Sainsbury's and Morrisons Financial Analysis and Comparisons

World Wealth Management
1

M05EFA: FINANCIAL ANALYSIS AND DECISION MAKING
(October 2011)

Interpretation & Analysis of Financial Statements
for

&


2

Team Members:
Subin (ID: 4037972)
Shreenath Nair (ID: 3989438)
Nizil Crasto (ID: 3926709)
Kevin Doddamani (ID: 2755874)

Module Tutors:
Prof. JOHN PANTHER
Prof. DANNY RYAN

NB: Definitions, Calculations and Analysis with reference to time
benchmark have been included in the appendices due to the limit of 4000
words.

TOTAL WORD COUNT: 4107 Excluding, Tables, Appendices & Graphs


3
Table of Contents
1. INTRODUCTION ......................................................................................................................................... 5
1.1 J SAINSBURY PLC .................................................................................................................................... 5
1.2 Wm MORRISONS SUPERMARKETS PLC ................................................................................................... 6
2. Ratio analysis Of Financial Statements ..................................................................................................... 7
2.1 PROFITABILITY RATIOS .......................................................................................................................... 7
2.1.1 Return on Capital Employed (ROCE) ................................................................................................ 7
2.1.2 NET PROFIT MARGIN (NPM) .......................................................................................................... 9
2.1.3 ASSET TURNOVER (AT) ................................................................................................................... 10
2.2 LIQUIDITY RATIOS ................................................................................................................................. 12
2.2.1 CURRENT RATIO (CR) ..................................................................................................................... 12
2.2.2 ACID TEST RATIO (ATR) .................................................................................................................. 13
2.3 EFFICIENCY RATIOS .............................................................................................................................. 14
2.3.1 TRADE RECEIVABLES PAYMENT PERIOD (TRPP) ............................................................................. 15
2.3.2 TRADE PAYABLES PAYMENT PERIOD ............................................................................................. 16
2.3.3 AVERAGE INVENTORY TURNOVER ................................................................................................. 17
2.4 SOLVENCY RATIOS ................................................................................................................................. 19
2.4.1 Gearing Ratio ................................................................................................................................. 19
2.5 INVESTMENT RATIOS ............................................................................................................................ 21
2.5.1 EARNINGS PER SHARE .................................................................................................................... 21
2.5.2 DIVIDEND PER SHARE ..................................................................................................................... 22
2.5.3 DIVIDEND PAYOUT RATIO .............................................................................................................. 24
2.5.5 DIVIDEND YIELD ............................................................................................................................. 26
2.5.6 PRICE EARNINGS RATIO (P/E)......................................................................................................... 27
2.5.7 RETURN ON SHAREHOLDERS FUND (ROSF) ................................................................................... 28
2.5.8 TOTAL SHAREHOLDER RETURN (TSR) ............................................................................................ 30
3. ANALYSIS OF J SAINSBURY PLC AND Wm MORRISONS PLC WITH REALTION TO THEIR INDUSTRY ...... 31
3.1 Profitability Comparison ....................................................................................................................... 31
3.2 Per Share data Comparison .................................................................................................................. 32
3.3 Growth Rate Comparison...................................................................................................................... 33
3.4 SHARES COMPARISON .......................................................................................................................... 34


4
3.5 SHARE PRICE FORECAST COMPARISON ................................................................................................ 35
3.6 EARNINGS, DIVIDENDS AND REVENUES ESTIMATES ............................................................................ 36
3.7 SEMI ANNUAL AND ANNUAL EARNINGS AND REVENUES GROWTH RATE COMPARISONS ................. 37
4. CONCLUSION AND RECOMMENDATIONS ............................................................................................... 38
5. REFERENCES ............................................................................................................................................ 39
6. APPENDICES ............................................................................................................................................ 40
6.1 DEFINITIONS & TIME ............................................................................................................................. 40
6.2 CALCULATIONS ...................................................................................................................................... 48


5
1. INTRODUCTION

1.1 J SAINSBURY PLC

(www.fundinguniverse.com/j-sainsbury-plc-company/history.html)

Sainsburys is the most respected and largest retailer of wine and food in Britain. The company has high
standards for product, quality and service and has turned out to be a leader in successful development,
efficient management, marketing and advertising, profitability and outstanding financial performance.
Incorporated: 1869 as J. Sainsbury Ltd.
Employees: 141,000
Sales: 10.6 billion ($18 billion)
Stock Exchanges: London
SICs: 5411 Grocery Stores; 5210 Lumber and Other Building Materials; 5261
Retail Nurseries and Garden Stores; 6552 Subdividers and Developers, Not
Elsewhere Classified; 2030 Preserved Fruits and Vegetables Britains second
largest supermarket group.


6
1.2 Wm MORRISONS SUPERMARKETS PLC

Principal Competitors: ASDA Group Limited; Boots Company Plc.; Budgens Plc.; Greggs Plc.; Iceland
Group Plc.; J Sainsbury Plc.; John Lewis Partnership Plc.; Marks & Spencer Plc.; Safeway plc.;
Somerfield Plc.; Tesco Plc.
Morrison stores stock some 20,000 items; Morrison's private labels account for more than half of all
sales. The stores feature a 'Market Street' concept, with specialty shops, including fishmongers, butchers,
pizza, and baked goods, and American shops--selling doughnuts and hotdogs & mdashoviding a High
Street shopping experience to Morrison's largely suburban customers. Morrison boasts to be the sole
grocer in the United Kingdom that offers the same prices in all of its stores. The company also produces
most of its own products, through its Farmers Boy and Wm. Morrison Produce subsidiaries, enabling it to
keep its prices--and costs--low.

Incorporated: 1899 as William Morrison (Provisions) Ltd.

Employees: 23,294
Sales: 2.99 billion (US$4.79 billion) (2000)
Stock Exchanges: London
Ticker Symbol: MRW.L
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores
Englands fifth largest supermarket group.


7
2. Ratio analysis Of Financial Statements
In order to analyse the financial statements of J Sainsbury PLC and Wm. Morrisons PLC various
financial ratios have to be calculated which includes Profitability ratios, Liquidity ratios, efficiency ratios ,
investment ratios , Investment ratios and analyse the ratios with respect to three main benchmarks
namely TIME, INDUSTRY and EXPECTATION. Analysing these ratios reflects the financial standing,
profitability and efficiency of these companies.

2.1 PROFITABILITY RATIOS
Most investors are concerned about the profitability of the company in which they are investing their
money because profitability determines the capability of any company to provide returns to lenders and
its investors. Profitability ratios give the measure of the ability of a business to generate enough cash
which depends on the profit made by a business. A company which manages its resources efficiently
produces more profits which imply that much production efficient company can be spotted by analysing
the profitability ratios.

