Tuesday, January 28, 2020
The length and resistance Essay Example for Free
The length and resistance Essay The aim of this investigation is to find out how changing the length of a piece of wire will affect its resistance. Prediction I think that increasing the length of a wire will increase its resistance. This is because in a conductive metal, the electrons in the outer shell of each atom are free to move around. An electrical current is where all these electrons are caused to move in the same direction through the metal. Resistance is the property of a substance that restricts the flow of electricity through it, and is often associated with heat. As the electrons are passing through the metal, they are constantly colliding with the atoms of the metal, causing their course to be slowed down. The collisions cause changes of direction which dissipate energy as heat, which is why more resistant metals heat up more than metals which let electrons pass through more easily. It is easier for electrons to pass through metals in which the atoms are small and far apart, because the free electrons can pass through with less collision to slow their path. It is most important for the metal to contain a lot of free electrons. Fewer collisions mean that less energy is transferred to heat: this is low resistance. As the length of the wire is increased, there will be more fixed atoms for the free electrons to collide with, thus slowing their course. The length of the wire and the resistance of the wire will be directly proportional. If you double the length of the wire, the resistance will also double. This is because there will be double the amount of atoms in the wire for the electrons to collide with. The fact that it would take twice as long for the electrons to pass through in a metal twice the length is of almost irrelevant consequence because electrons move close to the speed of light, and so there is no point in taking this into consideration. If the resistance of the material is increasing, then it will need an increasingly large force to push it through: This is the voltage. The resistance (R) is how much voltage (V) is needed to drive a given current (I). R = V/I Based on my prediction, I would expect my graph to look like this: Resistance (? ) is also equal to the resistivity of the wire(?cm) multiplied by its length(cm), and then divided by its cross sectional area(cm2). Resistance (? ) = resistance of the metal(? cm) x length(cm) cross sectional area (cm2) The cross sectional area of the wire is constant, and so is the material I am using. It is only the length that will be changing, so as you can see from the formula, the length and resistance must be directly proportional. Planning My experiment shall be set up as follows: I shall use the following apparatus: connecting wires The power supply will be permanently set to 2volts, but it is important to keep the amperage below 1A so that the wire does not overheat. We will do this using the rheostat. The nichrome wire has a resistivity of 103 x 10-6, and a diameter of 0. 2285mm (0. 02285cm). We have chosen nichrome wire because its properties are suitable for this experiment. It is quite easy to keep the amperage low, but the experiment must still be started with the length of wire that is long enough so that the amps are not too high, as otherwise, this would result in an increase in temperature which is not related to increased resistance. We have chosen to calculate the resistance of the wire in intervals of 5 cm, starting at 5cm, and going up to 70cm. All our decisions are based on a variety of pre- tests. Fair testing The key variables in this experiment are: temperature diameter type of wire length of wire In order for this experiment to be fair, it is important that these variables are carefully monitored. Temperature: It is important that any change in temperature is a result only of resistance. To do this, the room temperature must be kept the same, and the current running through the wire must be kept below 1amp. If it were to exceed this limit, it would result in an increase in the vibrations of the atoms in the metal. This would cause the free electrons to collide more often with the fixed atoms and would cause an apparent increase in resistance that is not due to the change in the length of the wire. In order to prevent this from happening, we have used a rheostat: using this, we can keep the current very low. If desired, we could keep it at a constant, but this is not necessary. Diameter: The diameter of the wire will be kept constant throughout the experiment. This is important because it affects the overall area of the wire. The resistance is inversely proportional to the cross-sectional area. The only way in which the area of the wire should be changed is in length. An increase change in diameter would affect the number of fixed atoms that the free electrons could collide with and would produce inaccurate results with regards to resistance. The smaller the diameter the better, as it will mean a smaller all-round area which will make it possible for more results to be taken, as the amperage would not have so great an effect on the wires temperature. Also, the larger the diameter, the easier it would be for the free electrons to flow through, just as water flows more easily through a wider pipe than a thinner one. Type of wire: All metals have different properties, and in order to make the test fair, the type of wire used must be kept the same. I have chosen to use nichrome as it has good properties which have been tested in the pre-test. It is also important to keep the wire straight, as this will make it easier to measure. Length of wire: The length of the wire is the variable that I shall be changing. I have chosen to do so in 5cm stages. It is very important that the wire is measured accurately, as otherwise the readings off the ammeter and voltmeter will not be as accurate as they could have been. To do this, we are using a ruler, but one problem that we are likely to encounter is the fact that is will be difficult to measure around the top of the rod on which the wire is fixed. So as not to get inaccurate readings, I am going to disregard the reading at 35cm, as that is the length that falls upon the end of the rod. Pre-test It is important to conduct a pre-test before doing the actually experiment. In this pre-test, I have tested 3 types of wire: nichrome, copper and Constantan, to which is most suitable for the experiment. I did the pre-tests on a computer program. Diameter I tested the three available metals using the computer program to find out how close to the maximum of 1 amp I could reach by adjusting the diameter of the wires. I want the amperage to be as close to 1 as possible because the amps will go down as I do the experiment, and I want to get a lot of results. The amps must not be above 1amp, because this would mean that the wire would get too hot, and the results would be inaccurate, as I have previously explained.
Monday, January 20, 2020
The Meaning of Abstract Art Essays -- essays research papers
There are generally two types of paintings- representational and abstract. While representational painting portrays recognizable objects, abstract painting does not look like a particular object. Instead, abstract art is made up of designs, shapes and colors. (http://www.harley.com/art/abstract-art/ ) The meaning of abstract art is, in its most simplified form, art that relies on the emotions of the artist and the elements of design rather than exact representation. This broad definition allows artists almost unlimited freedom of expression. Some abstract artists create compositions that have no precedent in nature. Other abstract artists work from nature and then interpret their subjects in a nonrepresentational manner. In other words, as found on Wikipedia by Answers.com, when abstract art represents the natural world, it â€Å"does so by capturing something of its immutable intrinsic qualities rather than by imitating its external appearance.†(http://www.answers.com/topic /abstract-art)      Historically, abstract art has existed for centuries, as Jewish and Islamic traditional forbids the use of representational art. (http://www.artelino.com/articles/abstract_art.asp) However, the roots of what we generally term â€Å"abstract art†can be traced to the Impressionism movement of the 1880s-1890s. Impressionism disregarded the notion that art was supposed to portray images. Post Impressionism continued this trend and placed more emphasis on the artist’s emotions and expression. Wassily Kandinsky and Kasimir Malevich were the first to really create works that were pure abstraction. Kandinsky was the founder of the Abstraction movement and even published a book detailing his theories on art and spirituality, On the Spiritual in Art. (http://www.artelino.com/articles/abstract_art.asp) Kandinsky created a series of pieces with numbered titles beginning with, â€Å"Improvisation†and â€Å"Composition.†(http://www.ibiblio.org/wm/ paint/auth/kandinsky/) These works were studies in color and line, without an emphasis on representation. While Kandinsky worked in Germany, Malevich spent much of his time in the Russian city of Vitebsk where he taught and founded the UNOVIS, which stood for â€Å"Affirmers of the New Art†and was founded to promote â€Å"collectivity in the creative process†and create a new way of teaching and creating art. (http://www.russianavantgard... ...tational designs and elements, his work can be considered some of the greatest examples of abstract art to date.      Leger, Boccioni and Rothko were all expressing their inner vision. Art is a form of creative expression. Abstract art allowed artists to push the boundaries of creative freedom by favoring design and emotion over representation. But, as the question is posed at paintings.name, â€Å"How free can art be?†(http://paintings.name/) The answer is clear. The only constraint placed by abstract art is that the works are generally nonrepresentational. The artists are free to explore their subjects from various perspectives, geometries and situations. Movement can be show like never before. Merely by adding abstract elements to their works, artists can increase their range. As paintings.name states, â€Å"Contemporary paintings no longer reflect a contraposition between abstract art and figurative art, but these styles either flow together in paintings by contemporary artists, or exist side by side in pure abstract paintings or pure figurative paintings.†(ht tp://paintings.name/) The meaning of abstract art is found in this freedom of choice and expression.
