ered 2.96 times by earnings.
Tesco, on the other, is maintaining a larger dividend payout at 11.96p per share which is covered 2.42 times by earnings and thus Tesco seems to be a more favourable investment for investors. Management seems to have noticed this fact and thus states in the Annual Report that :
"We will continue our progressive policy of increasing the dividend by underlying earnings and additionally moving dividend cover towards the average for our sector, which is around 2.5 times, by January 2010." - (Sir Ian Gibson - Chairman)
Limitations of the analysis
Due to limited information available, some of the ratios could not be calculated which would have given an even clearer and in-depth analysis of the group's performance and position.
In addition to the limitations specific to this analysis there are certain other general limitations of the ratio analysis technique:
Limited Comparability - Differing accounting policies can lessen the usefulness of ratio in making comparisons
False Results - Dependant on the accuracy of accounting records and statements otherwise wrong financial position will be presented
Effect of Price Level Changes - changes in general price levels over time make it difficult to compare figures over a period of time
Qualitative factors are ignored - qualitative factors which may be important for the decision making are ignored by ratio analysis
Effect of window-dressing - Ratios can be used by management for "window dressing" and present an unreal financial position of the company
Morrisons seems to be doing well in gradually growing and expanding the business. As compared to Tesco, which is a much larger group than it, Morrisons need to pay more attention to capturing a wider market to increase its turnover. A special attention has to be paid to the liquidity situation of the country. Although Morrisons seems to be a good investment, but from the investors point of view, there are other even better investments available and thus Morrisons need to pay out more dividend to attract even more investment and finance.
Financial ratios for the financial years 2009, 2008 and 2007 and also for the purpose of comparison similar ratios for a competitor "Tesco" are calculated as under:
Average Payment Period
Financial Leverage Ratios
Gross Profit Margin
Net Profit Margin
Return on Capital Employed
Diluted Earnings per share
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