2.1.1 Return on Capital Employed (ROCE)
[Definition and Significance: See Appendix]

ROCE =
Operating Profit
CapitaI EmpIoyed
100


8

Graph 2.1.1
Time: See Appendix
Industry Competition and Expectation: Year on year the revenue of J Sainsbury PLC increased by
5.70% from 20 billion to 21 billion. There has been an increase in the operating profit which is part of the
net income growth which determines the value of ROCE. The cost of goods sold as a percent of sales
has been reduced for J Sainsbury PLC. Furthermore, general, administrative expenses and selling
expenses as a percent of sales and interest paid as a percent of sales is also reduced. These reductions
contributed around 9.40% increase in the Net Profit and hence resulted in increasing percentage of
ROCE for three consecutive years The revenues of Wm Morrisons PLC grew from 15.41bn to 16.48bn
J Sainsburys PLC Wm Morrisons PLC
2009 7.73% 10.80%
2010 8.80% 13.72%
2011 10.06% 12.80%
0%
2%
4%
6%
8%
10%
12%
14%
16%
R
O
C
E

%

Return on Capital Employed
Company 2009 2010 2011

J Sainsbury

(673 8705) 100
= 7.73%

(710 8062) 100
= 8.8%

(851 8457) 100
= 10.06 %
WM Morrison

(6716202) 100
= 10.8 %

(907 6608) 100
= 13.72 %

(904 7063) 100
= 12.8 %


9
during the period 2010 to 2011 and at the same time its net income increased from 598m to 632m
giving an overall increase of 5.69% in net income. The comparison of the values of the ROCE
percentages for three consecutive years for both J Sainsburys PLC and Wm Morrisons PLC shows that
the return on capital employed is greater for Wm Morisons PLC which indicates that Wm Morrisons PLC
converts more percentage of their capital employed in to operating profits. J Sainsbury in the coming
future should think about increasing their ROCE percentages.
2.1.2 NET PROFIT MARGIN (NPM)
NPM =

J Sainburys PLC Wm Morrisons PLC
2009 3.50% 4.62%
2010 3.50% 5.90%
2011 4.03% 5.48%
0%
1%
2%
3%
4%
5%
6%
7%
N
P
M

Net Profit Margin
Company 2009 2010 2011

J Sainsbury

(673 18911) 100
= 3.5%

(710 19964) 100
= 3.5%

(851 21102) 100
= 4.03 %
WM Morrison

(671 14528) 100
= 4.62%

(907 15410) 100
= 5.90%

(904 14679) 100
= 5.48 %


10
Graph 2.1.2
Time: See Appendix
Industry Competition and Expectation: The revenues were increased by J Sainsbury PLC from 18bn
to 20 billion during the period 2009 to 2010 but still the Net Profit Margin remained the same because the
same percentage of Revenue was converted in to operating profit which didnt help in increasing the
profitability generally. But , in the year 2011 , J Sainsbury PLC increased its Net Profit Margin which was
a result of reduction in the expenses of the company which was in line with the view to increase the
profitability of the company .On the other hand, Wm Morrisons PLC have been effectively converting
their revenues in to operating profit. Wm Morrisons PLC converts more proportion of its revenue in to
operating profits and hence is able to pay for its fixed costs and debts more effectively than J Sainsburys
PLC.
2.1.3 ASSET TURNOVER (AT)
AT =

Company 2009 2010 2011

J Sainsbury

(18911 8705) = 2.12

(19964 8062) = 2.47

(21102 8457) = 2.49

WM Morrison

(14528 6202) = 2.34

(15410 6608) = 2.33

(16479 7063) = 2.33


11

Graph 2.1.3
Time: See Appendix
Industry Competition and Expectation : The Asset turnover of J Sainsbury PLC have been increasing
steadily year on year which demonstrates their effectiveness of management and the effective
implementation of marketing strategies which is definitely helping them to increase their revenue over the
net capital employed .The slight decrease in asset turnover of Wm Morrisons PLC indicates the slight
increase in the long term liabilities of the company which have been incurred in order to increase the
sales but there is no major contrast between the years data which makes Wm Morrisons PLC to appear
normal in Asset turnover ratio analysis. J Sainsbury PLC is more capable of generating sales and
revenues. Both companies are showing an increase in their revenues year on year which
demonstrates their capabilities and indicates that both the companies are trying efficiently to
meet their target sales and generating enough revenue from their respective capitals employed.

J Sainsbury PLC Wm Morrisons PLC
2009 2.12 2.34
2010 2.47 2.33
2011 2.49 2.33
1.9
2
2.1
2.2
2.3
2.4
2.5
2.6
Asset Turnover


12
2.2 LIQUIDITY RATIOS
Liquidity ratios are helpful to analyse the financial standing of a company .It is the measure of the
company's ability to raise sufficient cash when needed and indicates whether or not the company will be
able to meet its financial obligation within the stipulated time.

2.2.1 CURRENT RATIO (CR)
CR =

Jsainsbury PLC Wm Morrisons PLC
2009 1.18 0.53
2010 0.64 0.51
2011 0.58 0.55
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Current Ratio
Company 2009 2010 2011

J Sainsbury

(1570 1328) = 1.18

(1797 2793) = 0.64

(1708 2942) = 0.58

WM Morrison
(1065 2024) = 0.53 (1092 2152) = 0.51 (1138 2086) = 0.55


13
Graph 2.2.1
Time: See Appendix
Industry Competition and Expectation:
J Sainsbury PLC held the ability to pay off its short term debts more effectively under stipulated time as
compared to Wm Morrisons PLC in the year 2009 but the current ratio of J Sainsbury PLC fell steeply in
the year 2010 which indicates the loss in ability to pay short term debts. J Sainsburys experienced an
increase in current liabilities year on year from 2009 to 2011 which questioned the ability of J Sainsburys
to clear off its short term debts. This company was unsuccessful in increasing its current assets
proportionally with its increasing current liabilities.
Wm Morrison PLC displays a rather steady change in the values of current ratio which is due to the fact
that Wm Morrisons PLC increased their current assets fairy enough to tolerate the effect of increasing
liabilities in order to increase revenues and sales .
Both the companies are less capable of paying off their obligations and are not having satisfactory
performance when it comes to paying the liabilities within stipulated time or short term. Both companies
have capabilities to deal with their short term liabilities and increase their current ratio in near future.
2.2.2 ACID TEST RATIO (ATR)
ATR =

Company 2009 2010 2011

J Sainsbury

(1570 689 1328)
= 0.66

(1797 - 702 2793)
= 0.392

(1708 - 812 2942)
= 0.304

WM Morrison
(1065 494 2024)
= 0.28
(1092 577 2152)
= 0.24
(1065 638 2086)
= 0.20


14

Graph 2.2.2

Industry Competition & Expectations: It is usually observed that companies having ATC less than 1
might get into problems paying their current liabilities. The companies must realize and look into the
matter for improving it. If the working capital ratio is much than ATC, then it states that the current assets
are dependent on inventory. This is usually noticed in case of most retail stores. According to present
scenario, J Sainsbury PLC has a better ATR compared to Wm Morrisons PLC but both are not liquid
enough to meet their financial requirements
2.3 EFFICIENCY RATIOS
In an organisation there are many resources. We need a proper program and analyse to manage them.
Efficiency ratio plays a good role in the same. They can be used to analyse how organisations make
proper use of their assets and lower the liabilities. The ratios can be found out from dynamic statement
and static statement for income statement and balance sheets respectively. These ratios play an
important role in achieving short n long terns of an organisation. Better the efficiency ratio better is the
profit

2009 0.66 0.28
2010 0.392 0.24
2011 0.3 0.2
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Acid Test Ratio


15
2.3.1 TRADE RECEIVABLES PAYMENT PERIOD (TRPP)

