The current ratio and quick ratio are effective in knowing the liquidity position of the Group. In respect of DHSC, there is a slight reduction in the quick ratio and current ratio. This signifies that current assets and quick assets are lower and insufficient to pay the short-term debts of the firm (Department of Health and Social Care annual report 2022).
The debt ratio has slightly declined from 19.52% in 2021 to 18.59% in 2022. This signifies that the department has reduced the borrowings and its debt is less than the capital employed. In other words, the department has not relied on borrowing to fund its operations.
The return on taxpayers' equity has been computed as negative for both 2021 and 2021. This signifies that the department is making huge losses due to which it is not capable to generate enough returns for the equity holders. Here, COVID-19 is the major challenge the nation and the public sector have encountered in a lifetime. DHSC has been core to the response of the Government and as the outcome of this, the Department has continued to adapt in such unprecedented times. Though the impact of the pandemic has changed as compared to 2019-20 and 2020-2021, the response has stayed a major priority for DHSC. It was reflected following the emergence of the Omicron strain, with buying of additional vaccines and antivirals, along with funding offered to NHS and Adult Social Care to support the response.
In respect of Wm Morrison Supermarkets Ltd, the gross profit margin has reduced in 2022. Operating profit margin and return on capital employed have been computed as negative for 2021 and became positive in 2022. This signifies that there is a slight improvement in the profitability of the company in 2022 (Wm Morrison Supermarkets Ltd. annual report 2022). On the other hand, the gross margin for Tesco has been computed as 7.55% while the operating margin is computed as 4.17% (Macro Trends 2023). This signifies that the competitive firm is performing better in the industry as compared to Wm Morrison Supermarkets Limited.
In respect of liquidity position, the current ratio and quick ratio have been calculated. Both remained greater than 1 for both years signifying that the company has enough amount of quick assets and current assets to pay off the short-term financial obligations. Whereas, for its competitor firm, Tesco, it has been computed as 0.76 which is much lower than that of Wm Morrison Supermarkets Ltd. In 2022, the Group acquired the trade and the major proportion of assets of McColl’s group of corporations out of the administration (Wm Morrison Supermarkets Ltd annual report 2022). Before this acquisition, the Group had wholesaling link with McColl's and a contract for them to convert and trade a rising number of their stores under 'Morrisons Daily' fascia.
The return on equity is negative owing to net losses made by the firm. On the other hand, Tesco’s return on equity has been given as 9.74% signifying that Wm Morrison Supermarkets Limited is not performing well in the industry.
Wm Morrison Supermarkets Ltd has not paid any dividends in 2022 and paid very less dividends in 2021. This led to losing of confidence of shareholders in the profitability of the company (Wm Morrison Supermarkets Limited annual report, 2022). Moreover, regarding the interest cover ratio, the company is not performing well as it is not able to earn enough profits to pay the interest charges even a single time.
The debt ratio of Wm Morrison Supermarkets Ltd has substantially reduced in 2022 signifying that the company has reduced the debt proportion to fund its business operations. This will help the company in lowering its interest expenses and improve its profitability. On the other hand, the long-term debt upon capital ratio for Tesco stood at 0.29 which is much lower than that of Wm Morrison Supermarkets Ltd (Macro trends 2023). This shows that Wm Morrison Supermarkets Ltd has taken more debt as compared to its competitor firm.
It has been analyzed from the report that Wm Morrison Supermarkets Ltd is financed by external debt held in the immediate parent entity, Market Bidco Limited and other broader Group entities. However, in order to manage its liquidity, the company manages its underlying capital expenditure, operating performance and working capital with ongoing support from the parent company and in full consideration of the debt position of the wider Group. The Group aims at having a centralized treasury function that manages financing, liquidity and other fiscal risks in respect of the broader Group, in link with policies set and controlled by the Board.
The working capital cycle has been computed as -42.26 days for 2022. The negative working capital cycle indicates that the business collects money at a quicker rate as compared to the time needed to pay the bills. The net working capital has an inflow of £180 million with the rise in trade creditors, majorly because of the higher prices and volume of fuels, offsetting greater inventory levels in both terms (Wm Morrison Supermarkets Ltd. annual report 2022).
It can be claimed that the liquidity position of DHSC is less effective as compared to Wm Morrison Supermarkets Ltd. But, the profitability position of both the companies is not very fine. Both companies are facing difficulties in connection to interest and a higher proportion of debt in their capital structure. Both these Groups have to undertake suitable measures to enhance their performance.
Corporate governance is the system through which corporations are controlled and directed. The board of directors is held responsible for the governance of their corporations. The term encompasses the external and internal factors that impact the interests of the stakeholders of the corporation including customers, shareholders, government regulators, suppliers and management. The corporate board is responsible for building a framework for corporate governance that best aligns business conduct with the objectives of the company. Effective corporate governance involves forming principles of transparency, security, reliance, compliance and accountability. Corporate governance is critical towards the adequate functioning of the company. Depicting effective governance is significant for upholding the reputation of the company. It is based on a set of bylaws, rules, procedures and policies to ensure the accountability of the corporation. When done in the right way, it forms a framework for grabbing the objectives of the corporation in all management spheres.
