Over the year, the supermarket retailing industry has been one of the most successful industries in the United Kingdom. The supermarket industry is very important in the United Kingdom retail sector as this industry continue to tap a greater part of its target market both in volume and revenue. There is a noted proliferation of different supermarkets in the country although the biggest share in this business is covered by the big four which is the main provider of the retailing needs of the country's residents. As the density and number of the supermarkets increase, some were forced to diversify and expand their public offerings in order to manage competition and to manage sustainability in the survival of only the fittest in the business. The supermarket industry is said to be very robust in the United Kingdom because grocery and other retail items have already been a stable part of the life of its citizens and therefore they will always come to visit supermarkets to supply them with these needs. Although food products account for the majority of offerings, some supermarkets have increased their efforts to offer non-food products in their retail outlets to be able to tap a bigger market and to supply the greater needs of the people in the country. The increased competition in the supermarket industry in United Kingdom has also lead to formulation of different strategies which can set them out of the competition and which can give them a sustainable competitive edge over other players. One of these strategies is the change in the pattern of their opening hours in their quest to serve a greater number of their target markets. Some also offered home shopping over the internet in order to provide a more convenient way of purchasing items of their stores. Such strategies have set some companies out of the competition and generated them additional revenues over the years of their operation.
One of the most prevalent names in the supermarket industry in United Kingdom nowadays is Morrisons. It is currently the fourth largest supermarket in the country with more than 400 branches in different locations to serve the residents. The business of Morrisons is concentrated mostly on food and grocery products which account to the majority of the general need of the United Kingdom market. It is also estimated that there are nine million customers entering their shops on a weekly basis. Furthermore, the company operates on the basis of offering the lowest possible price in the market with regards to competition. The strategy employed by the company is not actually directed towards building a customer loyalty program. They rather pay much more focus on providing consistently low prices as they believe that this is their sustainable competitive edge.
The supermarket industry in United Kingdom has been very competitive in the past years. Being regarded as the fourth largest supermarket in the United Kingdom, its major competitors are the bigger three which include ASDA, Sainsbury, and Tesco. The relatively small size of Morrisons and its regional focus, where most of the stores are located only in Northern England, are some of the attributes pinpointed on why it cannot get ahead of the competition. The competition became even fiercer when WalMart acquired one of its biggest competitors, Asda. Its strong presence in the country has always since then remained a threat on the bright future which was anticipated of Morrisons. However, despite the existence of such inevitable competitive factors, the company continued formulation of new strategies and measures executed to be bale to still set a name in the industry and to continue its operation despite the growing and becoming more stringent competition.
This research is aimed towards getting additional insights on Morrisons through an analysis of their financial data and related financial ratios which will be helpful in deciding whether the supermarket is a good entry for some products to be introduced in the market.
INFORMATION GATHERING
To successfully carry out the aims and purpose of this study, the researcher does not disregard the importance of all relative information which will provide a better understanding of the status of the business in the supermarket industry. The financial data of Morrisons will be the key focus of this research. Such information will be gathered from the company website, specifically from the investor relations section. These data will then be evaluated based on relative ratios which will help provide a recommendation regarding the potential of the retail chain in marketing new products. Annual company reports will also be used by the researcher to extract other data which are relevant to the organization's operation and financial performance. The researcher chose to sue information available on the corporate website because it is deemed credible and accurate because such is maintained by the company management. The credibility of the sources is very important for the recommendations to be accurate and genuine and close to the actual situation of the general market condition. And to be able to provide only genuine and accurate recommendations, the researcher chose to use financial data only made available by the management in their website and corporate reports.
ANALYSIS
The following section of this paper wills eek to analyze the financial performance of Morrisons generally based on their financial statements and financial ratios which will provide a greater understanding of how the business is doing and will aid in formulation of recommendations. One of the most important of which is the analysis of the profitability ratio associated with business performance of the supermarket. One of the most important profitability ratios is the gross profit margin which calculates how well the company can control its costs computed as gross profit / net sales. For the year 2008-2009 it is 6.28 = 913 / 14,528. For the year 2009-2010 it is 6.28% = 968 / 14,410. For two years, the gross profit margin ratio has been stable. Furthermore it is also important to compute for the operating profit margin which is EBIT / net sales. The operating profit margin for 2008-2009 is 4.51% = 655 / 14,528 and for 2009-2010 it is 5.95% = 858 / 14,410. Lastly it is also important to compute for the net profit margin because it shows how much of each dollar sales is retained after paying up all the expenses. It is computed as net income / net sales. The net profit margin for 2008-2009 is 3.16% = 460 / 14,528 and for 2009-2010 it is 3.88% = 598 / 15,410. This simply means that for the past year, 3.88 cents of every dollar can be regarded as profit, higher than 3.16 cents last year.