TRPP=
Average Trade ReceivabIes
Cost of SaIes
365

J Sainsbury Wm Morrison
2009 4 6
2010 4 5
2011 6 6
0
1
2
3
4
5
6
7
D
a
y
s

Trade Payables Payment Period
Company 2009 2010 2011

J Sainsbury

195 18911 x 365
= 4 days

251 19964 x 365
= 4 days

343 21102 x 365
= 6 days

WM Morrison

245 14528 x 365
= 6 Days

199 15410 x 365
= 5 Days

268 16479 x 365
= 6 Days


16
Graph 2.3.1
Time: See Appendix
Industry Competition & Expectation: J Sainsbury and Wm Morrisons are supermarket groups and
therefore majority of their sales are in cash which is basis of high mortgagor payment figure.
J Sainsbury had 12.4%, 12% &20% of their current assets related to debtors for 2009, 2010 & 2011
respectively. The financial statement shows that J Sainsbury Plc. experienced growth in the amount of
debtors year by year, which was almost double the previous year value in 2011, which resulted in the
increase in the trade receivable payment period.
Wm Morrisons had 22.9%, 18%, 23.5% of their current assets related to debtors for 2009, 2010 & 2011
respectively. The financial statement shows that Wm Morrisons Plc. has a relatively stable trade
receivable payment period even though there was a slight improvement in the year 2010.

2.3.2 TRADE PAYABLES PAYMENT PERIOD

Trade Payables Payment Period =
Average SaIes PayabIes
Cost of SaIes
365

Company 2009 2010 2011

J Sainsbury

2488 17875 x 365
= 51 days

246618882 x 365
= 48 days

259719942 x 365
= 48 days
WM Morrison

1915 13615 x 365
= 51 days

1845 14348 x 365
= 47 days

1914 15331 x 365
= 46 days


17

Graph 2.3.2
Time: See Appendix
Industry Competition & Expectation: J Sainsbury had 85.23%, 88.32% &88.27% of their current
liabilities related to creditors for 2009, 2010 & 2011 respectively. The financial statement shows that J
Sainsbury Plc. experienced slight growth in the amount of creditors compared to 2009, which resulted in
the decrease in trade payable payment period.
Wm Morrisons had 94.6%, 85.73%, 91.75% of their current liabilities related to creditors for 2009, 2010 &
2011 respectively. The financial statement shows that Wm Morrisons Plc. experienced slight growth in
the amount of creditors compared to 2009, which resulted in the decrease in trade payable payment

2.3.3 AVERAGE INVENTORY TURNOVER
Average Inventory Turnover =
Average Inventories HeId
Cost of SaIes
365
J Sainsbury Wm Morrison
2009 4 6
2010 4 5
2011 6 6
0
1
2
3
4
5
6
7
D
a
y
s



18

Graph 2.3.3
Time: See Appendix
Industry Competition & Expectation: From the given financial statements we have analyzed that both
companies have a stock turnover period of approximate fourteen days. Fourteen days is high considering
the lifecycle of vegetables, fruits, dairy products and other food products. These items should be kept
fresh. Both these supermarket groups also sell entertainment, house wares, electronics and other
domestic goods. In this case it is good to consider that both groups keep a stock of these. For domestic
and household items; the spin is expected to be in longer period of time as these stocks take a longer
J Sainsbury WM Morrison
2009 14 13
2010 14 15
2011 15 15
12
12.5
13
13.5
14
14.5
15
15.5
D
a
y
s

Company 2009 2010 2011

J Sainsbury

685 17875 x 365
= 14 days

702 18882 x 365
= 14 days

812 19942 x 365
= 15 days
WM Morrison

494 15615 x 365
= 13 days

577 14348 x 365
= 15 days

638 15331 x 365
= 15 days


19
time to be rotated.
2.4 SOLVENCY RATIOS
Solvency ratios: they are used to calculate the company`s power to service its long term loans. These
ratios measure the total liabilities of a firm, and indicate a possible over dependency on outside sources
for long term financial support.

Solvency Ratios are comprised of the following: -

2.4.1 Gearing Ratio


Gearing Ratio =
Long Term LiabiIities
Equity SharehoIders' Funds
100

Company 2009 2010 2011

J Sainsbury

4376 8705 100
=49.70 %

3096 8062 100
=38.40 %

3033 8457 100
=35.80 %

WM Morrison

1682 6202 100
= 27.10 %

1659 6608 100
= 25.10 %

1643 7063 100
= 23.30 %


20

Graph 2.4.1
Time: See Appendix
Industry:
Ideally, gearing should not be greater than 50%, although new, small businesses often do exceed this
percentage. If cash flow is stable and profit is fairly stable, then the business can afford a higher gearing.
So comparing the gearing ratios of Sainsbury and Morrisons it can be deduced in the year 2009
Sainsburys gearing ratio started declining through the years 2010 and 2011. Since the profit margins
were stable at 3.5 % and grew by about 0.53% and gearing ratios have reduced they can effectively
service their long term loans in the future. Morrisons gearing ratio also has reduced from the year 2009
to 2011 and their profit margins have shown a growth. In 2009 it was 4.62 % and grew by 1.28% in 2010
and decreased by 0.42 % so even Morrisons wouldnt face any issues in servicing their long term debts.
Expectations
As of 2011 both Sainsbury and Morrisons have shown a reduction in their gearing ratios with increase in
their overall profit which indicates a good sign for both business, in the future both companies need to
keep the gearing ratios stable and try to lower it as much as possible.
2009 49.70% 27.10%
2010 38.40% 25.10%
2011 35.80% 23.30%
0%
10%
20%
30%
40%
50%
60%
Gearing Ratio


21

2.5 INVESTMENT RATIOS

Investment ratios help an investor in making intelligent investment decisions. However, it should not be
considered as an easy way to make quick money. Experts consider some ratios to be an important guide
to invest in a company. These ratios can guide an investor to choose a stock of high value that endures
recession because the company has the ability to pay its investors. The investment ratios are as follows:

2.5.1 EARNINGS PER SHARE

EARNINGS PER SHARE=
Profit after tax
Number of shares
100

Company 2009 2010 2011

J Sainsbury

16.6%

18.2%

18.6%

WM Morrison
17.4% 22.8% 23.9%


22

Graph 2.5.1

Time: See Appendix
Industry Competition and Expectation
EPS is used to measure the performance of a companys management which determines the amount of
earnings the company makes for its investors. Since the EPS of WM Morrison Plc. has shown an upward
trend and is greater than J Sainsbury Plc. it clearly indicates WM Morrison has better prospects in
generating earnings for its investors. Shareholders do expect the company to perform better in order to
increase their capital.

2.5.2 DIVIDEND PER SHARE

DIVIDEND PER SHARE=
Net Dividend
Number of Shares
100
2009 16.60% 17.40%
2010 18.20% 22.80%
2011 18.60% 23.90%
0%
5%
10%
15%
20%
25%
30%
Earnings per share


23
(Panther 2011)

Graph 2.5.2
Time: See Appendix
Industry competition and Expectation
For every share held by an investor J Sainsbury generates a higher dividend compared to W M Morrison.
Shareholders examine the performance of an industry that earns a better payout that motivates them to
invest into the business. Shareholders expect a growth in dividends to match up with the level of
consumer prices which increases the spending power of shareholders.

