Thursday, July 16, 2020

CP14 Podcast with Donal Daly from Altify (TAS Group) about Sales Account Performance

CP14 Podcast with Donal Daly from Altify (TAS Group) about Sales Account Performance INTRODUCTIONMartin: Hi, today we are here with Donal Daly from Altify (previously, TAS Group). Hi Donal, who are you and what do you do?Donal: Hey Martin, nice to be here. Donal Daly, I’m the CEO of the TAS Group. We provide software applications that enables sales people to be more effective in their job every day.Martin: What did you do before you started this company?Donal: Well I never really had a proper job. I’ve always worked for myself. This is my fifth software company. So I’m a software guy and I’m a geek, and a nerd, and all those things. So that’s         what I do. I’ve been building I suppose software companies for the last 30 years. So that’s what I do.Martin: Cool. If you go back in time, how did you come up with the business idea of the TAS Group and how did your previous business or interest enable you to perform in that?Donal: So, I think that when I finished the last company that I had, I ended up doing some consulting work, as you do, helping peopl e with kind of where they were going with their marketing strategies and sales strategies. Given that I had kind of built a number of companies and a number of sales teams over the proceeding, gosh 20 years I guess I started looking at what people were doing to create more effective sales organizations. And I looked at the sales training industries, such as it was. There was not a lot of technology applied and there wasn’t a lot of sustained values delivered. It appeared to me that given that I had spent the previous 20 years in software. That maybe if you could take some of the smart, deep sales methodologies that existed and to make it available to sales people and sales managers to use and measure, then that kind of hypothesis might deliver more value than the traditional approach that was being applied.Martin: Donal, given that you’ve started and grown five businesses, what keeps you motivated?Donal: Gosh, I ask myself that question every day. No, I’m kidding. I think, itâ €™s my opinion, if you can find an important problem that lots of people share as urgent, that can make a big                 difference, then, at the end of the day, help people do their jobs better, I think that’s very gratifying. If you can kind of look at that and help your customers do whatever it is they are trying to do better, I think that’s something that gives a lot of its own return.Martin: How did you go about starting this company? So at what point in time did you talk to customers? At what point in time did you look on the product, talk to investors, etc.?Donal: So I was fortunate of having a number of folks who had started with me in the other companies, but in this case, it was another classic software startup. Boot strapped, took a kind of proposition around people that I knew and said: What do you think of this? Is this worthwhile? And in many cases, people said: Well, no. Because if it was, wouldn’t somebody have done it before? But I suppose we kind of hel d fast to the vision that we had. And we built an early software application. It might have been four or five of us at the time. TAS software startup, we built our deal maker application. And because we’ve been building kind of enterprise class cloud software for a long period of time before that, we knew how to do that.So we built it. And then we brought it to a few people in many ways, best market researchers trying to sell what you have. So we sold that to a few folks, and then we sold it to a few people who we didn’t know. So that kind of proved out well. That was kind of the first phase of the journey, you know testing the product, checking the product market fit, seeing whether it’ll deliver some value. And those were the early days, that went as well as we could have hoped.Martin: And how often do you currently have, well in the past, have doubts about some kind of key assumptions or so that are necessary for growing the business? And how did you manage those kind of si tuations of doubt?Donal: That’s a great question. I think sometimes, when we got into this space initially, I guess we felt that it was pretty obvious that people should take smart technology and apply it to deep knowledge in the space we’re in. In that kind of sales methodology sales training         space, we went, okay we’ll start doing this and over the next kind of short period of time, other folks who had played in this space who are trying to solve the same problems, they will probably do it as well.That was a long time coming. So for the first three, four years of our existence, there was nobody else doing this. People were saying, no technology doesn’t have a role to play. So we kind of questioned and wondered you know, why are we this sole activists in this area? So we kind of thought about that, but as we looked at it, looked at the value that our customers were getting and you’re going to wake up in the morning going: Do you really believe that this delivers v alue to the customer? And is the customer willing to invest in it? And that keeps you going.BUSINESS MODEL OF TAS GROUPMartin: Donal, let’s talk about the business model of the TAS Group and let’s start with looking at the customer