Income Statement and Statement of Financial Position for

Assessment :

You are presented with the Income Statement and the Statement of Financial Position for the retailer WM Morrison for 5 years, 2010 to 2014.  You have been asked by a potential investor to provide information which will help them to decide whether or not to invest in the business.
In particular they have asked you to calculate a selection of accounting ratios for each of the 5 years.  These are to be presented as an appendix to your essay in appropriate tables.  The required ratios are the Gross Profit ratio; the Mark up ratio; the Net Profit ratio; the Return on Capital Employed for total capital; the Pre-tax ROE; the Post-tax ROE; the Interest Cover; Gearing (both measures); and the Stock Turnover.
Required:
(a)    Calculate the required ratios and present in a clearly labelled appendix.
(25 Marks)
(b)    Write an essay in which you explain the performance ratios calculated.  Your essay should refer to the reliability, or otherwise, of using such analysis.  This will require reference to appropriate texts which should be referenced in appropriate Harvard style.  You should also explain that other interested stakeholders might be interested in other aspects of the business. (700 Words excluding References)
(50 Marks)
(c)    You receive another request from the potential investor.  This time he wants you to write a brief account of the liquidity of the business.  Furthermore, the investor ratios provided in the accounts need explaining.  The investor is particularly interested in the performance of the business compared to its competitors. (350 Words excluding references)
(25 Marks)
The following websites provide information on some of Morrison’s rivals in the    retail market to help you make comments on the performance of Morrison in a more vigorous manner:

http://www.j-sainsbury.co.uk/investor-centre/reports/2014/annual-report-and-financial-statements-2014/
http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf
http://cdn.corporate.walmart.com/66/e5/9ff9a87445949173fde56316ac5f/2014-annual-report.pdf

Morrison WM Supermarkets
Income Statement and Statement of Financial Position
2010 to 2014
Income Statement For The Year Ending:    02/02/2014    03/02/2013    29/01/2012    30/01/2011    31/01/2010
(Millions)    (Millions)    (Millions)    (Millions)    (Millions)
Revenue (Sales):    17,680.00    18,116.00    17,663.00    16,479.00    15,410.00
Gross Profit    1,074.00    1,206.00    1,217.00    1,148.00    1,062.00
Operating Profit / (Loss):    -95    949    973    904    907
Net Interest:    -82    -70    -26    -30    -49
Profit Before Tax:    -176    879    947    874    858
Profit after tax from continuing operations:    -238    647    690    632    598
Discontinued Operations:
Profit for the period:    -238    647    690    632    598
Attributable to:
Equity holders of parent company:    -238    647    690    632    598
Total Dividend Paid:    c 13.00    c 11.80    c 10.70    c 9.60    c 8.20
Retained Profit / (Loss) for the Financial Year:    c n/a    c n/a    c n/a    c n/a    c n/a
Earnings per Share:
Basic:    -10.23p    26.65p    26.68p    23.93p    22.80p
Dividend per Share:    13.00p    11.80p    10.70p    9.60p    8.20p

Balance Sheet As At:    02/02/2014    03/02/2013    29/01/2012    30/01/2011    31/01/2010
(Millions)    (Millions)    (Millions)    (Millions)    (Millions)
Assets:
Non-Current Assets:
Property, Plant & Equipment:    8,625.00    8,616.00    7,943.00    7,557.00    7,439.00
Intangible Assets:    458    415    303    184    n/a
Investment Properties:    119    123    259    229    229
Investments:    97    31    31    n/a    n/a
Other Financial Assets:    n/a    n/a    1    3    n/a
Other Non-Current Assets:    n/a    n/a    n/a    38    n/a
Total Non-Current Assets    9,299.00    9,185.00    8,537.00    8,011.00    7,668.00
Current Assets:
Inventories:    852    781    759    638    577
Trade and Other Receivables:    316    291    320    268    n/a
Cash at Bank & In Hand:    261    265    241    228    245
Other Current Assets:    1    5    2    4    270
Total Current Assets    1,430.00    1,342.00    1,322.00    1,138.00    1,092.00
Other Assets:    n/a    n/a    n/a    n/a    n/a
Total Assets:    10,729.00    10,527.00    9,859.00    9,149.00    8,760.00
Liabilities:
Current Liabilities:
Borrowings:    553    52    115    n/a    213
Other Current Liabilities:    2,320.00    2,282.00    2,188.00    2,086.00    1,939.00
Total Current Liabilities    2,873.00    2,334.00    2,303.00    2,086.00    2,152.00
Net Current Assets:    c n/a    c n/a    c n/a    c n/a    c n/a
Non-Current Liabilities:
Borrowings:    2,480.00    2,380.00    1,600.00    1,052.00    1,027.00
Provisions:    637    547    548    591    615
Other Non-Current Liabilities:    47    36    11    n/a    17
Total Non-Current Liabilities    3,164.00    2,963.00    2,159.00    1,643.00    1,659.00
Total Liabilities:    6,037.00    5,297.00    4,462.00    3,729.00    3,811.00
Net Assets:    4,692.00    5,230.00    5,397.00    5,420.00    4,949.00
Capital & reserves:
Share Capital:    234    235    253    266    265
Share Premium Account:    127    107    107    107    92
Other Reserves:    2,617.00    2,615.00    2,597.00    2,584.00    2,584.00
Retained Earnings:    1,714.00    2,273.00    2,440.00    2,463.00    2,008.00
Total Equity: (Shareholders Funds:)    4,692.00    5,230.00    5,397.00    5,420.00    4,949.00

a. Includes discontinued activities
b. Including assets due in more than one year
c. Not disclosed under IFRS
d. Total fixed assets
e. Includes borrowings

