

    15.00%

    20.00%

    25.00%

    30.00%

    35.00%

    40.00%

    Wm Morrisons

    PLC

    J Sainsburys PLC

    Semi Annual Earning

    growth rate

    Annual earnings growth

    rate

    Semi Annual Revenue

    growth rate

    Annual Revenue growth

    rate

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    4. CONCLUSION AND RECOMMENDATIONS

    As a group of investment analysts, considering Chriss low risk attitude towards investment, the financial

    statements of Wm Morrisons PLC & J Sainsbury PLC like Cash flow statements, Income Statements and

    balance sheets for three consecutive years i.e. 2009, 2010 & 2011 were analyzed. The research was

    purely based on multiple references, accounting and financial theories. For providing an extensive report,

    we have calculated the Profitability Ratios, Liquidity Ratios, Efficiency Ratios, Solvency Ratios and

    Investment Ratios for both the firms.

    Based on the analysis, J Sainsbury faced problems in their marketing management, financial

    management and their supply chain. J Sainsburys have an investment for a long term venture and

    therefore they are very positive in prospective progression in coming years. To achieve this aim they

    should work hard and closely examine the reasons behind the success of its competitors. They should be

    ready with low price and good quality products for customers on their shelves.

    There is still good and strong position for J Sainsburys in the UKs retail sector. Considering these

    reasons, we would recommend Chris Houghton to wait and watch J Sainsburys progress in the coming

    years. Considering current situation we would not recommend J Sainsbury as an investment option

    Annual growth rate of Earnings, Revenues, ROCE and Net profit margins are higher for Wm Morrisons

    PLC in comparison with J Sainsbury PLC. It is highly recommended to invest in Wm Morisons PLC

    considering the current scenario as its more efficient, liquid, geared and P rofitable. Wm Morrison PLCs

    performance is more reasonable while that of J Sainsbury PLC should not be considered for now.

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    5. REFERENCES

    Fame-Peer Analysis (2011) Peer Analysis [online] Available from < https://fame2.bvdep.com/version-

    20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277> [22 November

    2011]

    Ft.com/Marketsdata (2011) J Sainsbury PLC[online] 21 November 2011 available from

    [21 November 2011]

    Ft.com/Marketsdata (2011) Wm Morrisons Supermarkets PLC [online] [ 21November 2011 ] Available

    from [21 November2011]

    FundingUniverse (2001) Wm Morrisons Supermarkets PLC [online] 2001 Available from

    [ 11 November 2011]

    FundingUniverse (2001) J Sainsbury PLC [online] 2001 Available from

    [11

    November 2011]

    J Sainsbury plc (2011) Annual Report and Financial Statements [online] 07 June 2011available from

    [15 November 2011]

    Morrisons (2011) Annual Reports and financial statements [online] 30 January 2011 available from

    [15 November 2011]