The Department of Health and Social Care is a government-owned firm that helps individuals to live better for longer periods. It leads funds and shapes care and health in England, ensuring that people have the right support, treatment and care they require, with the respect, compassion, and dignity they deserve (Department of Health and Social Care 2023). This organization sets the direction and coordinates action wide across the health and care system. It creates national legislation and policies, offering the longer-term vision and ambition to fulfil present and future challenges and act as a worldwide leader in health and care policy.
Wm Morrison Supermarkets Limited is a private retail company. It retails groceries via a chain of supermarkets and online home delivery service in England. The corporation provides groceries and food, a higher proportion of which it sources and processes through completely owned manufacturing facilities. It is the 5th largest supermarket chain in the UK (Wm Morrison Supermarkets Ltd 2023). As of 2021, the corporation had 497 supermarkets wide across England, Scotland and Wales and one in Gibraltar. Its headquarters are located in Bradford, England.
The code of corporate governance act as the part of framework of regulation, legislation and best practice principles that aims at delivering the best quality corporate governance with in-built flexibility for corporations to adapt their practices to consider their specific circumstances (Financial Reporting Council 2014).
Transparency is the degree to which the investors have ready access towards required financial information about the corporation, like market depth, price levels, and audited financial statements (Garcia-Sanchez et al. 2020).
The Directors of Wm Morrison Supermarkets Limited are held responsible for the preparation of the annual report and the financial statements as per law and regulation. Company law needs the Directors to prepare financial statements for every financial period. Under that law, the Directors have prepared the financial statements of the Group as per UK-adopted international accounting principles and the corporate financial statements as per UK GAAP (Wm Morrison Supermarkets Limited annual report 2022). The annual report of Wm Morrison Supermarkets Limited provides a true and fair picture of the state of the Group and its affairs. The financial statements are adequately prepared as per the UK-adopted international accounting standards as applied with provisions of the Companies Act 2006. The company undertakes a compliance-focused approach towards its tax affairs, maintained a transparent relationship with stakeholders and interacts with HMRC constantly.
DHSC, being part of the government and the wider drive of the Government to raise the accountability and transparency of the public services, the data from the 3 major outcomes frameworks is published online for the knowledge of the public to hold their local services to account (DHSC annual report 2022). The Adult Social Care Outcomes Framework fosters higher transparency in making delivery of adult social care, supporting the local individuals to hold their council to account for the quality of services they offer. To enhance the level of transparency, the Department discloses losses at the earliest possible opportunity once the loss is deemed to have crystallized. It is normally when the inventory is classified as not adequate for any usage or has been disposed of.
As per the UK corporate governance code, the board must present a balanced, fair and understandable assessment of the position and prospects of the corporation. The board is held accountable for determining the extent and nature of major risks it is ready to take in accomplishing its strategic objectives (Mariano et al. 2021).
Directors of Wm Morrison Supermarkets Limited have prepared proper accounting records that are sufficient to show and detail the transactions of the Group and the company and disclose them with reasonable accuracy at any time. The financial statements of the company duly comply with the Companies Act 2006. The Board here has overall answerability for setting the strategy about the communities and the environment, in respect of corporate responsibility governance, environmental needs and considerations of the response of the Group towards sustainability and environmental challenges (Wm Morrison Supermarkets Limited annual report 2022). Also, the Group has a centralized treasury function that manages liquidity, funding and other finance-based risk as per the Board approved Treasury Policy. The purpose of the policy and the controls that are formed is to mitigate the risk of negative impact on Group Performance as the outcome of its exposure towards financial risks arising from the operations of the Group and its sources of funds. The Board completely retains the overall responsibility for treasury activity and is engaged in major decision-making, offering governance and oversight to the treasury activity.
As concerned with the DHSC, HM Treasury has directed the department to prepare, consolidated resource accounts that detail the resources held, acquired or disposed of and the usage of resources during the year under the Government Resources and Accounts Act 2000. The Department operates the accountability procedure based on compliance with the set of core assurance standards, including the management of risk. Every Director General acquires an accountability letter from Permanent Secretary setting out their tasks for determining, evaluating, interacting, managing and escalating risk in their directorates. Such letters also signify answerability for their assigned budget, delivery of business plan objectives and sponsorship responsibilities for ALBs.
Annual reports are used to evaluate the stewardship of directors regarding the management of the company's assets and affairs for the previous period. Stewardship is crucial as shareholders have no involvement in the decisions and activities made, and thereby, rely on stewards to use their resources to the best of their capabilities in aiming for profits, growth and survival.
The directors of Wm Morrison Supermarkets Limited have safeguarded the assets of the Group and have taken reasonable steps for the detection and prevention of fraud and other kinds of irregularities. They confirm that the financial statements of the Group are prepared by the UK-adopted international accounting principles and standards (Wm Morrison Supermarkets Limited annual report 2022). In this way, the annual report of the company provides a fair and true picture of the liabilities, assets, financial position and profitability of the company. The financial statements mentioned in the annual report comprise a fair view of the performance and development of the business and the position of the corporation, together with a description of the principal uncertainties and risks that it encounters.
