Financial Performance of Morrison Plc Assignment

Financial Performance of Morrison Plc - Assignment Example Return on equity (ROE) provides information regarding how much profit the company has been able to generate in regards to its equity. A high ROE is desirable. Return on assets (ROA) tells an investor how effective a company has been at producing profits from its assets. A high metric is the desired output. The debt to equity ratio measures how much debt a company has with regards to its total equity. A low ratio is a good sign. The current ratio compares the current debt a company has in regards to its current liabilities. The formula is current assets divided by current liabilities. A high ratio is a warning because it’s a sign that the firm is having liquidity problems. Working capital is calculated by subtracting current liabilities from current assets. A positive working capital is the desired output. The quick acid ratio is calculated with the same formula as the current ratio except that in the numerator you must subtract prepaid expenses and inventory. The sales to asse t ratio represent how much revenue a company is generating in regards to its total assets. It is important to understand that in order to perform a complete analysis of the company’s performance utilizing ratio analysis the financial analyst must perform research to obtain information about the industry standard ratio performance. The results of the financial ratio analysis reflect that the performance of the company has declined between 2008 and 2009. The net margin, return on equity and return on assets metrics decreased in 2009. The current ratio went up by 4%. The company has liquidity problems evidence by its negative working capital for both 2008 and 2009. Based on the ratio analysis performed on Morrison Plc for the years 2008 and 2009 the researcher would not invest in the company. Prior to making giving this recommendation, the author would need to compare the 2009 ratio results with the industry standard.