    https://fame2.bvdep.com/version-20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277https://fame2.bvdep.com/version-20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277https://fame2.bvdep.com/version-20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277http://markets.ft.com/research/Markets/Tearsheets/Financials?s=SBRY:LSEhttp://markets.ft.com/research/Markets/Tearsheets/Financials?s=SBRY:LSEhttp://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=MRW:LSEhttp://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=MRW:LSEhttp://www.fundinguniverse.com/company-histories/Wm-Morrison-Supermarkets-PLC-company-History.htmlhttp://www.fundinguniverse.com/company-histories/Wm-Morrison-Supermarkets-PLC-company-History.htmlhttp://www.fundinguniverse.com/company-histories/J-Sainsbury-plc-company-History.htmlhttp://www.j-sainsbury.co.uk/investor-centre/reports/2011/annual-report-and-financial-statements-2011/http://www.j-sainsbury.co.uk/investor-centre/reports/2011/annual-report-and-financial-statements-2011/http://www.morrisons.co.uk/Corporate/2011/annualreport/financial-statements/group-financial-statements/consolidated-statement-of-comprehensive-income/Default.aspxhttp://www.morrisons.co.uk/Corporate/2011/annualreport/financial-statements/group-financial-statements/consolidated-statement-of-comprehensive-income/Default.aspxhttp://www.morrisons.co.uk/Corporate/2011/annualreport/financial-statements/group-financial-statements/consolidated-statement-of-comprehensive-income/Default.aspxhttp://www.morrisons.co.uk/Corporate/2011/annualreport/financial-statements/group-financial-statements/consolidated-statement-of-comprehensive-income/Default.aspxhttp://www.morrisons.co.uk/Corporate/2011/annualreport/financial-statements/group-financial-statements/consolidated-statement-of-comprehensive-income/Default.aspxhttp://www.j-sainsbury.co.uk/investor-centre/reports/2011/annual-report-and-financial-statements-2011/http://www.j-sainsbury.co.uk/investor-centre/reports/2011/annual-report-and-financial-statements-2011/http://www.fundinguniverse.com/company-histories/J-Sainsbury-plc-company-History.htmlhttp://www.fundinguniverse.com/company-histories/Wm-Morrison-Supermarkets-PLC-company-History.htmlhttp://www.fundinguniverse.com/company-histories/Wm-Morrison-Supermarkets-PLC-company-History.htmlhttp://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=MRW:LSEhttp://markets.ft.com/research/Markets/Tearsheets/Financials?s=SBRY:LSEhttps://fame2.bvdep.com/version-20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277https://fame2.bvdep.com/version-20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277
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    6. APPENDICES

    6.1 DEFINITIONS & TIME

    RETURN ON CAPITAL EMPLOYED (ROCE)

    Return on capital employed indicates what proportion of capital employed is converted in to operating

    profit. This ratio is very helpful in analysing the performance of a business.

    TIME:

    The ROCE of J Sainsbury PLC was observed to be 7.73% in the year 2009. The ROCE for J Sainsbury

    PLC increased steadily year by year until 2011 with an increase of 1.07% from 2009 to 2010 and an

    increase of 1.26% in ROCE from 2010 to 2011.

    For Wm Morrisons PLC the ROCE % for the year 2009 was noted to be 10.80 %. The ROCE % for the

    year 2010 increased by 2.92 % as compared to the previous year and decreased by 0.92 % in the year

    2011 as compared to ROCE % in 2010.

    NET PROFIT MARGIN

    Net profit margin gives the measure of the proportion of the sales that is contributed towards profit after

    all overheads have been accounted for and deducted accordingly. A higher net profit margin is an

    indication of the balance between business efficiency and cost reduction and eventually reducing the

    overheads effectively.

    TIME:

    The Net Profit Margins of J Sainsbury PLC for the years 2009 and 2010 remained the same at 3.5 %. In

    2011 the net profit margin of the company increased by 0.53%.

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    Wm Morrisons PLC have had a current ratio of 0.53 in the year 2009, after which, it reduced slightly

    to 0.51 in 2010 and plunged to 0.55 in 2011.

    ACID TEST RATIO

    Acid test ratio indicates the ability of the company to clear its financial obligations without selling off its

    inventories. This ratio gives more precise information about the financial standing of the company .A

    company which has highly liquid current assets and can repay its current debts easily can be spotted by

    analysing this ratio and hence provides useful information for the investors and shareholders.

    TIME:

    After comparing the ATR of J Sainsbury PLC and Wm Morisons. J Sainsbury maintains a better ATR

    compared to Wm Morrisons. J Sainsbury had a good short term liability in 2009 to compensate its

    liabilities without vending its stocks. But it significantly dropped in the following years i.e. 2010 & 2011. Itis seen from the analysis that Wm Morisons maintained their ATR.

    ASSET TURNOVER

    Acid test ratio indicates the ability of the company to clear its financial obligations without selling off its

    inventories. This ratio gives more precise information about the financial standing of the company .A

    company which has highly liquid current assets and can repay its current debts easily can be spotted by

    analysing this ratio and hence provides useful information for the investors and shareholders.

