ACCOUNTING ANALYSIS

Morrison Supermarket

Morrison Supermarket

Introduction

Morrison is the chain of leading supermarket in the retail industry of the United Kingdom. The company is also operating its subsidiaries. The company is highly involved in the food business, the main products includes meat, vegetables, processed food and other consumer products. The company own 439 stores in the United Kingdom as of January 2011.The Company also has other side businesses such as property dealers and property investments.

Liquidity and Efficiency Ratios

Liquidity ratio tells you how much company has the liquidity to cover its current liabilities. Whereas, efficiency ratio tells you how much company is utilizing its assets efficiently Liquidity ratio includes the following ratios

Current ratio

C.R = C.A. / C.L.

Quick ratio

Q.R. = ( C.A. - Inv.) / C.L.

Net working capital ratio

N.W.C.R = (C.A. - C.L.) / T.A.

The following table shows the liquidity ratios of Morrison super market.

Liquidity Ratios

2011

2010

2009

2008

2007

Quick Ratio

0.24

0.24

0.28

0.25

0.24

Current Ratio

0.55

0.51

0.53

0.49

0.57

Net Working Capital Ratio

(10.36)

(12.08)

(11.65)

(12.35)

(9.95)

If the liquidity of the company is above 1, it is considered as company has sufficient liquidity and can easily meet its current liabilities easily. The liquidity performance of the company in the last five years shows a poor result. The quick ratio and the current ratio of the company are below 1.00, which means that company is unable to cover its current liabilities through its current assets. To pay off its current liabilities, Morrison will take additional funds at relatively high rate of interest from the banks; this is because the bank will see the financial statements of the company before lending money, which is showing poor performance of the company. This will ultimately increase the burden of interest on the company.

Working capital helps the investors in judging the financial strength of the company. The net woking capital of the Morrison from the last five years is in negative, which means that company is unable to payoff its short term debt from its current assets. The condition of the company is very tough, it means that company is facing trouble from its short term liabilities. Morrison might have to sell one of its assets which will bring some cash to the company so that they can payoff their short term debt. If Morrison did not take any appropriate action, the shareholders of the company will sell all their shares which will reduces the share price of the company. Proper action will save the company from bankruptcy and maintain their credibility.

The efficiency ratios includes ...