2009 13.2 5.8
2010 14.2 9.2
2011 15.1 9.6
0
2
4
6
8
10
12
14
16
Dividend Per Share
Company 2009 2010 2011

J Sainsbury

13.2

14.2

15.1

WM Morrison

5.8

8.2

9.6


24

2.5.3 DIVIDEND PAYOUT RATIO

DIVIDEND PAYOUT RATIO=
Dividend Per Share
Earnings Per Share
100

Graph 2.5.4
j Sainsbury PLC Wm Morrison PLC
2009 79.50% 33.33%
2010 44.20% 35.96%
2011 43.80% 40.16%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Dividend Payout Ratio
Company 2009 2010 2011

J Sainsbury
(13.2 16.6) 100
= 79.5%
(14.2 32.1) 100
= 44.2%
(15.1 34.4) 100
= 43.8%

WM Morrison
(5.8 17.4) 100
= 33.33%
(8.2 22.8) 100
= 35.96%
(9.6 23.9) 100
= 40.16%


25
Time: See Appendix
2.5.4 DIVIDEND COVER

DIVIDEND COVER=
Earnings Per Share
Dividend Per Share

Graph 2.5.4
The calculations suggest that J Sainsbury has a dividend cover that is lower than that of W M Morrison.
2009 1.25% 3%
2010 2.26% 2.78%
2011 2.27% 2.49%
0%
1%
1%
2%
2%
3%
3%
4%
Dividend Cover
Company 2009 2010 2011

J Sainsbury (16.6 13.2) = 1.25% (32.1 14.2) = 2.26% (34.4 15.1) = 2.27%

WM Morrison (17.4 5.8) = 3.0% (22.8 8.2) = 2.78% (23.93 9.6) = 2.49%


26
This means that Sainsbury has a lower cover for paying its dividends to shareholders from profits
earned. Overall W M Morrison has a stronger cover compared to Sainsbury. Normally it is said that the
company that has higher cover is said to have a safer dividend. Since both companies are based in the
United Kingdom, it is important to look at this ratio as this is most commonly used in the UK to analyse
the liquidity of the business.
2.5.5 DIVIDEND YIELD
DIVIDEND YIELD=
Dividend Per Share
Price Per Share
100

Graph 2.5.5
2009 4.27 2.14
2010 4.26 2.84
2011 4.3 3.64
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Dividend Yield
Company 2009 2010 2011

J Sainsbury
(13.2 309) 100
= 4.27
(14.2 333) 100
= 4.26
(15.1 351) 100
= 4.30

WM Morrison
(5.8 271) 100
= 2.14
(8.2 289) 100
= 2.84
(9.6 264) 100
= 3.64


27
Investors are expected to invest in companies that are well established as they earn higher yield
compared growing companies. J Sainsbury is comparatively a better established company compared to
WM Morrison as it earns higher yields for the investor.

2.5.6 PRICE EARNINGS RATIO (P/E)

Price to earnings ratio or P/E ratio is the assessment of the existing share price in comparison to the
price per share of income which in other words is called Earnings Per Share (EPS). An investor looks at
the P/E ratio to determine which company to invest in. They would look to invest in a company where
they have a healthy earning compared to the price they pay for the stock. The comparison of companys
can only be done with those of the same industry. P/E is calculated as the existing share price over
earnings per share (EPS).

PRICE EARNINGS RATIO =
Market Share Price
Earnings Per Share
100

Company 2009 2010 2011

J Sainsbury
(309 16.6) 100
= 18.61%
(333 34.4) 100
= 10.20%
(351 32.1) 100
= 10.37

WM Morrison
(271 17.39) 100
= 15.83
(289 22.80) 100
= 12.67
(264 23.93) 100
= 11.03%


28

Graph 2.5.6
The P/E ratio suggests that the share price for J Sainsburys stock is high and is not earning returns as
much as W M Morrison. The share price paid by an investor in W M Morrison is much lesser but their
earnings per share are much higher than J Sainsbury. An investor will be keen to pay less to buy a share
and receive greater earnings. In this case W M Morrison is a better bet to invest in.

2.5.7 RETURN ON SHAREHOLDERS FUND (ROSF)
RETURN ON SHAREHOLDERS FUND =
Profit Before Tax
Share CapitaI + Reserves
100
2009 18.61% 15.83%
2010 10.20% 12.67%
2011 10.37% 11.03%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Price Earnings Ratio
Company 2009 2010 2011

J Sainsbury

(466 5982) 100
= 7.79%

(733 7007) 100
= 10.46%

(827 7905) 100
= 10.46 %

WM Morrison

(655 4520) 100
= 14.49%

(858 4949) 100
= 17.34%

(874 5420) 100
= 16.13%


29

Graph 2.5.7

Time: See Appendix
Investors look at industries they have a high return on shareholders funds. ROSF is a more detailed
examination compared to ROCE, of how profitable the industry is and how much of the profit is
accessible to its shareholders. WM Morrison clearly has a higher return on shareholders funds and thus
can be considered more profitable compared to J Sainsbury. On average WM Morrison earns about 16%
on shareholders investment over three years compared to 9.6% for J Sainsbury.

2009 7.79% 14.49%
2010 10.46% 17.34%
2011 10.46% 16.13%
0%
5%
10%
15%
20%
Return on Shareholders Funds


30
2.5.8 TOTAL SHAREHOLDER RETURN (TSR)
TOTAL SHAREHOLDER RETURN =
D1 + (P1-P0)
P0
100

D1 = Dividend per share for the year
P1 = Share price at the end of the year
P0 = Share price at the beginning of the year

J Sainsbury WM Morrison
2010 12.36 9.66
2011 9.93 -5.32
-8
-6
-4
-2
0
2
4
6
8
10
12
14
D
a
y
s

Total Shareholder Return
Company 2009 2010 2011

J Sainsbury
Not Calculated
14.2 + (333-309) 309
100 = 12.36
15.1 + (351-333) 333
100 = 9.93

WM Morrison
Not Calculated
8.2 + (289-271) 271
100 = 9.66%
9.6 + (264 - 289) 289
100 = -5.32


31
Graph 2.5.8
Time: See Appendix
Shareholders keep a close watch at this ratio as it gives them the total earnings after all deductions. TSR
shows the total return on shares in the previous year. This ratio shows how the industry has performed in
the past and shareholders are normally apprehensive about future returns. J Sainsbury has performed
better in the past compared with WM Morrison. This ratio gives a trend as to how the other competitors
have performed in the past which can guide investors where to invest.
3. ANALYSIS OF J SAINSBURY PLC AND Wm MORRISONS PLC WITH
REALTION TO THEIR INDUSTRY

3.1 Profitability Comparison
Net Profit Margin- Trailing Twelve Months (TTM)
The percentage of revenues (or sales) retained by the company in earnings. It is the sum of all interim
periods' income after taxes in the past twelve months divided by the sum of all interim periods' total
revenue in the same period, expressed as a percentage; also known as return on sales
(http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=MRW:LSE)
()Company Gross margin
(TTM)
Gross margin
(5 yr. average)
Net Profit margin
(TTM)
Net Profit
margin(5 yr.
average)
J Sainsbury
PLC
5.44 5.74 2.73 2.28
O key Group
SA
20.74 --- 3.63 ---


