Morrison (w) PLC.was founded in 1899 by William Morrison, father of current chairman, Ken Morrison. From its origins as an egg and butter merchant in Bradford, West Yorkshire, the company developed into market stalls and on to counter service. Progress was such that in 1958, a small town centre shop was opened. In the 1960s, Morrisons was at the forefront of supermarket development, opening its first store, “Victoria”, in Bradford in 1961. And In 1967, Morrisons became a public company and was more than 174 times over-subscribed as over 80,000 investors tried to purchase shares. The company has since achieved a 35 year unbroken track record of sales and profit growth and in April 2001 joined the FTSE 100 for the first time.

Today, the principal activity of the company is retail distribution. And Morrisons is the country’s fifth largest supermarket chain, with an annual turnover of over 3.9 billion. There are 126 Morrisons supermarkets – from Erith in the South to Carlisle in the North, and across, Yorkshire, Lincolnshire, East Anglia, the Midlands, Lancashire, Cheshire, and into Wales. Morrisons has a 5.9% share in the UK’s grocery market and is Britain’s fastest growing supermarket chain.

The statement of Profit ; Loss Account and balance sheet below for the 52 weeks ended 2 February 2003 show a substantial increase in both turnover and profits – the 36th successive rise since the company went public in 1967. Gross Profit Margin=1106.4/4288.5=0.258= 25.8%. The gross profit margin ratio tells us the profit, which Morrison makes on its cost of sales, or cost of goods sold. It is a very simple idea and it tells us for each �1 of turnover the business is earning 25.8p. Gross profit is the profit before taking off any administration costs, selling costs and so on. So we should have a much higher gross profit margin than net profit margin.

The net profit margin=262.5/4288.5=0.061 =6.1%. The net profit margin ratio tells us the amount of net profit per �1 of turnover Morrison has earned is 6.1p. That is, after taking account of the cost of sales, the administration costs, the selling and distributions costs and all other costs. The net profit margin is varying from business to business and from industry to industry. The gross and the net profit margins Morrison can gain is just standard rate to show the impression of their non-production and non-direct costs such as administration, marketing and finance costs to public.

The Gross Profit Margin and Net Profit Margin are not high for Morrison PLC, because the group is doing retail distribution. We can see the profit for this business is quite low based on the profit ratio analyses from Morrison. In 2003 if we had bought some supplies for �535.5m on 2nd Feb, we would have paid for them 60.5 days later on 3rd April. According to that debtors are taking somewhere only 2 days to pay their accounts, notice that the business is taking two months credit for itself in 2003 and in 2002. These results are good. The small businesses are suffering in the UK because large businesses like Morrison take too long to pay their accounts. It’s worried for small business but good for Morrison.

Investment

1.Dividend According to the directors propose to recommend a final dividend of 2.25p per ordinary share. The total dividend in the period will be 2.70p per ordinary share compared to 2.20p per ordinary share in 2002, an increase of 22.7%. The new market price is 245p per share, So Dividend yield=2.7/245=1.1%. The dividend yields seem to be rather low and the yield of Morrison (w) PLC is representative of the overall market. But why would shareholders accept such low yields? The answer is that shareholders are more concerned with capital gains, i.e. increases in the share price, rather than the dividend they might receive.

2. Earnings per share The earnings per share are based on the profit for the financial period. It was 11.53p. The average number of ordinary shares in issue during the period was 1,554,853,000 (2002 1,537,431,000) or 1,581,231,000 diluted (2002 1,579,284,000) and the new market price is 245p per share. So the Price Earnings Ratio: P/E ratio for Morrison this year is 245/11.53=21.25. It is not too high to invest and in general if the P/E ratio around 20, it means the company may be worth to invest.

Reference

All the financial information data including the background of the Morrison PLC are taking from the Internet. Nothing from the books! The website shows as below