segments. So what types of customers are you serving? So is it something of special industries or is it only the sales function, or is it only a sales function that has specific kind of properties?Donal: So I think there are two parts to that question. So we sell to, I’ll classify it more as the revenue team rather than the sales team. And by that, I mean of course the sales team, but also the supporting functions. Because marketing are involved and customer service could be involved and sales operations could be involved. So whoever is priority to the go-to-market model of the sales organization. And we are best suited companies who have a reasonably complex sales cycle. If you’re selling widgets, you have a seven days sales cycle, then we’re n ot the right solution. But if you’re selling a complex product that has maybe some IP involved, where the sales person can actually add some real value and can be a real differentiator, then that’s where we make a difference. And that applies in areas like high end professional services, high end manufacturing technology, telecom, those kind of areas. So it’s enterprise business to business, business that we’re in.Martin: How do you establish and nurture the customer relationship? What I mean by that is are you talking to the potential end users? Are you talking to the budget owners? Are you talking to the influences within a specific company that you want to sell your product to? How do you approach that?Donal: I think there are three kind of main personas that we solve problems for.So the sales user, I’d like to think that we wake up every day going, how do we make a life of the sales user better? And that means how do we accelerate their paths to revenue.Then we try and solve problems for the frontline sales manager. They have a tough job and they have lots of things to do. But at the end of the day, they are only measured by one thing which is the results that they achieve. But at the same time, they’re tasked with achieving metrics around sales presence productivity, forecast accuracy, corporate reporting, all those kind of things. So we try and solve that problem.And then the kind of executive sales leader who look at things from kind of a helicopter view, much higher. So they are interested in kind of key performance indicators in the business and how they can have a longer term use.So we spend a lot of time speaking to each of those personas. I just came back just this weekend from a customer advisory board event that we had in San Francisco, where we get kind of twelve of our customers in a room and we listen to the pain that they have. We share with them the vision of where we think we should go. We had a very collaborative conversation a bout how do we best invest our resources to maximize the long term return that they can get.Martin: Donal, you said before that for the first three years or so, you felt very alone in the market. So you were the only company offering this type of software solution for sales organizations. This sounds to me that other competitors entered the market. Another question, what is the unfair advantage that keeps you ahead of those competitors?Donal: Well I think what’s interesting about, in fairness to the people who I kind of looked at and said, why didn’t they come into the market? I was probably a bit slow in figuring out why they didn’t. But if I think about it, what we do today is a combination of two distinct disciplines:One is deep sales methodology.And the other is smart software.So the team that I had, had been building smart software for a long period of time. My first company was NAI. The team that we have built many cloud applications well before it was called cloud and a long the way, we acquired the TAS methodology business. So we ended up in this kind of unique situation where we had you know 25 years of methodology expertise and 25 years of smart software expertise.So as a consequence, when I thought about this a little harder and I figured out, okay, so the methodology people who are schooled on sales training and putting people in a classroom and going through those kind of either paper or fairly manual processes didn’t have the benefit of the decades of software experience. And the software people who knew how to build software didn’t have the methodology expertise. Now we were in the fortunate situation where we had both of those.And because the first company that we were involved in, the first company I started was NAI and expo systems. And we go, that’s a really cool way of taking knowledge and applying it in context to help your knowledge worker and in this case, that’s the sales person. So I think that’s the unfair advantage tha t we have right there.Martin: Okay, cool. How’s the pricing model working and how did you come up with the pricing structure?Donal: We’re a subscription software business. We very much believe in the subscription economy. We think it’s a long term contract that you enter into with your customer and you earn their trust every month, because they can turn you off.So we started life as a subscription software company, where everything that we do is focused around the software that we provide which has the kind of embedded knowledge therein. And of course we also provide the appropriate consulting and kind of learning and training services to make the