AAF044-6 Accounting and Finance Assignment Sample 2023
1. Introduction
Ocado Group Plc is considered to be a revolutionary in online grocery retailing; the company has been able to reap a lot of profits from the shift in consumer preferences to online shopping. In the last few years, the company has worked diligently towards achieving its goals of becoming the biggest online grocery retailer in the world. The following paper outlines the accounting and finance analysis of the company in the last few years.
1.1 Key Features
Main features of Ocado Group Plc have been outlined as:
- A grocery retailer which is independent and works towards supplying quality food, household goods, and drinks to consumers
- Offers “end-to-end” solutions when it comes to grocery retailing through advanced technology and IP
- Offering the best online grocery shopping option to its consumers at a price that is considerably lower than what is offered by its competitors.
1.2 Current Financial Conditions
The current financial position of the company is significantly better than what it had two years back. The company estimated sales at 1756.6 million pounds, which was greater than revenue calculated in 2018 which was at 1598.8 million pounds. Similarly, the company saw a huge jump in its sales in 2020 which was estimated at 2331.8 million pounds. Despite operating at a loss of 211.8 million pounds by the end of 2019, the company was able to significantly recover itself and ended at a loss of only 69.6 million pounds in 2020 (Ocado Group, 2020). Hence, it can be stated that the company showed improvement in its performance between the periods of 2019-2020.
1.3 Key Resources
Resources are important constituents for an organization as it helps in outlining materials that have been used by organizations to achieve their goals. In the given case, key resources of Ocado Group Plc have been given as,
- Advanced and innovative technology helps in ensuring that consumers are offered the best user experience
- Vast market research framework and knowledge on how to capture market
- Skilled workers in managing both technology and customers.
1.4 Management issues and challenges
Management is one of the most important aspects of an organization; however, they are not without their issues (Charlo et al. 2017). The major issues that are faced by management are the decrease in the level of performance of the company. This has mainly occurred because of being understaffed. The pandemic had made it difficult for the company to manage all its employees and thus Ocado had to lay off a lot of its employees. Hence, this has caused the company to be severely understaffed.
The major challenges that companies have to face are:
- Expansion and capturing market in the US
- Supply Chain disparities
- Current market situation post Covid.
2. Critical evaluation of the performance of Ocado Group Plc in financial and non-financial terms
Financial Terms
Ocado Group has been in the market since 2000 and has gradually worked its way to become a go-to option for consumers because of use of innovative technology which is easy to operate. Unlike its competitors that company is solely an online chain that delivers goods that consumers order directly to their doorstep. However, it is the company’s attractive prices and quick delivery which make it more attractive for consumers.
Financially, the company has faced a lot of losses over years, despite total revenue collected. There was no gross profit with the company operating mostly on losses. A closer look at the 2019 financial statement of Ocado group plc has revealed that the operating loss of the company was estimated at 185.8 million pounds, compared to 8.8 million pounds in 2020. On the other hand, loss, before tax was imposed in 2019, was at 214.5 million pounds, compared to 44 million pounds in 2020 (Ocado Group, 2020). Therefore, it can be stated that the company had significantly improved its financial position and was able to reduce losses it had been incurring. This was quite a surprising issue, as the company had recovered its financial position in 2020 when a severe Covid pandemic had gripped the nation. One of reasons that can be outlined for such improvement in financial performance, is reliance of customers to meet their daily grocery needs on platforms as Ocado Plc have. The company diligently worked through the pandemic to deliver all required goods and services.
Figure 1: Consolidated Income Statement of Ocado Group Plc
(Source: Ocado Group, 2020)
A closer look at non-controlling assets shows that the company had a positive value when it came to this parameter, estimated to be at 1.3 million pounds, which later saw a huge jump to 56.4 million pounds in 2020 (Ocado Group, 2020). The same was also noticed for certain comprehensive income factors, which despite being negative in certain areas, value was mostly positive in the end. However, the company has significant pressure as the number of liabilities in case of non-current liabilities are all negative values, compared to its assets that are significantly less when compared to it. Hence, as opined by Jarvis & Williams (2017), it can be concluded that liabilities of a company both current and net liabilities are much greater than assets held by firms. Therefore, financially, though the company is steadily working towards improving its financial condition and has also achieved a part of same, there remains a long way to go.