    TRADE RECIEVABLES PAYMENT PERIOD

    When an organisation comes into business with its client, the trade receivables/ or debtors period plays

    an important role. The average trade receivables tell us that on an average how long it will take the

    customer to pay the amount that they owe to the company. The faster the payment more the cash flow

    and the organisation can take more orders and flourish their business

    TIME:

    The trade receivable periods of J Sainsbury PLC remained almost the same at an average of 3.8 days. In

    2011 the trade payables of the company increased by 55.26 % to 5.9 days. For Wm Morrisons PLC the

    trade receivables were observed to be 6.2 days in the year 2009. The trade receivable period decreased

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    by 24.1 % to 4.7 days in the year 2010 and again further increased to 25% to 5.9 days by the year

    2011.

    TRADE PAYABLES PAYMENT PERIOD

    This calculation is entirely opposite of average trade receivables. The company makes different payment

    dates to debtors. If the company fails or delays the payment to its debtors or in other words if the

    turnover ratio is dropping at different intervals then it is proving that the organisation is taking more time

    to pay its dues to its debtors compared to its previous months. It is vice versa if the opposite happens and

    proves that organisation is paying its debts at faster and good rate.

    TIME:

    The trade payable payment periods of J Sainsbury PLC dropped to an average of 47 days in 2010 and

    2011 compared to 50 days as of 2009. The company paid their debts 6.3%more compared to 2009

    For Wm Morrisons PLC, the trade payables payment period dropped to an average of 46 days in 2010

    and 2011 compared to 51 days as of 2009. The company paid their debts 9.8%more compared to 2009

    INVENTORY TURNOVER

    It is the calculation of ratios which shows the cycling of stocks in a company over a period of time. As the

    average inventory turnover increases better is the companys output. Low inventory turnover is not a

    good sign as the stocks tends to wane as they sit in the storehouse. Considering supermarkets, it should

    have high turnover rates because of selling fresh items.

    TIME:

    After comparing the average inventory turnover days for J Sainsbury PLC and Wm Morrisons

    Supermarket PLC. J Sainsbury maintains their average inventory turnover. But for Wm Morrisons

    Supermarket PLC trade payables are increasing over the years which show the decline in cycling the

    stocks. It can be concluded that J Sainsbury PLC has a better Average Inventory Turnover period with

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    that of WM Morrisons PLC in the last three years i.e. 2009, 2010 and 2011

    GEARING RATIO

    The higher the gearing, the higher the dependence on borrowings and long term financing. The lower the

    gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing,

    the higher the level of financial risk due to the increased volatility of profits

    TIME:

    For J Sainsbury PLC the gearing ratio in the year 2009 was 49.70 % which declined shapely to 38.40 %

    in the year 2010 and further declined to 35.80 % in the year 2011.

    For Wm Morrison`s the gearing ratio in the year 2009 was 27.10 % which decreased to 25.10 % in the

    year 2010 and further decreased to 23.30 % in the year 2011

    INTEREST COVER

    The interest cover ratio is used to determine whether J Sainsbury and WM Morrisons has a good,

    satisfactory or unsatisfactory amount of operating profit available to cover their interest payments. It

    should be noted that both companies have different start and end times for their accounting period and as

    a result these results will not occur at the same point in time for each company

    EARNINGS PER SHARE

    Earnings per share is a measure used to calculate how much income a particular company is generating

    which is then available for shareholders over a particular period of time. In other words it basically

    checks how the shares of a business are doing in the market. An investor can use EPS to compare two

    or more companies of the same industry in order to decide where to invest. The way EPS is calculated

    for equity or ordinary shareholders is represented by the profit after tax by the number of ordinary shares

    outstanding.

