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Finance & Accounting
Pages 8 (2008 words)
Question 1 A shareholder can be defined as an individual or an organization that holds one or more than one shares in a particular company. As an ordinary the areas of greatest concern when considering an investment in companies such as Morrison and Tesco would be to judge their current market share, the projected rate of a return on investment as well as the effective allocation of capital to ensure the lowest running possible without jeopardising brand position or long-term debt increases…
Sainsburys is second in terms of market share, ASDA is third and Morrisons is fourth (with 11.8), according to Reuters Finance. But when we look into market share increase over the past two years we find that Tesco’s profit margin in 2011 was 8.47% and decreased to 8.15% in 2012 perhaps reflecting the overall decline in retail profits due to the weakened economy. It is important to note though that Tesco was still operating with a profit margin of over 8%. When comparing this to Morrisons, who experienced an slightly decrease from 6.9% in 2011 to 6.89%, even though this was only a slight decrease it was still operating on a loss for both the years. The inability to change the profitability of the business has meant a decline in the share price of 13% and as a result ordinary shareholders would be put off investing the this business. ROE The Return on equity (ROE) is defined as the net income that is returned to the shareholder as a percentage of the shareholder’s fund. ROE of a company actually measures the profit that the company generates from the shareholders money (Warren, 2009). ...
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