Sunday, January 12, 2020
Legal Forms of Business in Sri Lanka
Introduction A business also called a company, enterprise or firm is a legally recognized organization, designed to provide goods and services to consumers. According to the purpose of the business, ownership of the business and nature of economic contribution of the business; the business can fall into one of the three standard sectors. There are; private sector, public sector and nonprofit sector. The part of the economy concerned with providing basic government services is called public sector. In most countries the public sector includes such services as the military, public transit, primary education and healthcare. Their aim is to give service to the people and less emphasis is made on profit making. Public cooperation is the widely known type of public sector business entity. The non-profit sector is derived with organizations that do not distribute their surplus funds to owners or shareholders, but instead use them to help pursue their goals. Examples include charitable organizations, trade unions, and public arts organizations. In private sector, businesses are financed and controlled by individuals or private institutions, such as companies, stockholders, or investment groups. These businesses run for private profit and they are not controlled by the state or the government. There are many types of business entities defined in the private sector and authorized by the legal systems of various countries. These legal forms of business include; †¢ Sole Proprietorship †¢ Partnership (General Partnership, Limited Partnership and Joint Venture) †¢ Corporation (C Corporation and S Corporation) †¢ Limited Liability Company (Private and Public) These legal forms have been derived according to their Source of the capital, Value of capital investment, Nature of ownership, Number of owners, Nature of liability and many other factors. Each legal form has its own advantages as well as disadvantages. When making a decision about the type of business to form, there are several criteria you need to evaluate based on advantages and disadvantages of above mentioned legal forms. The most important fact is cost of formation of the business and cost of ongoing administration. This includes cost of record-keeping and paperwork, as well as the costs associated with administrative requirements. Legal liability is the next thing to be considered and it defines to what extent the owner need to be insulated from legal liability. Based on the individual situation and goals of the business owner, he has to consider what the available tax implications are because it is also an important factor. Finally the owner has to think about the future needs and whether the legal forms support flexibility feature. Sri Lanka Company Act, No. 7 of 2007 and Company Act, No. 17 of 1982 have defined Sri Lanka legal forms of organizations, which can be the choices for Sri Lankan business community when forming a new business. Legal Forms of business in Sri Lanka include; †¢ Sole Proprietorship †¢ Limited Liability Company (Private and Public) †¢ General Partnership Sole Proprietorship A sole proprietorship also known as a sole trader is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business. Sole proprietorships are forms of business ownership that mingle the owner's rights, liabilities and responsibilities with the business' rights, liabilities and responsibilities. Regardless of the state of the business, the procedures we need to follow to form a sole proprietorship are fairly simple, and do not even require an attorney, accountant, or business consultant. There are no legal requirements for establishing a sole proprietorship, other than obtaining the necessary local business license and permit. As the sole proprietor, owner has the full control and responsibility for the business and its operation and he makes all the decisions. With this type of business entity, owner has complete freedom over operating the business, because he is responsible for all transactions and activities occur in the business. All assets of the business are owned by the owner and all profits and all losses accrue to him. He is personally responsible for all debts of the business and must pay them from his personal resources. This means that the owner has unlimited personal liability for the business. Also, owner is less burdened by government restrictions and control, and he has less to do in terms of reporting and taxes. The main advantage of a sole proprietorship is that they are easy to start up and to close. The reason is, they are less expensive and also subject to fewer regulations compared to other types of businesses. Since the owner has full autonomy with regard to business decisions, sole proprietorship businesses are easy and inexpensive to discontinue. The second advantage is that the owner can take all the profits of the business and there is no profit sharing. This may be the most significant motivation for most businesses to become sole proprietorship type. At the same time, all losses accrue to the owner and he does not have the tension regarding conflicts among the partners as there are no partners. In sole proprietorship business type, the owner of the organization pays self employment taxes on the profits made. It makes tax filing much simpler and hence this can be considered as another advantage for sole proprietorship business type. Since this is not a corporation; it does not pay corporate taxes. The remarkable disadvantage of the sole proprietorship is that the sole trader will likely have a hard time with raising capital since he has to make up for all the business's funds. He may have to use his own money or personal loan for the business. The next disadvantage is; the owner of the business has unlimited liability as he is responsible for the business's debts. As the business grows, the risks accompanying the business also tend to grow, and if the business is sued, owner and his personal assets are at risk. Sole proprietorship business type is very prominent in Sri Lanka, may be because form of the business is very straightforward. As a third world country with low rate of individual income, starting up a business with low capital is a very convenient factor for any Sri Lankan business person who is thinking of having an own business. There several home based business running in Sri Lanka such as; groceries, stationary shops, pharmacies, fashion stores and they can be categorized as sole proprietorship business, because they are owned by single person. Freelance writers, copy editors, photographers and craftspeople also have chosen to run their businesses as a sole proprietorship. Sri Lankan government has identified the importance of sole proprietorship businesses, in terms of their contribution to the country’s development. So the government is encouraging this business community, to develop their businesses, by providing necessary financial aids, resources, equipment and guidance. Since Sri Lana is based on an agricultural economy, we can encourage more farmers to form their own sole proprietorship businesses to sell their goods, and this will reduce the terrible effects occurring from the intermediate business people. If farmers can sell their goods directly to consumers, they may be able to get full profit and it will encourage them to develop their business. This will ultimately lead to a high development in Sri Lanka’s economy as well as society. Limited liability Companies (LLC) A Limited Liability Company (LLC) is a type of business organization that combines some aspects of a corporation with those of a sole proprietorship or partnership. The primary characteristic a LLC shares with a corporation is limited liability; that is personal liability of company's members for the business's debts is limited. The primary characteristic LLC share with a partnership is the availability of pass-through income taxation; that is LLC is not taxed as a separate entity. Forming a LLC may not be as simple as a sole-proprietorship; however, the process is much less than a corporation. There are two main actions: †¢ Articles of Organization: Have to file articles of organization with the secretary of province and pay the required fees. Articles may be prepared by a lawyer. An LLC business entity may be file as a corporation, partnership or sole proprietorship in terms of tax return. †¢ Operating Agreement: Have to develop an operating agreement which helps to define the company profit sharing, ownership, responsibilities, and ownership changes An LLC may have one or more owners, and may have different classes of owners. If the LLC has a single member, it will be disregarded as separate from its owner, and will be treated as a sole proprietorship or a division of its owner, unless it elects to be taxable as a corporation. An LLC that is filed for taxation as a partnership can achieve both conduit tax treatment and limited liability protection under civil law and a LLC filed for taxation as a partnership does not have the ownership restrictions. An LLC is typically managed by its members, unless the members agree to have a manager handle the LLC’s business affairs. LLCs do not issue stock and are not required to hold annual meetings or keep written minutes. Generally, members of an LLC that are taxed as a partnership may agree to share the profits and losses in any manner. Members of an LLC receive profits and losses in the same manner as shareholders of a corporation. In general, all the owners and members are shielded from individual liability for debts and obligations of the LLC. The main advantage of LLC is that owners of the LLC have the liability protection of a corporation because it exists as a separate entity much like a corporation. Also members do not hold personally liable for debts unless they have signed a personal guarantee, and this is a great relief for all the members. LLC can select varying forms of distribution of profits, unlike a common partnership where the split is 50-50. Hence