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    TIME:

    J Sainsburys data shows an increase in EPS from 2009 to 2011. This indicates, for every pound

    invested shareholders can earn on average of 17.8 pence. This also suggests an increase in earnings of

    2 pence over three years. WM Morrison has generated an EPS that is higher than Sainsburys, which

    means for every pound invested they receive they earn an average of 21.4 pence over three years.

    DIVIDEND PER SHARE

    Dividend per share (DPS) is the income generated from each share that has been issued by the

    company. Dividend received depends on how the business is performing and can be increased or

    decreased depending on the companys performance. An increase in the dividend per share received

    can mean an increase in share price. DPS is normally represented by the net dividend by the number of

    shares outstanding. Dividend is the earnings that the business generates which is normally distributed

    to its shareholders in the form of cash

    TIME:

    For every share sold J Sainsbury gets a dividend of 13.2, 14.2 and 15.1 pence for 2009, 2010 and 2011

    respectively in the form of dividend. There has been a steady increase in earnings for the company as

    the data suggests. W M Morrison has also received an increase in earnings from the shares sold by the

    company. For every share sold they get an income of 5.8, 8.2 and 9.6 pence respectively.

    DIVIDEND PAYOUT RATIO

    This ratio determines the percentage of the earnings that is utilized to pay out dividends to shareholders.

    The payout ratio for dividends also gives a clue as to how much of the dividend payments can be

    supported by the earnings of the company. Normally established companies have the tendency to have

    a greater payout ratio as compared to relatively established companies.

    TIME:

    This ratio determines that J Sainsburys has paid out a huge percentage of dividends to its shareholders

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    World Wealth Management 47

    higher than what W M Morrison pays its investors which is 2.14, 2.84 and 3.64 for 2009, 2010

    and 2011 respectively.

    PRICE EARNINGS RATIO

    Price to earnings ratio or P/E ratio is the assessment of the existing share price in comparison to the

    price per share of income which in other words is called Earnings Per Share (EPS). An investor looks at

    the P/E ratio to determine which company to invest in. They would look to invest in a company where

    they have a healthy earning compared to the price they pay for the stock. The comparison of companys

    can only be done with those of the same industry. P/E is calculated as the existing share price over

    earnings per share (EPS).

    RETURN ON SHAREHOLDERS FUND

    Return On Shareholders Fund (ROSF) or Return On Equity (ROE) is used to calculate profit before tax

    deductions on investment made by shareholders. In other words it is used to calculate the profitability of

    the company by showing how much profit the company has earned with the utilization of the

    shareholders investment.

    TIME:

    The calculation of ROSF for both companies reflects that WM Morrison has been more profitable as

    compared to J Sainsbury. There has been an upward trend for both companies in terms of profit earned

    from shareholders investment. W M Morrison has been more successful in converting capital employed

    into profits compared to J Sainsbury from the figures shown above. This can because WM Morrison has

    invested lesser on Non-current Assets and has a lower long term liability to pay off compared to J

    Sainsbury and hence greater return on investment on shareholders funds.

    TOTAL SHAREHOLDER RATIO

    The Total Shareholder Return (TSR) is one of the most straightforward ratios that determines or

    calculates the overall return on investment to an investor. On the other hand investors want to know how

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    c) Asset Turnover (AT)

    AT =

    2.) LIQUIDITY RATIOS

    a) Current Ratios (CR)

    CR =

    Company 2009 2010 2011

    J Sainsbury (673 18911) 100

    = 3.5%

    (710 19964) 100

    = 3.5%

    (851 21102) 100

    = 4.03 %

    WM Morrison (671 14528) 100

    = 4.62%

    (907 15410) 100

    = 5.90%

    (904 14679) 100

    = 5.48 %

    Company 2009 2010 2011

    J Sainsbury (18911 8705) = 2.12 (19964 8062) = 2.47 (21102 8457) = 2.49

    WM Morrison (14528 6202) = 2.34 (15410 6608) = 2.33 (16479 7063) = 2.33

    Company 2009 2010 2011

    J Sainsbury (1570 1328) = 1.18 (1797 2793) = 0.64 (1708 2942) = 0.58

    WM Morrison(1065 2024) = 0.53 (1092 2152) = 0.51 (1138 2086) = 0.55

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    c) Average Inventory Turnover

