nancial performance.
The sales revenue of the group increased reasonably well in the three years 2007-2009. Revenue increased from £ 12,462m to £ 12,969m during the year 2008 resulting in an increase of 4.07% and in 2009, revenue further increased by 12% showing a consistent performance. According to the annual report 2009, part of this increase was due to the very high prices of fuel seen in the forecourts business in the year caused by a worldwide spike in oil prices.
Despite the weakened UK economy, the group is doing good in terms of increased turnover and increased market share growth i.e. from 12.1% to 12.3% in the year. Tesco, on the other hand, has both a much larger turnover than Morrisons and a higher percentage in increase in its turnover i.e. about 15.1%. Therefore, Morrisons still has much room for improvement in capturing more market share and increasing its turnover.
Gross Profit Margin and Net profit margin
The gross profit margin remain more or less consistent over the years with a small increase in year 2008 and none in year 2009 getting the overall increase of about only 1% over the three years. This means that gross profit increased in line with revenue. From this it can be concluded that the group has costs under control and they have only allowed a rational increase keeping in view the growth of the group.
Comparing the result with Tesco, where gross profit margin for 2009 is touching 7.76%, which is 1.48% more than that of Morrisons. It can perceived from this that Tesco has more control over their costs keeping in view the fact that it has a much larger turnover thus giving Morrisons an indication and signal to cut down costs even more.
In 2008 net profit margin increased by 114.6% from 1.99% in 2007 to 4.27% in 2008. This was mailny due to the increase in revenue and effective management of overhead costs. In 2009, net profit margin declined by 25.76% from 4.27% in 2008 to 3.99% in 2009. Along with the weak economic environment and the decline in net profit, another reason for this decline was the 5% increase in the administration costs since 2008. This increase, according to the report is due to the marketing expense which forms a major part of operating expenses and is useful in capturing a wider market.
The net profit margin of Tesco is quite at the same level as compared to Morrisons.
Return on Capital Employed
The return on capital employed (ROCE) assesses profits with the amount of funds (capital) employed to make the profits. This increased from 7.80% in 2007 to 11.62% in 2008. This represents an increase of 32.87%. But due to the economic unstability, the group could not maintain its high rate of increase in ROCE over the years and it minutely declined by 0.78% from 11.62% in 2008 to 11.53% in 2009.
On the other hand Tesco's ROCE in 2009 stands at 12.25% which is not very larger than Morrisons. So this means that in relation to the industry, Morrisons is doing well to keep its ROCE at that level. The reason for a low ROCE could be high overhead costs. It must control its costs in order to generate a higher return and free up additional extra capital invested.
Liquidity & Efficiency Ratios
This is a measure of the adequacy of company's current assets to meet short-term liabilities as they fall due, i.e it's a basic liqiudity ratio. A ratio between 1 and 2 thought to be a standard level of liquidity. Morrison's current ratio was 0.40, 0.49 and 0.59 in 2007, 2008 and 2009 respectively. This shows a weak situation of the group as it has less current assets than its current liabilities as the ratio is less than 1, therefore this to be an area of concern for the group. Although the ratio is improving over the years but even in 2009, Morrisons have enough assets to just cover about 60% of its liabilities. As current ratio is of particular interest to short-term creditors of the group so the situation may create difficulties in obtaining short-term credit.
If we compare the ratio of 0.59 in 2009, with that of Tesco i.e. 0.76, it can be seem that although even Tesco has current ratio less than one