Analyse the impact on a budget of changes in costs and selling prices for Morrison's Supermarkets

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Asid Ashraf

Unit 7 Management Accounting M3:

Analyse the impact on a budget of changes in costs and selling prices for a selected organisation

An analysis of Morrison’s profit & loss account and how the impact on a budget of changes in costs and selling prices for Morrison’s:

Morrison’s has not been shy to invest money in acquisitions and store expansions• Morrison’s is a top 50 UK company by market capitalisation. Analysts value the property, plant and equipment portfolio at about £7.5 Billion. The share price has fluctuated between £2.60 and £3.00 in last 12 months. As a public limited company, it can raise significant sums of money through the sale of shares and/or through borrowing in order to expand – e.g. Acquisition of Safeway in 2004 – e.g. Acquisition of Somerfield stores from Co-op in 2009• Profits in 2009 were impacted by Summerfield/Co-op store integration. Morrison’s made charitable donations of £1.18M last year tutor2u

Morrison’s key ratios show real financial strength, although it must be careful about short term liquidity 2010 2009 2008 Current ratio 0.51 0.53 0.49 Quick ratio 0.24 0.28 0.25 Gearing ratio (%) 20.0 27.1 24.3 Earnings per Share (p) 22.8 17.4 20.8 Dividend per share (p) 8.2 5.8 4.8ROCE (%) 13 12 12P/E ratio (times) 14.3 15.6 15.2 The low gearing ratio (Debt to Equity) is the strongest in the supermarket sector and means that Morrison’s could borrow money in order to expand, especially given that interest rates are currently quite low and look set to stay low for some time - Morrison’s owns about 90% of its store portfolio.

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ROCE is healthy, given that the opportunity cost of investing the same money in the bank is about 4% A strong dividend has been paid to shareholders in the last three years, especially in 2010 but although the PE ratio (an indication of future growth) is higher than J Sainsbury, it is lower than Tesco Although EPS is higher than Sainsbury (16.4p), it is lower than Tesco (27.3p). Morrison’s current and quick ratios are low and may reflect short term liquidity issues

Morrison operates only within the UK retail supermarket industry and is therefore directly affected by the macroeconomic environment. ...

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