Financial and Management Accounting

Table of Contents

Introduction2

Analysis of key Performance Indicators2

Profitability analysis2

Liquidity Analysis5

Possible Causes for Changes in Liquidity Position:6

Assets Management -Efficiency Ratios (J Sainsbury Plc)6

Gearing analysis10

Investment Analysis11

Information Needs of the Users and Accounting Conventions14

Informational Needs of the Main Users of Financial Statement14

Accounting Conventions in Preparing Financial Statements15

Need of Accounting Conventions in typical Annual Report16

Table of Figures

Figure 2.1: J Sainsbury Plc's profitability ratios between 2007 and 20115

Figure 2.2: Morrison Supermarkets Plc profitability ratios between 2007 and 20115

Figure 2.3 Efficiency Ratios of J Sainsbury Plc8

Figure 2.4 Efficiency Ratios of Morrison Plc9

Figure 2.5 Gearing Ratios of J Sainbury Plc11

Figure 2.6 Gearing Ratios of Morrison Supermarkets Plc12

Figure 2.7: J Sainsbury Plc's Investment ratios between 2007 and 201112

Figure 2.8: Morrison Supermarkets Plc investmnet ratios between 2007 and 201114

Need of Accounting Conventions in typical Annual Report17

Financial and Management Accounting

Introduction

The analysis of financial statements of companies is highly essential for evaluating the overall performance of the company and ultimately, better investment decisions can be possible. There are various financial tools that are available for making an appropriate analysis of the financial statements of companies. One such financial tool that is highly used in assessing the financial statements is ratio analysis which not only helps in the assessment of performance of a company, but also allows for better comparison of the performance of one company to that of another.

In this report, the main aim has been to compare the performance of two UK based companies known as J Sainsbury Plc and Morrison Supermarkets Plc through the calculation of ratio analysis for both these companies over a period of five years. There will be an assessment of performance of these companies through important ratios such as profitability, liquidity, efficiency and gearing ratios and the possible reasons for changes in performance will also be identified. In addition to this, the informational needs of users from the financial statements will be assessed along with the examination of accounting conventions that are being used in preparing the financial statements. Finally, the findings from the third part analysis will be included in the last section of this report.

Analysis of key Performance Indicators

As specified, there are various kinds of ratios that are being calculated for J Sainsbury Plc and Morrison Supermarkets Plc. These include profitability ratios, liquidity ratios, efficiency ratios and gearing ratios. A comparison of the performance of both these companies on the basis of ratio analysis is performed as follows:

Profitability Analysis

Profitability ratios are the important indicators of the performance of the company in terms of profit earned by it from its operations. A higher profitability ratio is an indicator of better overall performance of the company. An organization should seek to the attainment of higher profitability so that the main purpose of the organization can be achieved. The profitability ratios include a number of indicators such as gross profit margin, net profit margin, operating margin, return on capital employed, return on equity, return on assets etc. A comparison of all these ratios for J Sainsbury Plc and Morrison Supermarkets Plc is performed as follows:

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