flexible profit distribution is another advantage of LLC. The LLC business structure requires no corporate minutes or resolutions and is easier to operate. This can be pointed out as the next advantage of LLC. All the LLC business losses, profits, and expenses flow through the company to the individual members. So, it avoids the double taxation of paying corporate tax and individual tax. Generally, this flow through taxation will be a tax advantage. The most significant disadvantage of LLC is the limited life time of business. A LLC is dissolved when a member dies or undergoes bankruptcy whereas corporations can live forever. Business owners with plans to take their company public, or issuing employee shares in the future, may be not best served by choosing a LLC business structure, because going public is bit complicated with LLC. So this can be again a vital disadvantage of LLC structure. Running a sole-proprietorship or partnership will have less paperwork and complexity compared to LLC. So this added complexity also can be pointed out as a disadvantage of LLC structure. There are two major types of companies operating with limited liability status in Sri Lanka. ? Private Limited Companies ? Public Limited Companies Private Limited Companies A Private Limited Company, theoretically also refer to a private company limited by guarantee, is a type of company incorporated under the laws of England in certain Commonwealth countries. Private limited companies are required to have the suffix â€Å"Limited†(often written â€Å"Ltd†or â€Å"Ltd. â€Å") or â€Å"Incorporated†(â€Å"Inc. â€Å") as part of their name. It has shareholders, but its shares may not be offered to the general public. This means that shares are usually sold to family, friends and business contacts. The liability of the shareholders to creditors of the company is limited to the capital originally invested; that is to the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder's personal assets are thereby protected in the event of the company's insolvency, but money invested in the company will be lost. Most companies, particularly small companies, are private limited companies. One of the main advantages of Private Limited Company is, they are easy to set up because; the shares are sold among family, friends and business contacts. Limited liability is another advantage of a Private Limited Company. The shareholder's liability is limited to the value of the shares held by them. If things go wrong for the business, personal assets of a shareholder cannot be used to pay off the debts. Since boards of directors are usually the main share holders, the ownership and the control are closely connected. Therefore decisions can be taken more quickly and this can be pointed out as another advantage. A Private Limited Company has a separate legal existence. This means that properties will be owned by the company itself and all contracts would be signed on its behalf. The directors and secretary can only act as agents. Therefore the company is not dissolved on the resignation, bankruptcy or death of a director which is a vital advantage of Private Limited Company. The company can be dissolved only by winding up, liquidation or order of the Registrar of Companies or by the Court. When we think about advantages, tax benefits of Private Limited Company are also can be considered. The directors of the company are required to pay income tax but the company pays corporation tax on company profits which is one rate of tax only and averages out at much less than if income tax were paid on the profits. Though Private Limited Company has many advantages, there are some disadvantages which often deter small- and medium-sized business owners from setting up private limited companies. Many Private Limited Companies are very profitable. Unfortunately, these profits can become diluted because they must be evenly distributed among all shareholders, and many Private Limited Companies have up to 50 shareholders. So this becomes the major disadvantage of Private Limited Company. The next point that can be a vital disadvantage is shareholders in a Private Limited Company are not able to sell or transfer their shares to the general public. The 50 or so shareholders that comprise a Private Limited Company must keep their shares and cannot trade them on any stock exchange. A Private Limited Company can be quite complex to create, meaning that lawyers and accountants almost always need to be involved in the Private Limited Company from the start. This can be costly and hence a disadvantage. The importance of Private Limited Companies in Sri Lankan economy over the last 15 years has been tremendous. The opening up of Sri Lankan economy has led to free inflow of investments along with modern cutting edge technology, which increased the importance of Private Limited Companies in Sri Lankan economy considerably. Previously, the Sri Lankan market was ruled by the government enterprises but the scene in Sri Lankan market changed as soon as the markets were opened for investments. This saw the rise of the Sri Lankan private sector companies, which prioritized customer's need and speedy service. Most of the pioneering businesses in today’s Sri Lankan business world are categorized as Private Limited Companies. Some of the best examples are Richard Pieris & Company PLC; (One of the largest and most successful diversified business conglomerate), Abans Group – Abans Private Limited; (Represent world famous brands of household items), Singer (Sri Lanka) PLC; (Household durable company), ODEL (PVT) LTD; (Sri Lanka's foremost fashion gallery). Private Limited Companies are often considered the Sri Lanka's version of limited liability companies. This may be because; for many years, forming businesses with the family and friends has been a custom of Sri Lankans. There are many examples such as Perera and Sons (PVT) LTD; (One of Sri Lanka's foremost baker and caterer), H. Don Carolis & Sons (PVT) LTD; (Manufacturers of fine hand crafted wooden furniture), Ebert Silva Touring Co. Ltd; (pioneering Company in the travel and tourism industry) . These are consider as successful family businesses and categorized under Private Limited Company type businesses. To promote private sector domestic investments, the Sri Lanka government has recently brought the bank interest rates down from 20 percent to around 10 percent for borrowings. Public Limited Companies A public limited company (legally abbreviated to plc with or without full stops) is a type of limited liability Company incorporated under the laws of England in certain Commonwealth countries and it is permitted to offer its shares to the public. This means that Shares in a public limited company, can be traded on the Stock Exchange and can be bought by members of the general public. The Capital needed to start a Public Limited Company could come from two different sources; part of the money comes from a loan from the bank, and the rest comes from shares sold to the public, via the stock market. The liability of the shareholders to creditors of the company is limited to the capital originally invested; that is to the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder's personal assets are thereby protected in the event of the company's insolvency, but money invested in the company will be lost. The dividend is paid out using the profits from a PLC. The profit of the public limited company is divided into percentages and is paid out to shareholders. There are many advantages of operating the business as a Public Limited Company, and of registering the company on the stock exchange. For example, equity capital obtained from an initial public offering is considered a permanent form of capital since there is no interest to be paid on the equity, and it is not repayable like debt. Funds generated by a public offering are, therefore, considered a relatively safe form of capital for a business and this can be pointed out as the main advantage of the Public Limited Company type. Going public can also allow a company the freedom and flexibility to spend capital, as it needs to finance its growth and further development, providing a solid financial base on which to build. This will be a vital motivate point for anyone who think to start a new business as Public Limited Company. Many companies use stock and stock option plans as an incentive to attract and retain talented employees. It is increasingly common to recruit and compensate executives with a combination of salary and stock. Stock can be instrumental in attracting and keeping key personnel. Public companies are more likely to receive the attention of major newspapers, magazines and periodicals. The proper use of press releases, interviews or news stories can increase investor awareness, shareholder value, and demand for the stock, sales and revenue. Once a company becomes public it has to disclose so much information to public on regular intervals. This includes share holding pattern, quarterly and annual financial statements, profiles of directors etc. So it can be pointed out as one of the disadvantage of Public Limited Company. In a Public Limited Company decisions take time is too long and it also can be a disadvantage. This is because implementation of any key decision is subjected to the approval by the board of directors elected by share holders. Shareholders in public companies expect a steady stream of income from dividends, which might mean that the business has to concentrate on short term objectives of creating a profit and this may be a vital disadvantage because it might be better to work on longer term objectives, such as growth and investment. The most significant disadvantage Public Limited Company has is the threat of takeover. This is because they are traded publicly and another company can buy up a large number of shares and they can then persuade other shareholders to join with them to vote in a new management team. The Sri Lankan stock market has become quite vibrant and booming, particularly