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Finance - Assignment Example

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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). Thus, change in ROE of both the companies is compared to see which company is favourable for the investor to invest in, so that he will receive a higher ROE. From the analysis, it is seen that the ROE of Tesco Plc has decreased by 0.25% in 2012 as compared to 2011. It indicates that the shareholders have received fewer amounts as return in 2012 by losing a part of their investment. Comparing the ROE of Morrison, it is found that there has been 1.12% increase in 2012 from 2011. It indicates that if investment is made in Morrison’s share then an investor will be getting greater return in 2012. But if both the companies ROE is compared, then it can be stated that the shares of Tesco Plc are worth investing than Morrison’s, since it gives higher ROE (White, Sondhi and Fied, 2003). EPS Earnings per share are defined as the portion of profit of the company that is allocated to the shareholder. It actually indicates the profitability of the company. The Earning per Share (EPS) of Tesco Plc has increased in 2012 from 2011 by 0.01. The EPS of Morrison shows an increase in 2012 from 2011 by 0.20, but if EPS of both the companies are compared, then it is found that Tesco Plc is giving a higher earning than Morrison (Lucy, 2003). The EPS of both the companies can be compared because both are from the retail industry. Dividend per share Dividend per share (DPS) can be defined as the total dividends that are paid out over an entire period of time to the shareholders divided by number of the shares that are issued by the company. The dividend per share of Tesco Plc 14.7 p in 2012 is higher than that of Morrison 11.6 p. Thus it can be said that the customers of Tesco Plc. will be getting more as dividend if they invest in Tesco Plc. The change in dividend per share of Tesco Plc is negligible, 1.2 p, as compared to Morrison which is 3.3 p in 2012. The DPS of both companies can be compared since they belong to the same retail industry. Dividend payout ratio The dividend payout ratio is the percentage of the earning of the company that is paid to the shareholde ...Show more


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…
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Finance essay example
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