Non-Financial Terms
Considering the non-financial aspect of the company, it has worked a great deal towards keeping its stakeholders including staff, employees, customers and others safe besides keeping business running. The company also worked towards contributing to society and helping in any way required. The company opened up its two “international CFCs” which were initially planned to be released later and has been able to increase sales through its stores (Ocado Group, 2021). The company has also worked towards adopting a more sustainable approach when it came to its operations and has been able to successfully achieve the same by reducing its carbon emissions.
Figure 2: Non-Financial Statements of Ocado Group Plc
(Source: Ocado Group, 2020)
Innovation has always been one of major drivers of change when it came to a company and it has been one of its reasons why it has always strived towards its development. Ocado has been successfully working towards its “auto-pickup” technology named Cora along with other ventures such as of 3D printing and vertical farming. On the other hand non-financial assets which a company possesses do not have a large shelf-life and as a result are subject to regular scrutiny. Statement for non-financial assets of company was recorded at 239.5 million pounds which have been significant when compared to its previous year value (Ocado Group, 2019). Ocado’s goal of sustainability makes it important for it to look towards recycling old equipment and ensuring that value is extracted from same as much as possible. This is one of reasons why it effectively works towards regular inspections of all its goods. As per the company annual report, it estimated depreciation of 179 million pounds at the end of 2019. Thus, it can be stated that despite financial issues the company has been undergoing in the last two years it has significantly improved. The same can also be stated for non-financial assets of a company that have been positively managed over years.
3. Comparison of performance
3.1 Comparison of Ocado Group Plc. and Morrison’s
Morrison’s Supermarkets is considered to be the fourth-largest supermarket chain in the UK and is working towards offering groceries to the population in and around the UK. A closer look at the financial reports of the company has helped highlight the performance of the company in the last two years. The company recorded a whopping profit of 406 million pounds in 2019 which was an increase of 8.6% from previous years (Morrison’s, 2019). Profits calculated before tax highlight the growth of the company over years. However, by 2020 profits of the company were hit badly and fell to 201 million pounds. The increase in profits of the company was simultaneously affected through accumulation of a significant amount of debt at around 997 million pounds which had increased from debt accumulated in previous quarters. This further increased to 3169 million pounds in 2020 (Morrison’s, 2020). One of the reasons that can be outlined for accumulated debt by a company is based upon issues it had been facing within the company. Operations and supply chain issues have been severe for the company causing difficulties in managing its services and thus reducing efficiency. This was further accentuated with the start of Covid-19 pandemic.
Considering non-financial assets of the company, Morrison’s has shown a 76% increase when it came to the enhancement of its employees. On a closer look, it has been found that there was a significant 2% fall in its engagement index, which can be blamed upon policies undertaken by the company towards its employees. Company also witnessed an increase of 0.7% when it came to customer transaction n\umbers (Morrison’s, 2019). On the sustainable side, Morrison’s has been effectively supporting British farming and working towards developing organic foods and making farming a profitable business. However, the company has also significantly contributed towards providing for its customers through the start of delivery systems and providing discounts to its goods after Covid hit.
Figure 3: Brand Warmth of Morrison’s
(Source: Morrison’s, 2020)
In comparison with Ocado Group Plc, it can be seen that issues of both these companies are quite different despite being in the same industry. On one hand, Ocado’s main issues are associated with concurring losses as it is unable to gain on profit. On the other hand, a major issue with Morrison’s is that of accumulated debt (Morrison’s, 2021). However, a positive aspect of this situation is that while increasing debt of Morrison’s has put the company under scrutiny and is on verge of sell-out; Ocado on other hand has been significantly recovering from its losses and still has a long way to go. Considering, non-financial assets of both companies. Ocado seems to have an upper hand in the given case due to its online delivery sale and delivery options, which Morrison’s is still figuring out to manage effectively. Ocado is also invested in making technological advancements that have had a positive effect on its growth that Morrison’s has failed to achieve.