as a result of the end of the war, and this was a vivid point for growth of Public Limited Companies. New companies made their public offerings and were oversubscribed during the first day itself. There is considerable demand for company shares in the market and we can see many giants companies have turned into Public Limited Companies. These companies represent banking, finance, insurance, healthcare, telecommunication, food, beverage and so many other sectors. Most important examples are; Commercial Bank of Ceylon Ltd; (Adjudged as the best bank in Sri Lanka), Janashakthi Insurance; (3rd largest general insurance company in Sri Lanka), Sri Lanka Telecom Ltd; (The premier telecommunication service provider in Sri Lanka), Cargills (Ceylon) Ltd; (Sri lanka's largest food network) and Nawaloka Hospitals Ltd; (Asia's largest and most trusted healthcare hospital). The end of the war has put Sri Lanka on the radar of global companies as a country with attractive investment proposition opportunities. As the issuances of shares by resident companies to foreign investors are permitted in terms of a general permission, many resident companies have issued their shares to foreign investors. They include; Lanka IOC; (75% of shares owned by Indian Oil Corporation) and Millenium IT; (Shares were bought by London Stock Exchange). General Partnerships A General Partnership is the most simplistic type of legal structure designed for the situation in which two or more people are collaborating in some type of business activity. The entities involved in a partnership can be individuals, corporations, or trusts. General partnerships are usually started with good friends or family. Starting up a new business is a huge risk and gigantic leap of faith. People who open up general partnerships need to trust each other and work well together. Even if the business does not need a lot of assets to start or operate, still it needs a lot of money to open up a business. General partnerships allow more than one individual to carry the financial burden. This is ideal and makes a business much easier to open. By default, the profits and losses generated by a General Partnership are shared equally among its partners. However, typically a partnership agreement is created to further define the rights, responsibilities, and duties of each partner, as well as the terms of perpetuity if one of the partners withdrawals from the partnership. Financial responsibility is shared equally among the partners, with each partner jointly and severally liable for all business debts and obligations which means that the partners are jointly liable for any and all legal claims against any of the partners. The taxation of a General Partnership is calculated at the individual level. General partnerships can be less expensive to form with a limited start up cost and it has a shared financial commitment, which can be consider as main advantages of this business type. Also it requires less paperwork and formalities which encourage people to form their businesses as general partnerships. General partnerships can thrive when each partner brings a specific strength to the business. If each partner takes on a defined role and there is general agreement on the business plan, goals, and visions from the outset, a partnership can be advantageous. Work can get done more quickly, and having several partners involved will increase the potential of acquiring resources and attracting backers. In the end, the success of such an endeavor depends largely on the personalities of the parties involved. General partnerships offer members the advantages of shared risk and total control over the transactions of the business. One of the most significant benefits of a General Partnership is simplified tax filing, since no corporate forms or double taxation is required. As a pass-through tax entity, this form of business pays no direct tax instead its individual owners carry the tax burden However, the wide array of disadvantages of a General Partnership is what makes it arguably one of the worst organizational business structures available. Because of the lack of corporate structure, a General Partnership does not establish any kind of separate business entity from the partners. This means that the partners are totally unprotected from any litigation against the business, and their personal assets can be seized at any time to cover the unmet obligations of the business. Even worse, each partner is liable for the actions of the others on behalf of the business. So if one of the partners was to execute an agreement without the knowledge of the others, each partner would become equally obligated to the terms of that agreement. The same is true for credit obligations. If any of the partners secure credit on behalf of the business, each partner would become equally obligated to the terms of that debt. In addition, without a Partnership Agreement, there is no guarantee of perpetuity for a General Partnership if one of the partners dies, becomes disabled, or withdrawals from the business. For these and other reasons, general partnership agreements should be drawn up carefully with legal counsel, and signed by all partners. Additionally, there should be a means in place of dissolving the partnership in the case of death, disability, or if one partner should want out of the business for any other reason, personal or professional. Sri Lanka, as a country with low individual income, general partnership would be an idle business type because it gives you pool of resources and financial encouragement to start a new business. Since family businesses are very famous in Sri Lanka, anyone can get together with his family and friends to form the business. Since each partner has a vital contribution to the business, skills and abilities of them will guide the business to success. There are several businesses in Sri Lanka, engaged in all types of sectors such as; grocery, pharmacy, restaurant, book shop and laundry; which can be categorized into general partnership business type. Sri Lankan government has identified the importance of general partnership businesses, in terms of their contribution to the country’s development. So the government is encouraging this business community, to develop their businesses, by providing necessary financial aids, resources, equipment and guidance.
Saturday, January 4, 2020
An evaluation of the business and financial performance of morrisons - Free Essay Example
Sample details Pages: 22 Words: 6473 Downloads: 8 Date added: 2017/06/26 Category Statistics Essay Did you like this example? Part 1 Project Objectives and Overall Research Approach 1.1 Introduction Markets across the world are gradually lifting themselves out of the doom and gloom of recession. Most markets in the UK have shown relative resiliency as they try and recover. Consumer spending and confidence have been fairly low due to adverse pressures created by the implementation of stringent fiscal and monetary policies by the government. Don’t waste time! Our writers will create an original "An evaluation of the business and financial performance of morrisons" essay for you Create order The past couple of years have seen the worst effects of recession, hence businesses had to improvise and develop strategies which would focus on retaining existing customers while attracting new customers simultaneously. WM Morrison Supermarkets plc (herein after simply Morrison) has been a success story amidst all the large scale corporate failure and has managed to remain profitable while its competitors and businesses in general have struggled a great deal. Morrisons was founded by William Morrison in 1899, operating as an egg and butter stall in Bradford, North West England. From its humble beginning Morrisons grew rapidly both in terms of its size and its product portfolio. It was only in 1967 that Morrisons was first floated on the London Stock Exchange. As per TNSglobal.com (Nov 08) Morrisons accounted for 11.8% of the total retail supermarket share in the year 2008, making it the smallest of the big four supermarkets. Morrisons operated predominantly in Northern England and it was only in 2004 that Morrisons expanded its operations in the southern part of the UK through the acquisition of Safeway superstores. Further, as per the Annual Statements published in 2010, Morrisons turnover stood at 15.4bn which was generated from 420 superstores all across the UK. Morrisons operates entirely in the UK market. 1.2 Reasons for choosing the topic Morrisons mission statement which states Keeping things simple has often fascinated me as to how could such a massive organisation operate effectively by keeping things simple at all times. Therefore I choose to analyse the financial statements of Morrisons PLC over a three year period which would provide me answers to my personal curiosities whilst also completing an important research report in my academic career. Most of the knowledge required to compile the research report was acquired through my ACCA studies but this report took me one step further as it provided me with a platform from where I could apply my knowledge in a real life scenario. 1.3 Project Objectives This project report aims to achieve the following objectives: Analysis of the business and financial performance of Morrison PLC over a period of three years i.e. from the 1st of February 2007 to 31st of January 2010. A reflective analysis of the year on year performance of Morrison PLC with critical analysis of the effectiveness of current business strategies and their adequacy to deal with future business and market challenges. Evaluation of Morrisons competitive market position in comparison with its major competitors (with particular emphasis on J Sainsbury PLC, herein after simply Sinsburys). 1.4 Research Questions The project report aims to answer the following research questions: Effectiveness of Morrisons operational and financial strategies over the three year period in review. How well did Morrison perform in comparison to its major competitors (through the use of analytical analysis tools such as ratio analysis)? 