EC1401 Coursework 1 Feedback Sheet
Assessment criteria with weightings:

Assessment criteria:

•    Evidence of the understanding of accounting statements (a, b, c)
•    Evidence of ability to calculate and interpret accounting ratios (a, b)
•    Evidence of well-planned and structured answers displaying correct use of English language and grammar. (b,c)
•    Accurate use of the Harvard Referencing system. (a, b, c)

Key to the coding notation:

Coding    Name    Grade
E    Excellent    >= 70%
G    Good    >= 60%
A    Average    >= 50%
S    Satisfactory    >= 40%
I    Inadequate    <   40%

NB This piece of work contributes to 25% of the total mark for this year long module. make sure to check that websites please.

Notes on the Coursework2015
The following notes are intended to help you with the Semester 2 assignment on this module.
(1)    We are used to seeing an Income Statement which sets out as follows:
£
Sales                                xx
Less Cost of Goods Sold    (1)                    (xx)
Equals Gross Profit                        xx
Minus Expenses (Overheads)                    (xx)
Equals Net Profit Before Interest and Tax (2)            xx
Minus Interest    (3)                        (xx)
Equals Net Profit After Interest and Before Tax    (4)        xx
Minus Tax                            (xx)
Equals Distributable Net Profit    (5)                xx
Less Dividends
Equals Retained Profits

(2)    (i) Morrisons accounts show:

Revenue                            xx
Gross Profit                            xx
Operating Profit (2)                        xx

Note 1: Morrisons do not show Cost of Goods Sold directly:
Sales – Gross Profit = Cost of Goods Sold (Rearranging the Gross Profit Equation)
Note 2: Morrisons do not show other expenses:
Operating profit = Net Profit before Interest and Tax:
Operating Profit – Gross Profit = Other Expenses (such as depreciation etc…)

(ii) Morrisons accounts show:
Net Interest:    (3)                        (xx)
Profit Before Tax: (4)                        xx
Profit after tax from continuing operations: (5)            xx

Note 3: Net interest is net outflows to finance debt
Note 4: Profit Before Tax = Net Profit After Interest and Before Tax
Note 5: Profit after tax from continuing operations = Net profit after interest and tax
Note 6: What tax has been paid? = Profit after tax from continuing operations – Profit before tax.

(3)    Notes on Terminology:

Income Statement (IS) = Trading and Profit and Loss Account (TPL)
GP = Gross Profit
NP = Net Profit
Statement of Financial Position (SFP) = Balance Sheet (BS)
Non- Current Asset (NCA)  = Fixed Asset (FA)
Current Asset (CA)
Current Liability (CL)
Inventories = Stock
Trade Receivables = Debtors (these are current assets)
Trade payables = Creditors (these are current liabilities)
Non- Current Liabilities (NCL) = Long Term Liabilities (LL)
Capital = owners input into business
Retained Earnings = undistributed profits
Total Equity = shareholders funds

(4)    A note on the ratios:
GP Ratio = Gross Profit /Sales%

Mark up = Gross Profit/Cost of Goods Sold

Net Profit Ratio = Net Profit Before Tax /Sales%

ROCE total cap = Profit BeforeInterest and Tax/Shareholders capital +NCL

Pre-tax ROE =    Profit BeforeTax /Shareholders capital

Post-tax ROE =     Profit AfterTax/Shareholders capital

Interest Cove r= Profit BeforeInterest and Tax/Interest

Gearing     = Debt (NCL)/Equity

Gearing     = Debt (NCL)/ Debt(NCL) +equity

Stock turnover = Cost of Goods Sold /Average Stock

Notes:
(i)For some of the ratios you will have to calculate figures as outlined in the notes above.
(ii) For Stock turnover, you will need to use the value of Inventories in the Balance Sheet as you do not have details of opening and closing stock in this set of accounts

(5)    A final comment.
The calculation of accounting ratios is quite straight forward once you have identified the relevant numbers.  They can be done in a spreadsheet with formulae.
What is not so straightforward, however, is the interpretation of what the results mean.
It is important that you do the necessary background reading in order to become familiar with this subject.
For this particular assignment you are recommended to read Chapter 9 of Gowthorpe, focusing on Accounting Ratios, as well as Chapters 2 and 3 which give you the basic understanding of the Income Statement and The Statement of Financial Position.
Remember, the time spent on outside reading for Semester 2 in this module is 100 hours.  There is only so much we can cover in lectures and seminars, so make sure you are keeping up with your reading.

that all numbers inside schedule or table like economy.