32
Wm. Morrison
Supermarkets
PLC
6.89 6.10 3.93 3.47
X5 Retail Group
NV(EDR)
23.32 26.76 2.42 - 4.0404
TABLE 3.1.1 (Market Data adopted from FAME)
The net profit margin (TTM) for J Sainsburys PLC is currently indicated as 2.73 whereas for Wm
Morrisons PLC the net profit margin (TTM) for the current year is 1.20 units greater than that of J
Sainsbury PLC. O Key Group SA and X5 Retail Group NV (EDR) are the companies which operates in
the same industry which has reportedly higher Gross Margins (TTM) as compared to J Sainsbury PLC
and Wm Morrisons PLC.
The Net Profit Margin (TTM) for Wm Morrisons PLC is greater than that of O Key Group SA by 0.30 units
whereas J Sainsburys PLC lags behind O key Group SA by 0.93 units. The net profit margin (5 yr.
average) of Wm Morrisons leads J Sainsburys PLC by 1.19 units which indicates that, the 5 year
average value of the net profit margin (TTM) for Wm Morrisons PLC is greater, the Wm Morrisons PLC
have been consistently making more profits on their investments as compared to J Sainsburys PLC in
the same industry

3.2 Per Share data Comparison
The per share data comparison of the same industry companies has been displayed in the table below. J
Sainsbury Earnings per share excluding the extra ordinary items is 0.07 units greater than that of Wm
Morrisons PLC .The Revenue per share (TTM) of J Sainsbury PLC is 4.96 units above the Revenue per
share of Wm Morrisons PLC. This comparison indicates that J Sainsbury PLC may provide more
dividends to the shareholders because of the greater earnings per share by the investors but this can be
misleading because Wm Morrisons PLC has the capability to increase its EPS and revenue per share.
The key factor is the growth rate of the companies with respect to earnings and income because the a
particular company will appear to be doing good presently but it may not be the same case in the long run


33
which is very important for the investor .
Company EPS (excluding
extraordinary
items )(TTM)
EPS (including
extraordinary
items)(TTM)
Revenue per
share
(TTM)
Book value per
share (MRQ)
J Sainsbury
PLC
0.3139 0.3139 11.30 3.00
O key Group
SA
0.3756 0.3756 10.38 1.49
Wm. Morrison
Supermarkets
PLC
0.2496 0.2496 6.34 2.07
X5 Retail Group
NV(EDR)
1.24 1.24 51.40 8.83
Table 3.2.1 (Market Data adopted from FT. com)

3.3 Growth Rate Comparison
Company Revenue (year-
over-year
change %)
Revenue(5 yr.
growth rate)
Net income (5
yr. growth rate)
Capital
expenditure (5
yr. growth rate)
Dividend (5 yr.
growth rate)
J Sainsbury
PLC
5.70 5.61 58.49 15.71 13.55
O key Group
SA
21.79 -- -- -- --
Wm. Morrison
Supermarkets
PLC
6.94 6.35 -- -1.405 21.01
X5 Retail Group
NV(EDR)
29.40 61.88 56.29 21.70 --
Table 3.3.1 (Market Data adopted from FT.com)


34
The Growth rate comparison of the companies in the same industry shows that O key Group SA
and X5 retail Group NV (EDR) have significant values of revenue growth rates and income growth rates.
Redirecting the focus on Wm Morrisons and J Sainsbury PLC , in which the investor is interested , it is
apparent from the table above that Wm Morrisons PLC has higher growth rate with respect to
revenue(year-over-year change%) , Revenue (5 yr. change) and Dividend (5 yr. growth rate) as
compared to J Sainsbury PLC. The Earnings per share for J Sainsbury PLC was higher but it can be
predicted from the growth rate comparison of the two companies that Wm Morrisons in the near future
will be a good option to invest in because the dividend (5 year growth rate) of Wm Morrisons PLC
have been increased by 5 units over J Sainsbury PLC and it will further increase in the coming
years which will inevitably increase the earnings per share for the investors.

3.4 SHARES COMPARISON
The latest share price comparison of Wm Morrisons PLC shows that the GBX of Wm Morrisons
PLC is greater than GBX of J Sainsbury PLC by 19 units and the number of shares traded of Wm
Morrisons PLC is 1.50 m which is much greater than J Sainsbury PLC which trades 1.05m shares.
Wm Morrisons Plc. J Sainsburys Plc.
GBX = 310 (Latest price) GBX = 291.7 (Latest Price)
Todays Change = 0.60 / 0.19 % Todays Change = 0.10 / 0.03 %
Shares Traded = 1.50 m Shares Traded = 1.05 m
1 Year change = 13.55 % (increase) 1 Year change = 19.38 % (decrease)
Beta = 0.4362 Beta = 0.7152
Table 3.4.1 (Market Data adopted from FT.com)


35
The percentage change in share price over the period of one year shows that the share price of
Wm Morrisons have been increased by 13.55% but , on the other hand, the share price of J Sainsbury
PLC have been decreases by 19.38 % in previous one year time.
3.5 SHARE PRICE FORECAST COMPARISON
(As per 29 analysts over 12 month price targets)
Wm Morrisons Plc.

Median = 325(+5.0%)

J Sainsburys Plc.

Median = 310(+6.3%)

High = 389
(+25.7%)
LOW = 279 (-9.8%)
High = 460.00
(+57.8%)
LOW = 279
(-17.7%)


36
The share price forecast comparison for Wm Morrisons PLC and J Sainsbury PLC estimates that
the highest share price reached by J Sainsbury PLC is greater than Wm Morrisons PLC and the lowest
level of share price is estimated to be the same price for both the companies. Furthermore, it is apparent
that the Median share price of Wm Morrisons PLC is estimated to be 325((+5%) which is greater
than the median estimated for J Sainsbury PLC which is 310(+6.3%).

3.6 EARNINGS, DIVIDENDS AND REVENUES ESTIMATES
Wm Morrisons PLC J Sainsburys PLC
Current Dividend 0.10 GBP 0.15 GBP
Increase in dividend 17.07% over last year 6.34% over last year
Expected Dividend 0.11 GBP (11.46% increase) 0.16 GBP (3.97 % increase)
Semi Annual 2012 earnings 0.1166 per share 0.138 per share
Expected Increase in earnings 7.37 % 6.15 %
Annual 2011 earnings 0.2254 per share 0.261 per share
Semi Annual Revenue 8.74 billion (7.40 % increase) 11.69 billion(6.11 % increase)
Annual 2011Revenue 16.48 billion (6.94 %
increase)
21.10 billion(5.70 % increase)


37

3.7 SEMI ANNUAL AND ANNUAL EARNINGS AND REVENUES GROWTH RATE
COMPARISONS
Analysis of the growth rates with respect to earnings and revenues for J Sainsbury PLC and Wm
Morrison PLC shows the clear picture of the standing of the company.

Wm Morrisons PLC have annual revenue growth rate just above 5 % and J Sainsbury PLC annual
revenue growth is under 5 % and the Annual earnings growth percentage of Wm Morrisons PLC
is more than double the annual growth rate percentage of J Sainsburys PLC.

0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Wm Morrisons
PLC
J Sainsburys PLC
Semi Annual Earning
growth rate
Annual earnings growth
rate
Semi Annual Revenue
growth rate
Annual Revenue growth
rate


38

4. CONCLUSION AND RECOMMENDATIONS

As a group of investment analysts, considering Chriss low risk attitude towards investment, the financial
statements of Wm Morrisons PLC & J Sainsbury PLC like Cash flow statements, Income Statements and
balance sheets for three consecutive years i.e. 2009, 2010 & 2011 were analyzed. The research was
purely based on multiple references, accounting and financial theories. For providing an extensive report,
we have calculated the Profitability Ratios, Liquidity Ratios, Efficiency Ratios, Solvency Ratios and
Investment Ratios for both the firms.