3.2 Conditions and challenges faced by Morrison’s
The major challenges that Ocado has to face in the current market scenario are customer engagement and diversifying its goods. There is also a case of expansion in the US market and ensuring that it can completely capture it as it has been doing in the UK in the past 20 years. Another significant issue is the absence of physical stories that are affecting its engagement with consumers.
Considering the case of Morrison’s, major challenge that the company is facing in the current context is managing disruptions in its supply chain following Covid 19 pandemic. As per the view of Bourke (2021), the company is going through a labor shortage following the opening up of its stores’ post-Covid. Increase in accumulated debt has further caused concern, as the company was forced to close down its cafes, and traffic at its gas stations was also lower. All of these factors combined to pose a great challenge for the company in upcoming years.
4. Recommendation on buying shares
As it is evident from the given study, both companies have been facing significant issues when it came to generating revenue in the current economic scenario. There are a lot of underlying issues with these companies unless properly mitigated at the earliest. In case of, Ocado Group Plc it has been found through their annual reports that when it came to its shares, the company undertook a 30.63 pence loss per share in 2019 alone. However, this saw significant change in 2020 when loss per share decreased to 17.55 pence (Ocado Group, 2020). The fact that the company was able to increase the value of its shares in 2020 when the pandemic was at its highest and lockdown was implemented shows an effective company strategy.
Figure 4: Loss per share of Ocado Group Plc
(Source: Ocado Group, 2020)
On the other hand, in the case of Morrison’s, it has been found that the company saw an improvement by 24.9% when it came to its dividend value-priced at 12.60 pence per share (Morrison’s, 2020). Increase in dividend price highlighted increase in its share values which also highlighted demand by consumers for its shares.
Figure 5: Total Dividend of Morrison’s
(Source: Morrison’s, 2019)
However, the price of dividends fell significantly in 2020 and was priced at 11.15 pence, owing to the start of Covid 19 pandemic (Morrison’s, 2020). This was further accentuated by increasing debt listed by the company. Drastic fall in dividend prices outlines loss of confidence in consumers from Morrison’s.
Figure 6: Total Dividend of Morrison’s
(Source: Morrison’s, 2020)
In a given case scenario, after a thorough analysis of the financial and non-financial situation, it can be stated that Morrison’s is not a safe bet in the current context. The company has been rapidly acquiring debt and there have also been talks of a buyout soon, which raises the danger of share prices being significantly impacted by the sale. In such a situation, investing in a share of Morrison’s raises risks. Competitively, reviewing the current financial condition of Ocado Group Plc and its performance in the last two years, it is safe to state that the company is on an upwards curve. This can be proven through a company rapidly decreasing its accumulated losses within a year and at a time when every business has been struggling (Ocado, 2021). The company also saw a significant fall in the losses being accumulated through its dividends which means that there has already been an interest growing regarding the company shares amongst the customers. Thus, it is safe to state that buying shares of Ocado Group Plc is going to be a smart move.
5. Conclusion
In conclusion, it can be stated that financial and non-financial statements of a company play a significant role when it comes to determining the state of a company in the market. The following paper helped me gain a better understanding of how to analyze financial and non-financial performance of a company. It also helped gain a broad understanding of how performance of an organization is dependent upon these factors. As it can be seen from a given case, from afar it may be seen that Morrison’s is in a much better position than Ocado, having such a huge customer base and earning profits in millions. However, after analysis of its annual financial reports, a better understanding of the dire situation of Morrison’s was able to be identified. Similarly, initially, it seemed that Ocado had no way of coming out of its accumulated losses, but after analyzing financial reports of the company it could be seen that the company has been steadily increasing. Working on the following paper helped me appreciate the importance of having annual financial reports and analyzing the position of a company through its analysis. Through the analysis of both these companies, I was also able to gain a better understanding of the current position of the industry in the market in the post-Covid economy. Hence, it can be stated that there lies a significant need to learn how to assess and analyze financial and non-financial reports of companies to gain a better understanding of the performance of the company in the market.
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