    Average Inventory Turnover =

    4. SOLVENCY RATIOS

    a) Gearing Ratio

    Gearing Ratio =

    Company 2009 2010 2011

    J Sainsbury 685 17875 x 365= 14 days

    702 18882 x 365= 14 days

    812 19942 x 365= 15 days

    WM Morrison 494 15615 x 365= 13 days

    577 14348 x 365= 15 days

    638 15331 x 365= 15 days

    Company 2009 2010 2011

    J Sainsbury 4376 8705 100=49.70 %

    3096 8062 100=38.40 %

    3033 8457 100=35.80 %

    WM Morrison1682 6202 100

    = 27.10 %1659 6608 100

    = 25.10 %1643 7063 100

    = 23.30 %

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    World Wealth Management 52

    5. INVESTMENT RATIOS

    a) Earnings Per Share (EPS)

    EPS =

    b) Dividend Per Share (DPS)

    DPS=

    c) Dividend Payout Ratio (DPR)

    DPR=

    Company 2009 2010 2011

    J Sainsbury 16.6% 18.2% 18.6%

    WM Morrison17.4% 22.8% 23.9%

    Company 2009 2010 2011

    J Sainsbury 13.2 14.2 15.1

    WM Morrison 5.8 8.2 9.6

    Company 2009 2010 2011

    J Sainsbury(13.2 16.6) 100

    = 79.5%(14.2 32.1) 100

    = 44.2%(15.1 34.4) 100

    = 43.8%

    WM Morrison(5.8 17.4) 100

    = 33.33%(8.2 22.8) 100

    = 35.96%(9.6 23.9) 100

    = 40.16%

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    World Wealth Management 53

    d) Dividend Cover (DC)

    DC=

    e) Dividend Yield (DY)

    DY=

    f) Price Earnings Ratio (P/E)

    P/E =

    Company 2009 2010 2011

    J Sainsbury (16.6 13.2) = 1.25% (32.1 14.2) = 2.26% (34.4 15.1) = 2.27%

    WM Morrison (17.4 5.8) = 3.0% (22.8 8.2) = 2.78% (23.93 9.6) = 2.49%

    Company 2009 2010 2011

    J Sainsbury(13.2 309) 100

    = 4.27(14.2 333) 100

    = 4.26(15.1 351) 100

    = 4.30

    WM Morrison(5.8 271) 100

    = 2.14(8.2 289) 100

    = 2.84(9.6 264) 100

    = 3.64

    Company 2009 2010 2011

    J Sainsbury(309 16.6) 100

    = 18.61%(333 34.4) 100

    = 10.20%(351 32.1) 100

    = 10.37

    WM Morrison(271 17.39) 100

    = 15.83(289 22.80) 100

    = 12.67(264 23.93) 100

    = 11.03%

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    g) Return on Shareholders Fund (ROSF)

    ROSF =

    h) Total Shareholder Return (TSR)

    TSR =-

    D1 = Dividend per share for the year

    P1 = Share price at the end of the year

    P0 = Share price at the beginning of the year

    Company 2009 2010 2011

    J Sainsbury (466 5982) 100= 7.79%

    (733 7007) 100= 10.46%

    (827 7905) 100= 10.46 %

    WM Morrison(655 4520) 100

    = 14.49%(858 4949) 100

    = 17.34%(874 5420) 100

    = 16.13%

    Company 2009 2010 2011

    J SainsburyNot Calculated

    14.2+(333-309)309100 = 12.36

    15.1 + (351-333)333 100 = 9.93

    WM MorrisonNot Calculated

    8.2 + (289-271) 271 100 = 9.66%

    9.6 + (264 - 289) 289 100 = -5.32