Based on the analysis, J Sainsbury faced problems in their marketing management, financial
management and their supply chain. J Sainsburys have an investment for a long term venture and
therefore they are very positive in prospective progression in coming years. To achieve this aim they
should work hard and closely examine the reasons behind the success of its competitors. They should be
ready with low price and good quality products for customers on their shelves.

There is still good and strong position for J Sainsburys in the UKs retail sector. Considering these
reasons, we would recommend Chris Houghton to wait and watch J Sainsburys progress in the coming
years. Considering current situation we would not recommend J Sainsbury as an investment option

Annual growth rate of Earnings, Revenues, ROCE and Net profit margins are higher for Wm Morrisons
PLC in comparison with J Sainsbury PLC. It is highly recommended to invest in Wm Morisons PLC
considering the current scenario as its more efficient, liquid, geared and Profitable. Wm Morrison PLCs
performance is more reasonable while that of J Sainsbury PLC should not be considered for now.


39

5. REFERENCES

Fame-Peer Analysis (2011) Peer Analysis [online] Available from < https://fame2.bvdep.com/version-
20111124/PeerAnalysis.serv?editedformat=nc&context=36LD760XUGGUP81&_cid=277> [22 November
2011]
Ft.com/Marketsdata (2011) J Sainsbury PLC [online] 21 November 2011 available from
<http://markets.ft.com/research/Markets/Tearsheets/Financials?s=SBRY:LSE > [21 November 2011]
Ft.com/Marketsdata (2011) Wm Morrisons Supermarkets PLC [online] [ 21November 2011 ] Available
from <http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=MRW:LSE>[21 November
2011]
FundingUniverse (2001) Wm Morrisons Supermarkets PLC [online] 2001 Available from
<http://www.fundinguniverse.com/company-histories/Wm-Morrison-Supermarkets-PLC-company-
History.html>[ 11 November 2011]
FundingUniverse (2001) J Sainsbury PLC [online] 2001 Available from
<http://www.fundinguniverse.com/company-histories/J-Sainsbury-plc-company-History.html> [11
November 2011]
J Sainsbury plc (2011) Annual Report and Financial Statements [online] 07 June 2011available from
<http://www.j-sainsbury.co.uk/investor-centre/reports/2011/annual-report-and-financial-statements-
2011/> [15 November 2011]
Morrisons (2011) Annual Reports and financial statements [online] 30 January 2011 available from
<http://www.morrisons.co.uk/Corporate/2011/annualreport/financial-statements/group-financial-
statements/consolidated-statement-of-comprehensive-income/Default.aspx >[15 November 2011]


40

6. APPENDICES
6.1 DEFINITIONS & TIME

RETURN ON CAPITAL EMPLOYED (ROCE)
Return on capital employed indicates what proportion of capital employed is converted in to operating
profit. This ratio is very helpful in analysing the performance of a business.
TIME:
The ROCE of J Sainsbury PLC was observed to be 7.73% in the year 2009. The ROCE for J Sainsbury
PLC increased steadily year by year until 2011 with an increase of 1.07% from 2009 to 2010 and an
increase of 1.26% in ROCE from 2010 to 2011.
For Wm Morrisons PLC the ROCE % for the year 2009 was noted to be 10.80 %. The ROCE % for the
year 2010 increased by 2.92 % as compared to the previous year and decreased by 0.92 % in the year
2011 as compared to ROCE % in 2010.
NET PROFIT MARGIN
Net profit margin gives the measure of the proportion of the sales that is contributed towards profit after
all overheads have been accounted for and deducted accordingly. A higher net profit margin is an
indication of the balance between business efficiency and cost reduction and eventually reducing the
overheads effectively.
TIME:
The Net Profit Margins of J Sainsbury PLC for the years 2009 and 2010 remained the same at 3.5 %. In
2011 the net profit margin of the company increased by 0.53%.


41
For Wm Morrisons PLC the Net Profit Margin was observed to be 4.62% in the year 2009. The Net
profit margin increased by 1.28% in the year 2010 and further decreased by 0.42% in the year 2011
ASSET TURNOVER
Asset turnover shows what proportion of the capital employed is converted in to revenue which in turn
reflects the capability of a company to generate sales and increase the revenue. A higher value of asset
turnover is preferred by investors while investing in any company.
TIME:
The asset turnover for J Sainsbury PLC year on year kept increasing from 2009 to 2011 .The Asset
turnover was 2.12 times in the year 2009 which further increased to 2.47 times in the year 2010 .There
has been only slight difference between the values for the year 2010 and 2011 which recorded a value of
2.49 times in 2011.
The asset turnover of Wm Morrisons PLC experiences a slight downfall in the year 2010 (from 2.34 times
to 2.33 times) which continued to be the same in the year 2011.
CURRENT RATIO
Current Ratio gives the measure of the ability of the company to pay off its current liabilities as compared
to the current assets the company possess.
This ratio indicates whether the short term assets, which the company possesses, are sufficient to pay
the short term liabilities. A higher value of this ratio indicated the ability of a company to pay its short term
liabilities with ease and within the stipulated time.
TIME:
The Current ratio of J Sainsbury PLC in the year 2009 was 1.18 which was at the peak value of current
ratio. After 2009 year on year the current ratio for J Sainsbury kept falling until 2011, 0.64 in 2010 and
0.58 in 2011.


42
Wm Morrisons PLC have had a current ratio of 0.53 in the year 2009, after which, it reduced slightly
to 0.51 in 2010 and plunged to 0.55 in 2011.
ACID TEST RATIO
Acid test ratio indicates the ability of the company to clear its financial obligations without selling off its
inventories. This ratio gives more precise information about the financial standing of the company .A
company which has highly liquid current assets and can repay its current debts easily can be spotted by
analysing this ratio and hence provides useful information for the investors and shareholders.
TIME:
After comparing the ATR of J Sainsbury PLC and Wm Morisons. J Sainsbury maintains a better ATR
compared to Wm Morrisons. J Sainsbury had a good short term liability in 2009 to compensate its
liabilities without vending its stocks. But it significantly dropped in the following years i.e. 2010 & 2011. It
is seen from the analysis that Wm Morisons maintained their ATR.
ASSET TURNOVER
Acid test ratio indicates the ability of the company to clear its financial obligations without selling off its
inventories. This ratio gives more precise information about the financial standing of the company .A
company which has highly liquid current assets and can repay its current debts easily can be spotted by
analysing this ratio and hence provides useful information for the investors and shareholders.
TRADE RECIEVABLES PAYMENT PERIOD
When an organisation comes into business with its client, the trade receivables/ or debtors period plays
an important role. The average trade receivables tell us that on an average how long it will take the
customer to pay the amount that they owe to the company. The faster the payment more the cash flow
and the organisation can take more orders and flourish their business
TIME:
The trade receivable periods of J Sainsbury PLC remained almost the same at an average of 3.8 days. In
2011 the trade payables of the company increased by 55.26 % to 5.9 days. For Wm Morrisons PLC the
trade receivables were observed to be 6.2 days in the year 2009. The trade receivable period decreased