Furthermore, an analysis of the liquidity and capital ratios will also be helpful in drawing up conclusions and recommendations. Liquidity ratios are helpful because they in the capacity to determine the company's ability to be bale to pay off its short term debt obligations. When the value of the ratio is higher, it means that the margin of safety is also higher. One of the liquidity tests is the current ratio. The current ration can be computed as total current assets divided by total current liabilities for the year 2009-2010, it is .51 computed as 1,094 / 2,152. Moreover, for the year 2008-2009 the current ratio is computed as 1,066 / 2,024 resulting to .53. This means that for this year, the company has $.51 of its current assets to finance $1 liability. It expresses the working capital that the company has to be able to meet its financial obligations. Another useful ratio will be the quick ratio which is computed as total quick assets/total current liabilities. Quick assets can be computed as total current assets less inventory. For the year 2009-2010 quick ratio is .24 = (1,094-577) / 2,152. Furthermore, for 2008-2009, the quick ratio is .28 = (1,066-494) / 2,024. The current .24 quick ratio indicates that the company has $.24 quick assets to meet $1 of its current liabilities. Lastly, for liquidity ratios, it is also important to compute for the debt equity ratio which is computed as total liabilities / owner's equity. For 2009-2010 it is 20.65 which means that the company has too low of an asset to be bale to pay of for its obligations.
Furthermore, it is also useful to evaluate the company's performance would be financial ratios which are associated with risks. It must be noted that risks are inevitable and they really happen that is why efforts must be extended especially among risk takers to carefully manage its consequences. One of these ratios would be capitalization ratios which can be computed as long-term debt / (long-term debt + shareholder's equity). For the year 208-2009, long-term debt of Morrisons is 18.83 = 1,049 / (1,049 + 4,520). Moreover, for this year, capitalization ratio is 18.10 = 1,094 / (1,094 + 4,949). This relatively low capitalization ratio of the company goes to show that the company is conservatively managed, implying that they are prone to lower rates of risk. Moreover, another financial risk ratio which will be useful is the debt to capital ratio which will measure the company's financial leverage by computing debt / (debt + shareholder's equity). For the year 2008-2009 it is 18.85 = 1,050 / (1,050 + 4,520). For the year 2009-2010 it is 19.78 = 1,220 (1,220 + 4,949). This higher debt capital ratio indicates that this year there is a slightly higher part of their capital that is formed by debt as compared last year.
There are also ratios which can be used and evaluated to be able to analyze the potential of Morrisons to investors. This will help investors decide whether the supermarket will be helping them in terms of generating profit. One of these ratios would be the dividend pay-out ratio. Investors must be highly cautious with their investment ventures. They have to bear in mind how much will be the return on them of their investments. For the latest year, the dividend pay-out ratio for Morrisonn is said to be .3629 which is computed by diving dividends per share with earnings per share. The .3629 dividend pay-out resulted from 217 / 598. Prior to that, the dividend pay-out ratio was .3304 = 152 / 460. The dividend pay-out ration is an indicator of the measure for financial sharing. This means that the percentage paid to shareholder in dividends is 36.29% this year and 33.04% last year. This is indicative of a good financial performance this year which lead to increased pay-out of dividends to shareholders. Another ratio which can be useful for investors would be dividend yield which illustrates the percentage return that the company pays out to its shareholders in the form of dividends. In the year 2008-2009 the dividend yield for Morrisons was 2.10 and it was 2.8 in the year 2009-2010. This means that this year there is a higher rate of return as the dividend yield also becomes higher.
The results provide a complex discussion of the financial status of the company. The profitability ratios indicate a more profitable business this year especially as shown by the net profit margin which is higher this year compared to last. Moreover, the liquidity ratios show that the company has relatively low capitalization requirements to pay off its obligations. On the other hand, the risk ratios indicate that the companies are conservative; therefore they are low-prone to risks unlike other aggressive companies. Lastly, the investor ratios show a quite conducive dividend pay-out to new entrants or new investors in the company.
CONCLUSION
The financial analysis of the company has been helpful to draw conclusions and recommendations in this topic. If the researcher was to invest and choose one retailer, Morrisons would be a good recommendation because of its low-risk and conservative profile and also because of its pay-out ratio which is relatively good although it cannot be categorized as high enough as compared with other supermarkets. The general profit and sales of the company were at a higher level as compared to last year although some figures from the ratio showed that they have relatively lower capitalization to fund for their obligations as compared to last year. This can be attributed to the fact that they have had higher costs this year, along with their higher profit margin. Nonetheless, when we take a look at the synthesis of the financial variables, it is undeniable that Morrisons will still be a good place to market new products given its extensive location of branches in the United Kingdom and given its very large market which were acquired basically because it offers the lowest prices in the market. This lowered market will give their products a sustainable competitive edge in the United Kingdom market while trying still to recover from costs associated to production. Since the prices at this supermarket are lower, manufacturers should compete on volume to sell more at a relatively lower price.