customer successful. Fundamentally, subscription software business with appropriate services to support the customer.ADVICE FROM DONAL DALYMartin: Donal, if you look back over the last 30 years or so, where you started and grow those five businesses, what type of learnings can you identify that you think is very applicable to other p eople starting their first company?Donal: I dont know. I guess you’re never as smart as you think you are. And there’s a lot to be learned from other people. I think that if you take care of your employees first, they will take care of your customers. I don’t subscribe to the notion that it’s the job of the CEO to look after the shareholder value. I think it’s the job of the CEO to look after the employee value, who looks after the customer value, which has a consequence to deliver shareholder value. And I think that’s something that’s very sustaining and that people can do.I think that if the people in your company have a vision of where you’re going as a business, have a sense of purpose for what they’re doing everyday in their job, if you actually care about the outcome for the customer, again I think that’s a very sustainable thing that you can do. But as an entrepreneur, as someone who’s thinking about starting a business, I’ll often say to people, so yo u should think really hard about why you want to do it. Because it’s much easier to start than stop. And it’s much easier to come up with a smart idea than it is to deliver a total execution and stay with it when things are tough. So I think real belief in what you do and in the value of what you do I think is really important.Martin: I like the concept of this employee value. How do you measure and optimize this employee value?Donal: People talk about us sometimes as you know we’re a little bit of an Italian family. Now I’m Irish. But people, Italian families, so people don’t leave. The company is ten years old, and we have a substantial number of people in the company who have been working with us for ten years.And so the tenure of our employees is really high. I remember having a board advisor conversation maybe three years ago. A new board advisor and he was saying, things will revert to the norm. You will move to the normal attrition rates, you will move to the normal turnover insurance rates. I don’t think so. I know, and it took a couple of years. Later he goes, you know what? You might be right. And as it turned out just before that happened, or between the two conversations we’ve had, one of our guys had left. And I said to him, actually you know what, one of our guys had left. And just yesterday he called and said: Can I come back?Because if there is a true culture of mutual respect across all the employees, then it’s a place where people want to come to and people want to stay. And we think that’s really important.Martin: And are you only trying to let’s say clean up this kind of culture when you’re hiring people or are you also taking some measures once people are there that you are strengthening this type of culture?Donal: Yes, so it’s a bit like, we tend to say to people and I’m conscious of the fact that I’m in a recorded entity so I want to not swear. And this is a no BS environment. You know there’s no room for BS . There’s no room for disrespect in your colleagues. There’s no room for any of those things. And it kind of self governs at this point because everyone understands that we don’t do that kind of thing here. I believe in self governs.SALES ACCOUNT PLANNING FROM DONAL DALYMartin: Cool, Donal, you’ve wrote a nice book about account planning. Let’s dive in about             this. What I would love to know is, how do you get a sales team more productive?Donal: I often say that if we can think about this for a second that the impact on a customer of a bad buying decision is typically greater than the impact on a sales person of a lost deal, right. So if someone buys the wrong CRM or they buy the wrong bit of machinery for their plant or they do those kind of things, typically the impact on the customer of making that bad decision is typically greater than the impact of the sales person who might lose a deal. And people think about that and actually take it to heart, what happen s is they start to think about the impact on their customer. So when they start to do that, then they adopt the buyer perspective, and they think about the things that the buyer actually cares about. And as a consequence, it becomes much more of a valued conversation than it does as a cost conversation.So what we’re trying to do is we’re trying to put some software in tools and processes and give people the right in their mindset tools, skill set to bring those pieces together to enable the sales person to actually understand what their buyer cares about, understanding the path to closing a deal is much shorter.Martin: I like this idea of really focusing on the customer value. But the question to me is how do you align this with short term orientation in terms of the sales incentive for sales people?Donal: So I don’t believe in short term orientation. I believe that at best, you can have spotty success; at worst, you can have disenfranchised customers; and a satisfied customer is your best marketing machine.So if a sales person cannot honestly say, if I was a customer I would buy from me, if you