43
by 24.1 % to 4.7 days in the year 2010 and again further increased to 25% to 5.9 days by the year
2011.
TRADE PAYABLES PAYMENT PERIOD
This calculation is entirely opposite of average trade receivables. The company makes different payment
dates to debtors. If the company fails or delays the payment to its debtors or in other words if the
turnover ratio is dropping at different intervals then it is proving that the organisation is taking more time
to pay its dues to its debtors compared to its previous months. It is vice versa if the opposite happens and
proves that organisation is paying its debts at faster and good rate.
TIME:
The trade payable payment periods of J Sainsbury PLC dropped to an average of 47 days in 2010 and
2011 compared to 50 days as of 2009. The company paid their debts 6.3%more compared to 2009
For Wm Morrisons PLC, the trade payables payment period dropped to an average of 46 days in 2010
and 2011 compared to 51 days as of 2009. The company paid their debts 9.8%more compared to 2009
INVENTORY TURNOVER
It is the calculation of ratios which shows the cycling of stocks in a company over a period of time. As the
average inventory turnover increases better is the companys output. Low inventory turnover is not a
good sign as the stocks tends to wane as they sit in the storehouse. Considering supermarkets, it should
have high turnover rates because of selling fresh items.
TIME:
After comparing the average inventory turnover days for J Sainsbury PLC and Wm Morrisons
Supermarket PLC. J Sainsbury maintains their average inventory turnover. But for Wm Morrisons
Supermarket PLC trade payables are increasing over the years which show the decline in cycling the
stocks. It can be concluded that J Sainsbury PLC has a better Average Inventory Turnover period with


44
that of WM Morrisons PLC in the last three years i.e. 2009, 2010 and 2011

GEARING RATIO
The higher the gearing, the higher the dependence on borrowings and long term financing. The lower the
gearing ratio, the higher the dependence on equity financing. Traditionally, the higher the level of gearing,
the higher the level of financial risk due to the increased volatility of profits
TIME:
For J Sainsbury PLC the gearing ratio in the year 2009 was 49.70 % which declined shapely to 38.40 %
in the year 2010 and further declined to 35.80 % in the year 2011.
For Wm Morrison`s the gearing ratio in the year 2009 was 27.10 % which decreased to 25.10 % in the
year 2010 and further decreased to 23.30 % in the year 2011
INTEREST COVER
The interest cover ratio is used to determine whether J Sainsbury and WM Morrisons has a good,
satisfactory or unsatisfactory amount of operating profit available to cover their interest payments. It
should be noted that both companies have different start and end times for their accounting period and as
a result these results will not occur at the same point in time for each company
EARNINGS PER SHARE
Earnings per share is a measure used to calculate how much income a particular company is generating
which is then available for shareholders over a particular period of time. In other words it basically
checks how the shares of a business are doing in the market. An investor can use EPS to compare two
or more companies of the same industry in order to decide where to invest. The way EPS is calculated
for equity or ordinary shareholders is represented by the profit after tax by the number of ordinary shares
outstanding.


45
TIME:
J Sainsburys data shows an increase in EPS from 2009 to 2011. This indicates, for every pound
invested shareholders can earn on average of 17.8 pence. This also suggests an increase in earnings of
2 pence over three years. WM Morrison has generated an EPS that is higher than Sainsburys, which
means for every pound invested they receive they earn an average of 21.4 pence over three years.
DIVIDEND PER SHARE
Dividend per share (DPS) is the income generated from each share that has been issued by the
company. Dividend received depends on how the business is performing and can be increased or
decreased depending on the companys performance. An increase in the dividend per share received
can mean an increase in share price. DPS is normally represented by the net dividend by the number of
shares outstanding. Dividend is the earnings that the business generates which is normally distributed
to its shareholders in the form of cash
TIME:
For every share sold J Sainsbury gets a dividend of 13.2, 14.2 and 15.1 pence for 2009, 2010 and 2011
respectively in the form of dividend. There has been a steady increase in earnings for the company as
the data suggests. W M Morrison has also received an increase in earnings from the shares sold by the
company. For every share sold they get an income of 5.8, 8.2 and 9.6 pence respectively.
DIVIDEND PAYOUT RATIO
This ratio determines the percentage of the earnings that is utilized to pay out dividends to shareholders.
The payout ratio for dividends also gives a clue as to how much of the dividend payments can be
supported by the earnings of the company. Normally established companies have the tendency to have
a greater payout ratio as compared to relatively established companies.
TIME:
This ratio determines that J Sainsburys has paid out a huge percentage of dividends to its shareholders


46
in 2009 of 79 percent and then seen a decline in dividend payout in 2010 and 2011, yet a relatively
good payout. The spike in 2009 shows that the company had a higher payout ratio to attract investors to
invest into the company. W M Morrison had a steady increase in its payout to its shareholders. This is
could be a good sign for the company especially to investors who would want to invest with relatively low
risk. A rise in payout can suggest that the risk is comparatively lower.
DIVIDEND COVER
This is an important ratio that investors have a close eye on. The Dividend cover basically shows the
ability of the company to pay out dividends that go out to shareholders from the profits the company has
earned. It is always said that higher the cover, safer the dividend. This ratio also enables an investor to
evaluate the liquidity of the business. Dividend cover is similar to the Dividend Payout Ratio and is used
most commonly in the United Kingdom. This is derived by using the value of the EPS by the value of the
DPS.
DIVIDEND YIELD
Dividend yield can be defined as the amount of dividend a company pays every year compared to the
share price of the company. With respect to the investors Dividend yield is the way they measure the
cash flow for every pound invested in a dividend yielding stock. It is also said that dividends are not
always definite income as companies have the choice to disregard its dividend in times of financial
trouble or adversity. Therefore dividend yield should be one among various other factors that should be
measured before choosing a stock. Dividend yield is measure as DPS over the share price of the stock.

TIME:
J Sainsbury has a higher yield in the form of dividend that they pay out to investors. For every pound
invested into the stock the company pays out 4.27, 4.26 and 4.30 for 2009, 2010 and 2011. That is


47
higher than what W M Morrison pays its investors which is 2.14, 2.84 and 3.64 for 2009, 2010
and 2011 respectively.
PRICE EARNINGS RATIO
Price to earnings ratio or P/E ratio is the assessment of the existing share price in comparison to the
price per share of income which in other words is called Earnings Per Share (EPS). An investor looks at
the P/E ratio to determine which company to invest in. They would look to invest in a company where
they have a healthy earning compared to the price they pay for the stock. The comparison of companys
can only be done with those of the same industry. P/E is calculated as the existing share price over
earnings per share (EPS).
RETURN ON SHAREHOLDERS FUND
Return On Shareholders Fund (ROSF) or Return On Equity (ROE) is used to calculate profit before tax
deductions on investment made by shareholders. In other words it is used to calculate the profitability of
the company by showing how much profit the company has earned with the utilization of the
shareholders investment.
TIME:
The calculation of ROSF for both companies reflects that WM Morrison has been more profitable as
compared to J Sainsbury. There has been an upward trend for both companies in terms of profit earned
from shareholders investment. W M Morrison has been more successful in converting capital employed
into profits compared to J Sainsbury from the figures shown above. This can because WM Morrison has
invested lesser on Non-current Assets and has a lower long term liability to pay off compared to J
Sainsbury and hence greater return on investment on shareholders funds.
TOTAL SHAREHOLDER RATIO
The Total Shareholder Return (TSR) is one of the most straightforward ratios that determines or
calculates the overall return on investment to an investor. On the other hand investors want to know how


48
much are they likely to earn in future and the various ratios that will be calculated from here on
should give the investor an idea of future returns on investment.
TIME:
TSR shows that J Sainsburys gets a higher total return on shareholders investment compared with WM
Morrison as shown on the graph. One of the main reasons that J Sainsbury has a better total return on
investment by shareholders is because they have a better return on DPS, stronger payout to
shareholders in the form of dividend and higher yield on every pound invested into the company.