1.5 Research Approach Following is the research methodology adopted while compiling this research report: Evaluating Morrisons business performance through the use of business models such as PESTEL, SWOT and Porters 5 forces. Comparative analysis of Morrisons PLC financial statements through the calculation of key ratios such as: profitability, liquidity, gearing, investor returns and efficiency. Accessing Morrisons competitive position with its major competitors (mainly Sainsburys) through the ratios calculated. Part 2 Information Gathering and Accounting/ Business techniques 2.1 Sources of Information 2.1.1 Annual Reports and Summary of Financial Statements The main source of information utilised for compiling the research and analysis report was the annual statements of Morrison PLC. The annual reports consisted of all the relevant financial information for ratio analysis. 2.1.2 Books on interpretation of Financial and Business Data Numerous business study books and articles were read to mainly understand the scope of business analyses models and their effectiveness in analysing Morrisons performance for the last three years. Books were also consulted to ascertain key ratios and comprehend them. I also had to understand what the ratios meant in the retail supermarket sector and realise the limitation of ratio analyses. 2.1.3 Media and Internet sources Electronic and print media were the most important sources of information. The annual statements were downloaded from the internet and expert views on Morrisons performance were consulted from the Financial Times and other authentic business journals. 2.2 Methods used in collecting information The entire research is based on secondary data (i.e. data collected by someone else for their own purposes). The reasons for basing the research upon secondary resources were that no obligation to conduct primary research and the limited time period in which the research had to be conducted and then the compilation of the report. Almost all the literature reviewed and consulted was done with certain amount of scepticism (critical review) so at to ensure that the information collected presented a balanced overview. Therefore the research data was collected from various sources. Internal management view was ascertained from the detailed annual statements, as the directors are responsible for producing such documents. A standard unqualified opinion by the auditors gave further authenticity to the financial information on which almost the entire report is based. As Morrison is also a constituent of London Stock Exchange independent media and expert views were available providing key insight in the companys past and present performance and the future outlook. 2.3 Limitations of information gathering As mentioned in the earlier sections of the report the research was entirely based on secondary data therefore a very slight possibility remains that the data might have been inaccurate and unreliable. Even though the research data has been very carefully selected the chances of error remain but the majority of the work can be deemed authentic and accurate. Further, the amount of information available through various resources was immense and therefore impractical to critically review all of it which might indicate that certain key information was either missed or overlooked. Almost all the information in the annual statement is historical in nature and therefore just reviewing past performances might not truly reflect present and future expectations. 2.4 Explanation of the accounting and/or business techniques The research report focuses on evaluating the business and financial performance of Morrison over a period of 3 years. The financial side of the evaluation will be done through the use of key performance related ratios, whilst the business performance will be examined through PESTEL, SWOT and Porters 5 forces models to evaluate macro and micro activities of the business. 2.4.1 Business Performance 2.4.1.1 PESTEL analysis PESTEL is abbreviated for Political, Economical, Social, Technological, Environmental and Legal framework. According to Johnson et al. (2008)[1] it involves an examination of the macro environment of an organisation with a view to identifying the factors that might affect a number of vital variables that are likely to influence the organisations supply and demand levels and its costs. 2.4.1.2 SWOT Analysis Johnson et al (2008) states that SWOT analysis is used to appraise the companys internal strengths, weaknesses, external opportunities and threats. Strengths and weaknesses are usually associated from processes within the company and opportunities and threats arise from factors outside the companys control. 2.4.1.3 Porters 5 Forces Analysis Porter (1980) states that it is essential for companies to have a detailed knowledge of competitors influence on the market and that if a company considers the five competitive forces it will be able to appreciate the structure of its industry and thereby be able to put itself in a position to withstand competitor pressure. 2.4.2 Financial Performance: 2.4.2.1 Ratio Analysis Financial ratios can be calculated by comparing two figures in the accounts which are inter-related in some way. The following ratios will be used to evaluate and analyse the financial performance of Morrison: 2.4.2.2 Liquidity Ratios BPP (2009) states that liquidity ratios illustrate the solvency of a business i.e. whether it is in a position to repay its short term debts. They focus on short term assets and liabilities. Creditors are likely to be interested in liquidity ratios to assess whether they will receive the money that they are owed. The ratios that will be calculated under this category are: * Current Ratio= current assets/ current liabilities, Providers of short term credit prefer a high current ratio. * Quick Ratio= current assets-inventory/ current liability Also commonly known as acid test ratio, it is a more severe test of liquidity as it does not include inventory as a liquid asset as they are not guaranteed to be sold, they may become obsolete or deteriorate. 2.4.2.3 Profitability Ratios According to BPP (2009) stakeholders such as shareholders, owners, managers, employers and potential investors are all likely to be interested in the profitability and efficiency of a business. The ratios calculated under this category will be: * Return on Capital Employed= profit before interest and tax/ capital employed The ROCE relates to the profit generated from operating activities with the capital employed. Capital employed is generally the net assets of the company and is also referred to as shareholders fund plus long term borrowings. * Gross profit margin= gross profit/sales * 100% Shows the gross profit made on sales turnover. * Net profit margin= net profit/sales * 100% The ratio helps to measure how well a business is controlling its overheads. 2.4.2.4 Activity/ Efficiency ratios BPP (2009) states that activity or asset utilisation ratios allow a business to measure how effectively it uses its resources. The ratios that would be calculated under this category will be: * Receivables Turnover = credit sales/ trade receivables * Receivables period = receivables/ sales * 365days Receivables turnover and receivables period would be used to assess time taken by Morrisons to reclaim its short term debt on average. * Inventory Turnover = cost of sales/ inventory According to BPP (2009) this ratio measures the number of times during the year a business sells the value of its stocks * Inventory holding period = inventory/ cost of sales * 365days Stock turnover can be expressed in terms of the number of days it takes to sell inventory. 2.4.2.5 Gearing Ratio BPP (2009) states that the gearing ratio looks at the balance of funding in the capital structure of a business. Under this category the ratios that will be calculated are following: * Debt-equity ratio = total debt/ total equity This ratio establishes the total amount of shareholders fund (equity capital) in comparison to the total amount of borrowed capital (i.e. long term loans). * Interest cover = profit before tax and interest/ interest payable According to BPP (2009) the gearing ratio (i.e. debt-equity ratio) is a statement of financial position measure of financial risk. Interest cover is an income statement measure. The ratio assesses the businesss ability to pay interest by comparing profit and interest payments. 2.4.2.6 Investors Ratio Investors are interested in the returns or dividends they may get from holding shares. BPP (2009) states that a number of ratios can be used to measure these returns. The following ratios will be calculated under this category: * EPS= profit available to shareholders/ no. of shares ranked for dividend BPP (2009) defines EPS as a measure of how much each share is earning. It reflects how much is available to be paid to shareholders. * Price Earnings ratio= share price/ earnings per share According to BPP (2009) the price/earnings ratio is said to reflect the confidence shown in the company It shows how many years, at current earnings, it will take an investor to recover the cost of the share. * Dividend Yield= dividend per share/ market price * 100% BPP (2009) defines the dividend yield ratio as a measure of the value of the return on share for an investor. It shows the dividend per share as a percentage of the market price. 