know what I mean. Then their win rate will be lower. Their average deal cites will be lower. Their sales cycle will be longer and it takes just a few examples of actually you know what? I thought a lot from the customers point of view. And at the end of the day, they didn’t push me on price, they understood the value that I delivered. And instead of having to discount by 20%, I actually had to sell a few more deals.So it takes a bit of sustained messaging if you like but also good examples and role models. So I don’t think there’s a professional sales person out there who is at the top of their profession, who doesn’t get the fact that looking after the customer actually shortens the sales cycle and actually gets better revenue.Martin: What are the best practices for sales account planning?Donal: There are really two reasons why you lose a deal. One is yo u shouldn’t have been there. Two is you were out sold. So with respect to account planning, it means that I like to kind of think about account as a market place. So in other words, I’m selling into you know galactic corporation under hood, right. And there’s a lot of places within vast accounts that I can sell my solutions and maybe there’s a number of different solutions I can apply. So if I think about where in that business I can best add value with solution A or solution B, and disqualify and defocus from the other areas, then I end up delivering more value to my customer, and getting to a place where this is what I call the kind of mutual value equation. It’s of most value to you and most value to me. Then that’s the place where account planning works.Martin: So this was the first question, right. So am I at the right place in the company?Donal: Totally, yes.Martin: What was the second?Donal: I guess the second question is, okay one of the… as we kind of think th rough account planning practice generally just to give you a fuller answer. One is I do need to research my market. I need to think about what’s going on in their customer. Understand what their goals are, what business pressures they are under, what initiatives or projects that might have underway. And as I do that across a larger account like that, then what I need to do is I need to segment my market into the different areas of what we call A, B, C, D kind of segments. And that said my A’s are where I can deliver most value to you and I get most value from. Once I do that, I can work through, what we call a kind of the white space in an account. White spaces are areas where there’s an intersection between maybe divisions in the larger account and products or solutions that we sell.When I do that exercise, what should happen is, I should come up with a large number of what we call potential opportunities. Potential areas where I can add value and deals that I can sell and I should come up with more than I can handle. At which point what I would then suggest is using a similar process to your segmentation, but this time add opportunity level and try and figure out which of these opportunities that I should focus on next.Once I do that, I need to look at them and think about: Okay, that’s kind of my planning process, but now if I want to execute against that process, I need to determine what objectives I’m trying to achieve, what strategies I want to employ to achieve those objectives. And what specific timed actions I’m going to undertake to make it happen.So that’s kind of account planning you know in a nutshell from a research through segmentation, through some white space analysis, a bit of prioritization on the opportunities, but then get into the actual execution. And what we found is when people can do that as an account team and kind of collaborate on it, in our case with the cloud application on a team, then their velocity or delivering success to their customer and revenue of the company are accelerated.Martin: And what questions do you ask yourself if you are talking to somebody in the company and you want to really identify whether you are currently at the right place or at the wrong place, so you don’t waste time talking to a person who will never buy from you?Donal: Yes, I think it’s kind of a broad question because it is very context dependent. So I was going through that, simply I’d go okay, so here is what I understand. I understand that you have a business problem. Now I’d like to understand what you think the cause of that problem is. And based on my experience of dealing with people like you in several industries, I should be able to suggest to you what those cases might be, if youre not familiar with them all. Once I understand the problem and the cause of the problem, the next thing I want to understand is from your perspective, what you think the impact is. So what’s the impact on you? And t hen you come and figure out who else is impacted?And again because in this situation, I would probably have worked with other customers that are similar in similar industries or with similar problems. I should be able to kind of prompt and suggest and think about, well maybe you’re impacted this way or that way. So maybe these other people are impacted.And once I understand the problem, the cause and the impact, then it’s a point for me to say: Okay Martin, so you have a magic wand, now we understand this, what would you like to have next? And what’s