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The two companies compared in this report are J Sainsbury Plc and Wm Morrison Supermarkets Plc. This report will compare the two companies using ratios which will be derived from their financial statements.

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Introduction

´╗┐Introduction Aim of Report The aim of this report is to review the performance and financial status of two companies. The two companies compared in this report are J Sainsbury Plc and Wm Morrison Supermarkets Plc. This report will compare the two companies using ratios which will be derived from their financial statements. What Ratios are Ratio analysis uses ratios derived from financial statements for calculation and comparison purposes. Ratios show how the company is running with comparison to its competitors or its previous years. It shows a firms weaknesses, strengths and helps to predict the future. Ratios are used to determine weather it is safe to invest in a company or not and which company is best to invest in. Limitations of Ratios Ratios are estimates of previous years not taking into account possible future economic changes such as interest rates and inflation. Companies may use different accounting practices which may give misleading information even within the same markets. Ratios have to be compared with something as it cannot show good or bad ratios on its own. Ratios show weaknesses and strengths of companies without showing the cause of problem. Ratio analysis can be expensive causing it unaffordable for small businesses. Profile of J Sainsbury Plc Sainsbury founded in 1869 comprises of 934 stores out of which 557 are supermarkets and 377 are convenience. ...read more.

Middle

Both companies have a low liquid ratio which implies the companies will have problems to meet their short term obligations. The cause for this low liquid ratio can be collecting debts slowly, paying the bills too quickly and having problems to maintain growth of sales. Inventory Ratio The inventory holding period is very stable of both companies which is around 15 days even though Sainsbury?s inventory holding period in 2010 was 14 days. The reason for this increase can be over stocking which can increase costs of storage. Receivables Turnover and Payables turnover The collection period for Sainsbury increased from 1 day in 2010 to 2 days in 2011 where as the payables period stayed stable at 34 days over the same period. The collection period for Morrison stayed stable for 2010 and 2011 at 4 days where as the payables period fell from 32 days to 33 days over the same period. Both companies have higher payable ratios than receivable ratios. This shows us that companies are collecting their debts first and then are paying their creditors. A low receivable period means less interest for the company and a high payable period means the company is paying more interest. Debt Ratio The debt ratio of Sainsbury fell from 32.19% in 2010 to 30.13%. This ratio is quite high and puts the firm at higher risk due to higher debts. The debt ratio of Morrison fell from 17.19% in 2010 to 16.25% in 2011. ...read more.

Conclusion

x 365 = 15 days (702/18882) x 365 = 14 days (638/15331) x 365 = 15 days (577/14348) x 365 = 15 days Receivables Turnover Formula = Trade Receivables x 365 days Revenue Sainsbury Morrison 2011 2010 2011 2010 (93/21102) x 365 = 2 days (71/19964) x 365 = 1 day (201/16479) x 365 = 4 days (148/15410) x 365 = 4 days Payables Turnover Formula = Trade Payables x 365 days Cost of Sales Sainsbury Morrison 2011 2010 2011 2010 (1836/19942) x 365 = 34 day (1782/18882) x 365 = 34 day (1400/15331) x 365 = 33 day (1350/14348) x 365 = 32 day Debt Ratio Formula = Long Term Loans x 100% Equity + Long Term Loans Sainsbury Morrison 2011 2010 2011 2010 (2339/(5424 + 2339)) x 100% = 30.13% (2357/(4966 + 2357)) x 100% = 32.19% (1052/(5420 + 1052)) x 100% = 16.25% (1027/(4949 + 1027)) x100% = 17.19% Interest Cover Formula = Profit from Operations Interest Charges Sainsbury Morrison 2011 2010 2011 2010 851/143 = 5.95 times 710/127 = 5.59 times 904/35 = 25.83 times 907/45 = 20.16 times Earning per Share (EPS) Formula = Profit for Year Number of Ordinary Shares in Issue Sainsbury Morrison 2011 2010 2011 2010 640/1858.7 = 34.4 pence 585/1821.7 = 32.1 pence 632/2640.5 = 23.93 pence 598/2623.3 = 22.80 pence Dividend per Share (DPS) Formula = Equity Dividends Paid in the Year Number of Ordinary Share in Issue DPS Given in Financial Statements Sainsbury Morrison 2011 2010 2011 2010 = 15.1 pence = 14.2 pence = 9.6 pence = 8. ...read more.

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