As disclosed in the annual report of DHSC, the responsibilities of the accounting officer, including the responsibility for regularity and proprietary of public finances for which the Principle Accounting Officer is accountable, for maintaining adequate records and for protecting the assets of the Department or non-departmental or other arm's length public body for which the Principle Accounting Officer is held responsible (DHSC annual report 2022). The accounts of DHSC are prepared under the convention of historical cost with modifications to account for the revaluation of property, equipment, plant, investment property, stockpiled goods, intangible goods and specific financial assets and financial obligations.
It can be concluded that there are a few similarities and differences between Wm Morrison Supermarkets Limited and DHSC in accomplishing the governance functions with their annual reports. Both companies have a treasury department that looks after funding procedures, budget allocation, and the usage of resources in the organization. The transparency function is quite similar as both companies have provided a true and fair view of the events and the financial statements. Any stakeholder can review the same before undertaking any informed decision-making process. The financial statements of both these firms have been adequately prepared as per the UK-adopted international accounting standards as applied as per the provisions of the Companies Act, 2006. The difference is that in DHSC, the accounting officer has the responsibility for upkeeping proper records. But there is no such accounting office in Wm Morrison Supermarkets Limited. In DHSC, every Director General acquires an accountability letter from Permanent Secretary setting out their tasks for determining, evaluating, interacting, managing and escalating risk in their directorates but no such letter is received in the private firm, Wm Morrison Supermarkets Limited.
Department of Health & Social Care. 2023. About us. [Online]. Available at: https://www.gov.uk/government/organisations/department-of-health-and-social-care [Accessed on: 10th August, 2023].
Department of Health and Social Care annual report. 2022. Annual report. [Online]. Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1135637/dhsc-annual-report-and-accounts-2021-2022_web-accessible.pdf [Accessed on: 10th August, 2023].
Financial reporting council. 2014. The UK corporate governance code. [Online]. Available at: https://www.frc.org.uk/getattachment/59a5171d-4163-4fb2-9e9d-daefcd7153b5/UK-Corporate-Governance-Code-2014.pdf [Accessed on: 12th August 2023].
García‐Sánchez, I.M., Rodríguez‐Ariza, L., Aibar‐Guzmán, B. and Aibar‐Guzmán, C., 2020. Do institutional investors drive corporate transparency regarding business contribution to sustainable development goals? Business Strategy and the Environment, 29(5), pp.2019-2036.
Macrotrends. 2023. Tesco financial ratios for analysis 2009-2023. [Online]. Available at: https://www.macrotrends.net/stocks/charts/TSCDY/tesco/financial-ratios [Accessed on: 12th August 2023].
Mariano, S.S.G., Izadi, J. and Pratt, M., 2021. Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing? International Journal of Accounting & Information Management, 29(2), pp.305-323.
Wm Morrison Supermarkets Limited annual report. 2022. Annual report. [Online]. Available at: https://www.morrisons-corporate.com/globalassets/corporatesite/about-us/biographies/final-annual-report.pdf [Accessed on: 10th August, 2023].
Wm Morrison Supermarkets Limited. 2023. About us. [Online]. Available at: https://www.morrisons-corporate.com/about-us/ [Accessed on: 10th August, 2023].
Computation of ratios for DHSC |
|||
2022 |
2021 |
||
Quick ratio |
Current assets excluding stock/ Current liabilities |
0.60 |
0.63 |
Current ratio |
Current assets/ Current liabilities |
0.68 |
0.78 |
Debt ratio |
Long term debt/ Capital employed *100 |
18.59 |
19.52 |
Return on taxpayers' equity |
Earnings after tax and preference dividend/ Ordinary share capital plus reserves *100 |
-260.84 |
-402.02 |
Computation of ratios for Wm Morrison Supermarkets Ltd |
|||
2022 |
2021 |
||
Gross profit margin |
Gross profit/ Revenue * 100 |
2.14 |
2.38 |
Operating profit margin |
Profit before interest and tax/ Sales * 100 |
0.30 |
-0.28 |
Return on capital employed |
Profit before interest and tax/ Capital employed * 100 |
-0.53 |
-1.64 |
Acid test ratio |
Current assets excluding stock/ Current liabilities |
1.99 |
2.57 |
Current ratio |
Current assets/ Current liabilities |
2.17 |
2.79 |
Return on equity |
Earnings after tax and preference dividend/ Ordinary share capital plus reserves *100 |
-0.77 |
-8.28 |
Dividend per share |
Dividend paid to ordinary shareholders/ Number of issued oridinary shares |
0.00 |
0.05 |
Interest cover |
Profit before interest and tax/ Interest charges |
-0.38 |
-1.46 |
Debt ratio |
Long term debt/ Capital employed *100 |
1.34 |
14.98 |
Working capital cycle |
Inventory days + Debtors days - Creditors days |
-42.26 |
-51.81 |
Inventory days |
Inventory/ Cost of sales *365 |
19.93 |
25.01 |
Trade receivable days |
Trade receivables/ Credit sales *365 |
7.49 |
11.56 |
Trade payable days |
Trade payables/ Credit purchases *365 |
69.68 |
88.38 |
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