2.5 Limitation of ratio analysis BPP (2009) states that ratio analysis is not necessarily a complete measure of assessing a company financial performance. Limitations that can be associated with ratio analysis are as follows: Accounting principles followed whilst preparing financial statements should represent a true and fair reflection of the company and should be consistently applied over a period of time. Ratio analysis looses its credibility when management deliberately uses accounting policies to manipulate financial statements. Businesses are faced with unique risks even though they operate in the same industry. Hence the way businesses deal with there risks vary, limiting the scope of ratio analysis. BPP (2009) states that ratios on their own are meaningless. They have to be used as a benchmark to compare performance of the organisation against a similar company operating in a similar industry. Certain ratios are of a subjective nature therefore having standard definitions and formulae might not always be possible. Macroeconomic factors such as inflation rates, interest rates, changes in accounting policies and procedures are not accounted for when calculating ratios. Ratios also fail to recognise changes in corporate strategy and risk exposure of the company. 2.6 Limitation of SWOT / PESTEL / Porters Five Forces Results of SWOT analysis cannot be standardised as a threat for one organisation can be an opportunity for the other in a completely different environment. * One of the main disadvantages, as described by Dess et al (2004), is that SWOT analysis is primarily a static assessment. It focuses too much of a firms attention on one moment in time. Hence a SWOT analysis may ignore changing circumstances. * SWOT, PESTEL or Porters 5 Forces does not describe factors in terms of quantitative performance indicators. Part 3 Results, Analysis, Conclusions and Recommendations. 3.1 PESTEL analysis 3.1.1 P- POLITICAL As per the Annual Statement (2010) Morrisons did not make any political donation which is the Group policy. However this does not mean that Morrisons operation are not affected by the political decisions made by the government in the UK. Consumer spending power, both in the long and the short term are dictated by the governments fiscal and monetary policies. The UK economy like most other global economies suffered adversely due to the global recession which was directly linked with the global credit crunch crisis. During tough economic times consumer spending power is generally low due to soaring unemployment and uncertainty in the economic environment. Government in the UK has taken important measures to stimulate growth such as reducing VAT (indirect taxation) from 17.5% to 15% in the year ending December 2009, quantitative easing (i.e. pumping money in to the economy) and keeping interest rates low, encouraging people to spend rather than save. Morrisons activities in the retail supermarket industry are regulated by the Competition Commission which keeps a close eye on the activities of the so called big four supermarkets. This ensures that supermarkets do not enter in to price wars or collude to fix prices. Morrisons is also bound by UK and European legislations such as Health and Safety at work Act and National Minimum wage Act. Morrisons cannot legislate for changes in government policy but should pre-empt decisions and ensure that it is ready to face challenges which might result from changes in government policies. But it is safe to assume that Morrisons operates within a very coherent political set up and faces no barriers to trade due to governments political decision making. 3.1.2 E- Economical Morrison operates only within the UK retail supermarket industry and is therefore directly affected by the macroeconomic environment. The UK economy has been under recession over the past few years, which means contraction in the economy, leading to unemployment and weak consumer spending power due to reduction in disposable income. The direct affect of this is that customers look for bargain shopping rather than spending on premium quality products. But as Morrison operates in the retail grocery market the demand for most of its products remains largely in-elastic due to the fact that people have to feed themselves and provide for their daily needs no matter how hard their budgets are squeezed. Additionally people tend to buy food from supermarkets and eat at home rather than spending money in restaurants. Morrison has massively improved its own brand products which offer value for money and appeals to consumers who are willing to buy bargain products rather than premium quality products especially during tough economic times. Annual Statement (2010) states Sales of our own label Value range grew by 34% as consumers tightened their belts in a challenging economic environment. The following table taken from the Annual Statement 2010 further illustrates how Morrisons has consolidated its position in the UK market during the past few years: Therefore it can concluded on the basis of the above figures that Morrisons was able to enhance its position with the retail supermarket industry during adverse economic climate due to the fact it was able to supply quality products at modest prices than its competitors. 3.2.3 S- Social The social trend in UKs grocery market is that families shop almost regularly every week, mostly on the weekends targeting large supermarkets which provide them with all their family requirements under one roof. As stated in the Annual Statement 2010 Morrisons operates from 425 mega stores all across the UK catering towards the social trend of the market. Furthermore there is an ever growing emphasis towards health eating and a sustained fight against obesity. People are getting more and more conscious about what they eat. Morrisons remained a step ahead of its social demands and re-launched its Eat Smart product range and as per the Annual statement (2010 pg 21) Sales were up by 7% reflecting consumers continuing demand for a healthier diet and their concern over the nutritional value of the food they eat. 3.2.4 T- Technology Businesses across the UK are spending heavily on technological advancements, in order to gain competitive advantage over their competitors. Customers in the grocery market are increasingly using the internet to shop for their grocery needs therefore Morrisons has developed a very efficient (website) and robust (delivery system) mechanism to cater for such customers. Morrison has also launched self service check-outs in almost all of its large supermarkets resulting in improved customer service (i.e. decrease in waiting time to be served) subsequently increasing sales. Morrison is also rolling out the use of Voice-picking technology across all its grocery warehouses which has proved particularly successful in increasing depot productivity and pick accuracy and hence improving in-store product availability. (Grocerytrader, 2011) 3.2.5 E- Environmental Businesses across the world are under intense pressure to reduce their carbon footprints on the environment and adopt eco-friendly and sustainable processes. Morrisons thoroughly understands its environmental responsibility and has taken important steps to reduce its carbon footprints and subsequently become GREENER. Below is a graphical representation of decrease in Morrisons carbon footprint as stated in their Annual Review 2010 (pg14) (Source Morrison Annual Review 2010, pg 14) Morrison Annual Report and Financial Statements (2010) states that during the year, free reusable bags were issued to customers, and as a result of this and other initiatives carrier bag consumption was reduced by 126 million bags. Morrisons during 2010 also completed the conversion of filling station pumps to highly efficient vapour recovery pumps which emit much reduced levels of fuel vapour in to the atmosphere. Morrisons Halifax store was awarded an excellent rating from the Building Research Establishment Environmental Assessment Method indicating as to how much Morrison regards the environment in which it operates. (Morrisons, 2011) 3.2.6 L- Legal Morrison is obliged to operate in accordance with the British and European law. It has to ensure that labour and employment laws are not compromised in handling staff affairs. Any violation would result in expensive lawsuits and negative publicity. Morrison has to satisfy the minimum wage requirements. 3.3 SWOT analysis: 3.3.1 S- Strengths: Morrison has been regarded as one of the best providers of fresh quality food items. Morrisons business strategy of being the The food specialist for everyone distinguishes it from other grocery chains. Morrison takes immense pride in the provision of quality fresh food which is prepared in-store. This allows customers to choose from a variety of fresh food items such as: baked bread, meat cut to order, fish, seasonal deli selections and a range of delicious cakes and treats. Such diverse fresh food range is a major strength of Morrison and is also widely acknowledged by its customer base. Following is an illustration of the three distinct brand values of Morrison that strengthen their vision as stated in Annual Statement 2010 (pg 6): (Source Morrison Annual Review 2010, pg 6) As it is evident from the above diagram, Morrisons overall business strategy of Keeping things simple allows Morrison to concentrate on its historical strengths which is providing fresh quality food at reasonable prices. 3.3.2 W- Weaknesses: Morrison only expanded its operation in the Southern part of the UK in 2004 after the acquisition of Safeway superstores and still heavily relies on the Northern part of the UK which accounts for the major chunk of the sales revenue (55%). This leaves Morrison vulnerable to any adverse fluctuations in the economic activity of the Northern part of the UK. The following illustration taken from Annual Statement 2010 (pg 7, Courtesy Kantar World panel) depicts Morrisons market share by geographical region in the UK: (Source Morrison Annual Review 2010, pg 5) Morrison does not operate a loyalty scheme which rewards customers for shopping repeatedly in Morrison stores. This is a major weakness as some of the other loyalty schemes operated by competitors such as Tesco (Tesco Club card) and Sainsburys (Nectar Card) are able to attract secondary shoppers and retain primary shoppers through attractive rewards. Morrison at present largely operates through megastores whereas its competitors are increasingly investing in smaller convenience stores which are able to cater for local businesses and day to day shopping requirements. Tesco, Sainsburys and ASDA are increasingly capturing the local convenience stores market and if Morrison does not follow suit it risks losing a major chunk of the grocery market to its competitors. Morrison only operates in the UK market. Its main competitors ASDA and TESCO operate globally and are in a better position to offset their UK losses against any foreign gains whereas Morrison will have to bear the losses. The current recession indicated that developing economies such as India, Brazil and China were still posting strong growth patterns whereas the UK economy might be heading towards a double dip recession which would further dent Morrisons profitability. 