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Competing Company Compaisons - Essay Example

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Competing Company Compaisons

Each sets of these ratio figures indicate that Tesco would possibility have some difficulties in meeting its financial obligations, so these numbers will be important to watch closely in the future. On the other hand Morrison has also a bad current ratio it means in the company could have problems in paying their debts.
Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. Tesco has working capital of m 165 for the year 2006 and for the year 2005 is m 24 which is a good sign for the company. The liquidity of the company is not so good and they have to focus on it. (M C Shukla, 1999)
The return on assets of Tesco is 7.89% and 8.0 for the year 2006 and 2005 and for Morrison the ratio is 4 and 14 for the year 2006 and 2005. by comparing the two companies we have analysed that TESCO is much efficient in generating revenues from their assets than Morrison. (Sheldon Gates, 1993)
ROE is viewed as one of the most important financial ratios. It measures a firm's efficiency at generating profits from every dollar of net assets .tesco financial statements shoewd return on equity of 17.57% in FY 2006 and 20 in FY 2005.howevwr the Morrison showed return on equity of 7.3 in FY 2006 and 24.3 in FY 2005. ...
by comparing the two companies the ratio is high for tesco in FY 2005 and FY2006 by morrison. High ROE yields no immediate benefit. Since stock prices are most strongly determined by earnings per share (EPS). The benefit comes from the earnings reinvested in the company at a high ROE rate, which in turn gives the company a high growth rate.
Effeciency ratios:
Tesco's debtor ratio indicates that in the year of 2005 the credit customers takes average 10.07 days to pay the amount and in 2006 9.8 days. on the other hand morrison's debtors ratio indicates that the compny has not large ratio and the ratio is low than that of tesco.
This inventory turnover ratio for Tesco is 29 days and Morrison has the inventory ratio of 9 days. By comparing the two companies we have analyzed that Morrison is more efficient in collecting their debts from the customers.
The asset turn over ratio gives an idea about how well the company is using its assets in generating revenues the ratio for the Tesco is FY 2005 2.17 and FY 2006 2.1 whereas Morrison's asset turn over ratio is FY2005 and 2.8 FY2006 1.8. The trend in Tesco is that the company is using its assets very efficiently and increasing this efficiency every year. By comparing with the Morrison the ratio of Tesco is much higher which shows that Tesco is more efficient.
Profitability ratio:
Tesco has an operating margin ratio of 5.78% and have a net profit margin of 4.02% for the year 2006 which shows that the company has good control on the finance costs and other costs so as to maintain the net margin ratio high.
Earning per share:
Tesco has good earnings per share of 20.2p in 2006 in comparison with 17.2p 2005. That shows that the company ...Show more

Summary

This research paper will reveal the financial analysis techniques used to evaluate the financial performance of Tesco in comparison with Morrison and evaluate the company's worthiness as an investment.
Tesco plc is an international retailer company having operations in more than 15 countries with over 2000 stores with huge market turn over…
Author : braedenchamplin
Competing Company Compaisons essay example
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