your ideal solution? If there are no barriers, no constraints, what’s your ideal solution? And then that helps me to understand whether we’re aligned in terms of what we think can happen. And I could understand whether the value is like that. And look to, in your case whether you’re applying the resources that you need to do it your end, whether there what we call compelling event there’s a time in which you need to act b efore something happens, those kind of things.Martin: Okay.Donal: If that’s helpful.Martin: Definitely. What types of trends do you see in sales organizations? And what type of happenings do you expect over the next five to ten years?Donal: So some of the trends I see are kind of worrying. I see areas where people are fixated on statistics that they see in the market. I see people are fixated by, this is kind of what I referred to as access of evil right now which is, people were talking about there are some general trends in the market. People say that buyers are 57% or 60% through their buying decision before they contact the supplier. And the other one that worries me is people say, predictive analytics can solve all sales problems. I think both of those are fundamentally flawed, but they have some value at the core. And particularly in business to business sales, I’m seeing people, I suppose in some cases, buying into those myths without thinking it through for their busines s. In both cases, in those two examples, the stats are true but the stats are based on averages, and businesses across the different spectrum. So I get concerned about some of that and sometimes it requires a bit more critical thought than people are applying.Martin: So if those are the two problems, what’s the solution then?Donal: The solution is to enable kind of critical thinking by trying to surface with people knowledge in context of what they’re doing. Because people look at data, people tend to think about, I’ve got a lot of data, I can run some reports, I can do some predictive analytics. I can do some prescription perhaps and the solution in that case is to take a little bit of time thinking about what we will call descriptive analytics, which is what’s the actual data that matters.There’s like three percent of the world’s data has been analyzed, of which people think one percent is useful. So thinking about what data matters. In the sales world it really comes down to a couple of things. One, the number of qualified deals that you’re working. What’s your win rate? And by win rate, I don’t necessarily mean you win three out of four, so that’s 75%. Because people don’t often think about the different values of those deals. So think about the number of qualified deals, an informed view of your win rate. Thinking about your average deal value and your sales cycle, because at the core, they are the only four things that impact the revenue that you do. So thinking about everything that you do to focus on those four levers, are the things that we think can impact it.Martin: So this would mean basically once you’ve identified the let’s say four key metrics that are driving the revenue and sales, then you can apply some predictive analytics, for example for improving one of those metrics by looking at the data?Donal: Yes, I think you can little bit with the data. But there’s a factor that people don’t often bring into it, you kno w, is that there is a fifth factor to those four, and that’s the sales person.Martin: Yes, right.Donal: And sales person A can be very different than sales person B. So we would try to encourage critical thought as you look into those factors. And think about okay, in many cases, it’s similar if you’re dealing in high volume transaction oriented business, I think it’s very similar and you can use a lot of that kind of stuff. But if you’re in high value B2B sales that is measured in hundreds of thousands of dollars, and millions of dollars, then it’s hard to find a sample that is appropriately homogeneous to predict accurately.Martin: It’s true. Okay, thank you so much for your insights, Donal.Donal: Thank you very much for taking the time.Martin: Sure.Donal: Thanks, Martin, bye bye.THANKS FOR LISTENING! Welcome to the 14th episode of our podcast!You can download the podcast to your computer or listen to it here on the blog. Click here to subscribe in iTunes. INTRODUCTIONMartin: Hi, today we are here with Donal Daly from Altify (previously, TAS Group). Hi Donal, who are you and what do you do?Donal: Hey Martin, nice to be here. Donal Daly, I’m the CEO of the TAS Group. We provide software applications that enables sales people to be more effective in their job every day.Martin: What did you do before you started this company?Donal: Well I never really had a proper job. I’ve always worked for myself. This is my fifth software company. So I’m a software guy and I’m a geek, and a nerd, and all those things. So that’s         what I do. I’ve been building I suppose software companies for the last 30 years. So that’s what I do.Martin: Cool. If you go back in time, how did you come up with the business idea of the TAS Group and how did your previous business or interest enable you to perform in that?Donal: So, I think that when I finished the last company that I had, I ended up doing some consulting work, as you do, helping peopl e with kind of where they were