3.3.3 O- Opportunities Morrison can further improve on its own brand products. In 2010 sales of own brand products were up by 34% indicating strong growth. During tough economic times customers tend to buy value for money products rather than premium quality products. Morrison can cater for such customers and further improve its revenues. E-commerce is increasingly becoming socially popular and more and more people are shopping for their grocery needs on-line. Morrison can improve its website and develop a more robust delivery system. Hence it can improve on its revenues and market share. Morrison should expand its operations in to lucrative developing economies and take its trusted brand over to countries such as India, China, Russia and Brazil and further consolidate its position as a highly trusted supplier of quality fresh food products. 3.3.4 T- Threats As the current UK government aims to reduce budget deficit it is introducing austerity measures and has also increased VAT (from 17.5% to 20%), putting more pressure on disposable income. Many experts fear a double-dip recession which might prove disastrous for businesses in the UK. Morrison has to ensure it remains a step ahead and continues to provide products which offer value for money or otherwise will risk losing sales and its market share to its competitors. This is validated by the fact that there has been a significant increase in demand of value goods compared to premium goods. (Source Morrison Annual Report and Financial Statements 2009, pg 16) Morrison so far seems reluctant to expand through convenience stores and depends largely on opening new megastores. There remains an imminent threat that Morrison might fail to seek planning permission from local authorities and might fail to expand. But however this further advocate towards the fact that Morrison should look to expand through both megastores and convenience stores. As per the TNS report of December 2008 the market was affected from the ALDI effect, this meant people were hunting for bargain products rather than quality products at premium pricing. Even though discount brands such as LIDL and ALDI represent a very small segment of the market Morrison should remain vigilant of their presence as they can easily erode in to Morrisons market share. (Source: https://adage.com/article/news/u-k-supermarket-chains-feel-aldi-effect/131086/, Accessed 20th March 2011) 3.4 Porters Five Forces 3.4.1 Threat of new entrants The threat of new entrants in to the UK retail grocery market remains largely low due to the massive amount of capital outlay required and the power of the existing so called big-four. TESCO, ASDA, Sainsburys and Morrisons operate very powerful marketing and advertisement campaigns making it very difficult for new entrants to gain a foot hold in the market. Following is a diagrammatic illustration of the big four dominance in the UK market: (Source Morrison Annual Review 2010, pg 5) Furthermore supermarket giants like TESCO and Sainsburys operate a very sophisticated and rewarding loyalty schemes. This ensures that customers stay loyal and do not switch to other brands. Large supermarket chains such as Morrison are able to offer significant price reductions and a large product portfolio. This also acts as a significant barrier to entry. Even though the threat of new entrants is low, Morrison has to be proactive to new competition and steps should be taken to neutralise their affect on the market. 3.4.2 Bargaining power of suppliers According to the Competition Commission report published in 2008 suppliers in the grocery/retail sector have little or no influence on the big four supermarket chains. The reason for such lack of influence is that supermarket chains such as Morrison can achieve a high volume of turnover on a very short period of time and therefore can dictate product prices to their suppliers. Suppliers have little or no choice but to enter in to such agreements with large supermarkets as they ensure regular cash-inflows and large orders. (Source: https://www.competition-commission.org.uk/rep_pub/reports/2008/538grocery.htm, Accessed 27th March 2011) Morrison ensures that it has a very cordial relationship with all its suppliers as the products they supply are of a paramount importance to the Morrisons brand name. As per Morrisons (2010 pg 13) the board adopts a policy which is to be fair and honest in dealings with farmers and suppliers. As of 2010 Morrisons average credit period stood at 29 days as compared to 33 days in 2009. Suppliers who constantly ensure quality products are supplied on time are given necessary incentives. 3.4.3 Bargaining power of customers The bargaining power of customers in the retail grocery market remains significantly high. Although the customers are not in a position to directly affect the price of an individual product but due to readily available alternatives they can alienate Morrison without any prejudice or prior notice. Therefore Morrisons has to remain very proactive when forecasting market trends and should always try and innovate ways through which it can look after its customers. 3.4.4 Threat of substitutes The threat of substitute products and retailers is significantly high as cost of switching products or suppliers is virtually non-existent. Customers in the retail grocery market do not follow a predictive trend and get disillusioned very quickly ,without any specific reason. Morrisons business strategy of Keeping things Simple and being the Food Specialist goes a long way in attracting customers to its megastores all across the UK. But regular incentives such Eat Healthy, Special Offers and Discounts should also be utilized to attract new and retain existing customers. 3.4.5 Rivalry amongst competitors Rivalry amongst the top-four competitors remains very aggressive and direct. Apart from the direct competition from the big four Morrison should also be vary of local (Iceland) and European (ALDI and LIDL) discount brands as they can also erode in to Morrisons market through aggressive pricing policies. Even though customers buying patterns are unpredictable but generally during tough economic times customers tend to hunt for bargains and therefore are prone to be attracted towards discount brands but Morrison should further diversify its own brand range and cater for such customers. As Morrison solely focuses on the provision of fresh quality food items it can eliminate aggressive rivalry by further improving on product quality and pricing. 3.5 Ratio Analysis Ratios on their own are meaningless and provide little information unless they are benchmarked against something appropriate. Therefore Morrisons ratio will be benchmarked against Sainsburys as it represents a major competitor and operates within the same industry facing similar kind of risks and rewards. Morrisons ratio will also be compared with previous year figure in order to achieve a relative trend in the financial performance over the past three years 3.5.1 Liquidity Ratios 2008 2009 2010 Morrison Liquidity Ratios Current Ratio           0.49           0.53           0.51 Acid test Ratio           0.25           0.28           0.24 Sainsburys Liquidity Ratios Current ratio 0.62 0.54 0.64 Acid test Ratio 0.36 0.30 0.39 3.5.1.1 Current Ratio An increasing trend can be observed in Morrisons current ratio from 2008 to 2010(Appendix C). The current ratio indicates the ability of Morrisons PLC to pay its short term liabilities from its short term assets. On the contrary Sainsburys current ratio has seen a see-saw effect going from 0.62 to 0.54 to 0.64 from 2008 to 2010(Appendix F). It is also worth considering that Morrisons operates almost entirely on cash and carry business approach and also adopts a very aggressive selling approach therefore little inventory is left over. 3.5.1.2 Acid Test Ratio Acid Test ratio of both companies reveal a similar trend as the current ratio: a small increase in 2009 for Morrison and a small dip in 2009 for Sainsburys. Acid test ratio is a much more stringent test of liquidity as it removes stock or inventory from the calculations in order to reveal the instant solvency of Morrison / Sainsburys. The numbers represent the fact that the stock constitutes almost 50% of the current assets (577/1094=53%) in the three years on average which fulfils Morrisons sales intensive approach. This also points out towards the fact that almost all goods sold are financed by creditors (i.e. suppliers). 