6.2 CALCULATIONS
1. PROFITABILITY RATIOS
a) Return on Capital Employed (ROCE)
ROCE =

b) |Net Profit Margin (NPM)
NPM =
Operating Profit
Revenue
100
Company 2009 2010 2011

J Sainsbury

(673 8705) 100
= 7.73%

(710 8062) 100
= 8.8%

(851 8457) 100
= 10.06 %
WM Morrison

(6716202) 100
= 10.8 %

(907 6608) 100
= 13.72 %

(904 7063) 100
= 12.8 %


49

c) Asset Turnover (AT)
AT =

2.) LIQUIDITY RATIOS
a) Current Ratios (CR)
CR =

Company 2009 2010 2011

J Sainsbury

(673 18911) 100
= 3.5%

(710 19964) 100
= 3.5%

(851 21102) 100
= 4.03 %
WM Morrison

(671 14528) 100
= 4.62%

(907 15410) 100
= 5.90%

(904 14679) 100
= 5.48 %
Company 2009 2010 2011

J Sainsbury

(18911 8705) = 2.12

(19964 8062) = 2.47

(21102 8457) = 2.49

WM Morrison

(14528 6202) = 2.34

(15410 6608) = 2.33

(16479 7063) = 2.33
Company 2009 2010 2011

J Sainsbury

(1570 1328) = 1.18

(1797 2793) = 0.64

(1708 2942) = 0.58

WM Morrison
(1065 2024) = 0.53 (1092 2152) = 0.51 (1138 2086) = 0.55


50
b) Acid Test Ratio (ATR)
ATR =

3. EFFICIENCY RATIOS
a) Trade Receivables Payment Period (TRPP)
TRPP =
Average Trade ReceivabIes
Cost of SaIes
365

b) Trade Payables Payment Period
Trade Payables Payment Period =
Average SaIes PayabIes
Cost of SaIes
365
Company 2009 2010 2011

J Sainsbury

(1570 - 6891328)=0.66

(1797 - 7022793) = 0.39

(1708 - 8122942) = 0.304

WM Morrison
(1065 - 4942024)=0.28 (1092 - 5772152) = 0.24 (1065 - 6382086) = 0.20
Company 2009 2010 2011

J Sainsbury

195 18911 x 365
= 4 days

251 19964 x 365
= 4 days

343 21102 x 365
= 6 days

WM Morrison

245 14528 x 365
= 6 Days

199 15410 x 365
= 5 Days

268 16479 x 365
= 6 Days
Company 2009 2010 2011

J Sainsbury

2488 17875 x 365
= 51 days

246618882 x 365
= 48 days

259719942 x 365
= 48 days
WM Morrison

1915 13615 x 365
= 51 days

1845 14348 x 365
= 47 days

1914 15331 x 365
= 46 days


51
c) Average Inventory Turnover
Average Inventory Turnover =
Average Inventories HeId
Cost of SaIes
365

4. SOLVENCY RATIOS
a) Gearing Ratio
Gearing Ratio =
Long Term LiabiIities
Equity SharehoIders' Funds
100

Company 2009 2010 2011

J Sainsbury

685 17875 x 365
= 14 days

702 18882 x 365
= 14 days

812 19942 x 365
= 15 days
WM Morrison

494 15615 x 365
= 13 days

577 14348 x 365
= 15 days

638 15331 x 365
= 15 days
Company 2009 2010 2011

J Sainsbury

4376 8705 100
=49.70 %

3096 8062 100
=38.40 %

3033 8457 100
=35.80 %

WM Morrison

1682 6202 100
= 27.10 %

1659 6608 100
= 25.10 %

1643 7063 100
= 23.30 %


52
5. INVESTMENT RATIOS
a) Earnings Per Share (EPS)
EPS =
Profit after tax
Number of shares
100

b) Dividend Per Share (DPS)
DPS=
Net Dividend
Number of Shares
100

c) Dividend Payout Ratio (DPR)
DPR=
Dividend Per Share
Earnings Per Share
100
Company 2009 2010 2011

J Sainsbury

16.6%

18.2%

18.6%

WM Morrison
17.4% 22.8% 23.9%
Company 2009 2010 2011

J Sainsbury

13.2

14.2

15.1

WM Morrison

5.8

8.2

9.6
Company 2009 2010 2011

J Sainsbury
(13.2 16.6) 100
= 79.5%
(14.2 32.1) 100
= 44.2%
(15.1 34.4) 100
= 43.8%

WM Morrison
(5.8 17.4) 100
= 33.33%
(8.2 22.8) 100
= 35.96%
(9.6 23.9) 100
= 40.16%


53
d) Dividend Cover (DC)
DC=
Earnings Per Share
Dividend Per Share

e) Dividend Yield (DY)
DY=
Dividend Per Share
Price Per Share
100

f) Price Earnings Ratio (P/E)
P/E =
Market Share Price
Earnings Per Share
100
Company 2009 2010 2011

J Sainsbury (16.6 13.2) = 1.25% (32.1 14.2) = 2.26% (34.4 15.1) = 2.27%

WM Morrison (17.4 5.8) = 3.0% (22.8 8.2) = 2.78% (23.93 9.6) = 2.49%
Company 2009 2010 2011

J Sainsbury
(13.2 309) 100
= 4.27
(14.2 333) 100
= 4.26
(15.1 351) 100
= 4.30

WM Morrison
(5.8 271) 100
= 2.14
(8.2 289) 100
= 2.84
(9.6 264) 100
= 3.64
Company 2009 2010 2011

J Sainsbury
(309 16.6) 100
= 18.61%
(333 34.4) 100
= 10.20%
(351 32.1) 100
= 10.37

WM Morrison
(271 17.39) 100
= 15.83
(289 22.80) 100
= 12.67
(264 23.93) 100
= 11.03%


54
g) Return on Shareholders Fund (ROSF)
ROSF =
Profit Before Tax
Share CapitaI + Reserves
100

h) Total Shareholder Return (TSR)
TSR =
D1 + (P1-P0)
P0
100
D1 = Dividend per share for the year
P1 = Share price at the end of the year
P0 = Share price at the beginning of the year

Company 2009 2010 2011

J Sainsbury

(466 5982) 100
= 7.79%

(733 7007) 100
= 10.46%

(827 7905) 100
= 10.46 %

WM Morrison

(655 4520) 100
= 14.49%

(858 4949) 100
= 17.34%

(874 5420) 100
= 16.13%
Company 2009 2010 2011

J Sainsbury
Not Calculated
14.2+(333-309)309
100 = 12.36
15.1 + (351-333)333
100 = 9.93

WM Morrison
Not Calculated
8.2 + (289-271) 271
100 = 9.66%
9.6 + (264 - 289) 289
100 = -5.32

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