3.5.1.3 Reasoning The decrease in the current and acid test ratio of Morrison from 2009 to 2010 can be attributed to the increase in financial liabilities from 1 m in 2009 to 213 m in 2010. This increase in bank loans has been due to aggressive expanding strategy of Morrison where they have opened 19 new Co-op/Somerfield Stores in the first half of 2010. (Source Morrison Annual Report and Financial Statements 2010, pg 60) Opening new stores does require a large capital expenditure hence increasing gearing ratio, but this also means that more cash is required to buy stocks that will be sold in those supermarkets. From 2007 to 2010 Morrison has opened a total of 57 new stores nationwide under their strategy of National to Nationwide. The following picture explains the increase in Morrison stores from 2007 to 2010: (Source Morrison Annual Report and Financial Statements 2010, pg 7) 3.5.2 Profitability Ratios 2008 2009 2010 Morrison Profitability Ratios Return on capital employed (ROCE) 13.98% 14.85% 18.33% Gross Profit Margin 6.31% 6.28% 6.89% Net Profit Margin 4.72% 4.62% 5.89% Sainsburys Profitability Ratios Return on capital employed (ROCE) 10.74% 15.38% 14.30% Gross Profit Margin 5.62% 5.48% 5.42% Net Profit Margin 2.97% 3.56% 3.56% 3.5.2.1 Return on Capital employed Morrisons return on capital employed has increased from 2008 to 2010 from 13.98% to 18.33% (Appendix C). Comparatively Sainsburys ROCE has only increased marginally from 10.74% to 14.30 in the years 2008 to 2010 (Appendix F). The ROCE indicates the percentage of profit made on capital invested; hence a higher value of ROCE indicates efficient use of capital and a lower value vice versa. Morrisons average ROCE for 2008 to 2010 is 15.72% and that of Sainsburys is 13.47%, revealing more profitability in Morrison. The improvement in Morrisons ROCE is good news for both existing and potential shareholders. 3.5.2.3 Gross Profit margin Morrisons gross profit margin (GPM) was calculated as 6.31%, 6.28% and 6.89% for 2008, 2009 and 2010 respectively (Appendix C). Gross profit margin indicates the profit margin achieved by Morrisons on it sales revenue after deducting direct costs. Sainsburys on the other hand had a GPM of 5.62%, 5.48% and 5.42% in 2008, 2009 and 2010 respectively(Appendix F). This indicates Morrisons has adopted a much stringent cost control mechanism, compared to Sainsbury, while being profitable at the same time. 3.5.2.4 Net Profit Margin Morrisons net profit margin (NPM) has increased from 4.72% in 2008 to 5.89% in 2010(Appendix C). The increase in NPM of Morrisons in 2010 can be largely attributable to reduction in administrative (overhead) expenses. This is achieved by minimising waste and maximising efficiency in individual cost centres. 3.5.2.5 Reasoning One of the main reasons for the increase in the profitability of Morrisons is its ever increasing market share that has been climbing from 11.9% in 2007 to 12.6% in 2010. As per Morrisons Annual Report and Financial statements 2010 total average basket sizes increased by 2.4% and customer numbers were up 6.7%. On average 10.5m customers are now visiting our stores each week This is confirmed by the fact that the UK grocery market has increased by 4.7% in 2009/10 and in that increase Morrisons percentage increase has been 9.1%. (Annual Report and Financial Statement 2010, pg 5) 3.5.3 Efficiency Ratios 2008 2009 2010 Morrison Efficiency Ratios Receivable turnover (times)         65.17         59.30         76.67 Receivable collection period (days)           5.60           6.16           4.76 Inventory turnover times         29.34         29.41         26.71 Inventory turnover in days         12.44         12.41         13.67 Sainsburys Efficiency Ratios Receivable turnover (times) 86.59 96.98 92.86 Receivable collection period (days) 4.22 3.76 3.93 Inventory turnover times 26.19 27.45 28.44 Inventory turnover in days 13.94 13.30 12.83 3.5.3.1 Receivable turnover and receivable collection days Morrisons receivable collection days has decreased from 5.6 to 4.76 in the years 2008 to 2010(Appendix C). This is because Morrisons rarely sells its grocery and food products on credit. Hence the amount of receivables and the time taken to recover the receivables is low. In comparison while Morrisons receivable period averaged 5.51 days that of Sainsburys averaged 3.97 days(Appendix C and F). 3.5.3.2 Inventory turnover The inventory turnover in times has of Morrisons has decreased from 29.34 to 26.71 times in the years 2008 to 2009(Appendix C). On the contrary that of Sainsburys has seen the opposite effect of increasing from 26.19 to 28.00 times(Appendix F). 3.5.3.3 Reasoning The decrease in the receivable days indicates efficient credit control procedures. The advantage of having a lower value for this ratio is that, the lower it is the more Morrison can invest and earn interest or pay up their trade creditors. The decrease in the inventory turnover days can lead to the conclusion that since 2008 to 2010, either Morrison has raised its price or their customers have started buying more premium products. This observation can be supported by Morrisons claim that the sales growths of their value products have seen a dip in 2009 with growth in their premium products as UK tries to come out of recession. (Source: Annual Report and Financial Statements 2010 , Morrison, pg 5) 3.5.4 Gearing Ratios 2008 2009 2010 Morrison Gearing Ratios Gearing           0.32           0.37           0.34 Interest Cover (times)         10.20         11.18         15.12 Sainsburys Gearing Ratios Gearing 0.41 0.50 0.47 Interest Cover (times) 4.02 4.55 4.80 3.5.4.1 Debt/equity ratio Morrisons gearing stood at 34% in 2010, 37% in 2009, and 32% in 2008(Appendix C). This indicates that the companys operations are funded largely by equity capital rather than debt capital. It also means that for every 1 invested by the equity holders 0.34 pence were invested by borrowed capital. Sainsburys gearing on the other hand was calculated as 47% in 2010 and 50% in 2009(Appendix F) 3.5.4.2 Interest Cover This was calculated as 15.12 times in 2010 and 11.12 times in 2009(Appendix C). The relative stability in interest cover ratio is very encouraging and guarantees a good credit rating for the company before its financiers. 3.5.4.3 Reasoning Even though Morrisons gearing is in line with industry expectations but it can be argued that borrowed capital is easier than raising capital. Morrisons net debt has increased significantly during the past three years as depicted above. The small increase in 2009 is due to organic growth of Morrison in 2009, where they opened 11 organic stores and 34 former Co-op/Somerfield stores opened (preliminary results 31 January 2010). This led to Morrisons taking in heavy long term loans hence increasing their gearing ratio in 2009. (Source: Annual Report and Financial Statements 2010, Morrison, pg 25) 3.5.5 Investors Ratios 2008 2009 2010 Morrison Investor Ratio Earnings per share (pence)         20.79         17.39         22.80 Price/earnings ratio         13.90         15.57         13.13 Dividend per share (pence)           4.80           5.80           8.20 Dividend Yield 1.66% 2.14% 2.74% Sainsburys Investor Ratio Earnings per share (pence) 19.14 16.62 32.10 Price/earnings ratio 19.69 17.63 10.45 Dividend per share (pence) 11.4 13.2 14.2 Dividend Yield 3.02% 4.51% 4.24% 3.5.5.1 Earnings per share Morrisons earnings per share were calculated as 22.8, 17.4 and 20.8 pence for 2010, 2009 and 2008 effectively(Appendix C). After a slight dip in 2009 which meant shareholders were losing on their wealth Morrisons has posted a strong EPS in 2010 indicating to its equity shareholders that they will increase their wealth if they continue to invest in Morrison. Comparing that to Sainsburys EPS, we can see an immense increase in its value from 2008 to 2010(Appendix F). 3.5.5.2 Price earnings ratio Price/earnings ratio indicates the amount of time in years it would take Morrisons equity shareholder to recover their investment at current earnings. Morrisons PE ratio was calculated as 13.13, 15.57 and 13.90 times in 2010, 2009 and 2008(Appendix C). The decrease in PE ratio could be largely attributable to the fall in share prices as a result of uncertainty faced by the investors in both the UK and global markets. A similar trend is observed in the P/E ratio of Sainsburys from 2008 to 2010(Appendix F). 3.5.5.3 Dividend Yield Morrisons dividend yield was calculated as 2.74, 2.14 and 1.66% in 2010, 2009 and 2008(Appendix C). After retaining profits in 2009 and 2008 Morrisons is willing to give more profits as dividends to its equity shareholders. It must be noted that profits retained are utilised for business development and expansion. 3.5.5.4 Reasoning The dip in 2009 could be largely attributed to very tough business environment which meant contraction in demand and consumer purchase power. Although a decrease in EPS and P/E ratio is observed Morrisons dividend Yield has increased significantly from 1.66% to 2.74%(Appendix C). This can be confirmed by the diagram below from its Annual report and financial statements 2010. (Annual Report and Financial Statements 2009, pg15) The following graph portrays Morrisons share price compared to Sainburys and its other competitors. 3.6 Conclusion and Recommendations Morrisons financial and business analysis presents a very healthy position. Morrisons key ratios present a very good picture to both its existing and potential shareholders. Morrisons is also improving on its year on year profits and liquidity figures. In terms of macro business environment Morrison operates in a very cordial and coherent infrastructure which supports growth and competition which are vital to improve effectiveness and efficiency. Government in the UK is taking positive measures to enhance economic growth and improve customer purchasing power. Morrisons has been strong during the recession and should consolidate its position further when the UK economy shows signs of growth. Morrisons has always been true to its traditions and despite the temptations to diversify in non-food products it continues to remain resilient and offers best quality fresh food to its customers. Morrisons at present only operates in the UK market and has only recently diversified its business in the southern part of the country. They are a trusted brand in North of England but hard work and dedication is required to acquire such status in other parts of the country. They also face stiff competition from rival retailers such as Tesco, Sainsburys and ASDA in the UK market. Therefore Morrisons should aim to diversify its business into lucrative developing markets such as China, Russia and India. The opportunities in these markets are enormous and through the use of the right product mix and advertising campaigns Morrisons can further improve its profitability.
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