going with their marketing strategies and sales strategies. Given that I had kind of built a number of companies and a number of sales teams over the proceeding, gosh 20 years I guess I started looking at what people were doing to create more effective sales organizations. And I looked at the sales training industries, such as it was. There was not a lot of technology applied and there wasn’t a lot of sustained values delivered. It appeared to me that given that I had spent the previous 20 years in software. That maybe if you could take some of the smart, deep sales methodologies that existed and to make it available to sales people and sales managers to use and measure, then that kind of hypothesis might deliver more value than the traditional approach that was being applied.Martin: Donal, given that you’ve started and grown five businesses, what keeps you motivated?Donal: Gosh, I ask myself that question every day. No, I’m kidding. I think, itâ €™s my opinion, if you can find an important problem that lots of people share as urgent, that can make a big                 difference, then, at the end of the day, help people do their jobs better, I think that’s very gratifying. If you can kind of look at that and help your customers do whatever it is they are trying to do better, I think that’s something that gives a lot of its own return.Martin: How did you go about starting this company? So at what point in time did you talk to customers? At what point in time did you look on the product, talk to investors, etc.?Donal: So I was fortunate of having a number of folks who had started with me in the other companies, but in this case, it was another classic software startup. Boot strapped, took a kind of proposition around people that I knew and said: What do you think of this? Is this worthwhile? And in many cases, people said: Well, no. Because if it was, wouldn’t somebody have done it before? But I suppose we kind of hel d fast to the vision that we had. And we built an early software application. It might have been four or five of us at the time. TAS software startup, we built our deal maker application. And because we’ve been building kind of enterprise class cloud software for a long period of time before that, we knew how to do that.So we built it. And then we brought it to a few people in many ways, best market researchers trying to sell what you have. So we sold that to a few folks, and then we sold it to a few people who we didn’t know. So that kind of proved out well. That was kind of the first phase of the journey, you know testing the product, checking the product market fit, seeing whether it’ll deliver some value. And those were the early days, that went as well as we could have hoped.Martin: And how often do you currently have, well in the past, have doubts about some kind of key assumptions or so that are necessary for growing the business? And how did you manage those kind of si tuations of doubt?Donal: That’s a great question. I think sometimes, when we got into this space initially, I guess we felt that it was pretty obvious that people should take smart technology and apply it to deep knowledge in the space we’re in. In that kind of sales methodology sales training         space, we went, okay we’ll start doing this and over the next kind of short period of time, other folks who had played in this space who are trying to solve the same problems, they will probably do it as well.That was a long time coming. So for the first three, four years of our existence, there was nobody else doing this. People were saying, no technology doesn’t have a role to play. So we kind of questioned and wondered you know, why are we this sole activists in this area? So we kind of thought about that, but as we looked at it, looked at the value that our customers were getting and you’re going to wake up in the morning going: Do you really believe that this delivers v alue to the customer? And is the customer willing to invest in it? And that keeps you going.BUSINESS MODEL OF TAS GROUPMartin: Donal, let’s talk about the business model of the TAS Group and let’s start with looking at the customer segments. So what types of customers are you serving? So is it something of special industries or is it only the sales function, or is it only a sales function that has specific kind of properties?Donal: So I think there are two parts to that question. So we sell to, I’ll classify it more as the revenue team rather than the sales team. And by that, I mean of course the sales team, but also the supporting functions. Because marketing are involved and customer service could be involved and sales operations could be involved. So whoever is priority to the go-to-market model of the sales organization. And we are best suited companies who have a reasonably complex sales cycle. If you’re selling widgets, you have a seven days sales cycle, then we’re n ot the right solution. But if you’re selling a complex product that has maybe some IP involved, where the sales person can actually add some real value and can be a real differentiator, then that’s where we make a difference. And that applies in areas like high end professional services, high end manufacturing technology, telecom, those kind of areas. So it’s enterprise business to business, business that we’re in.Martin: How do you establish and nurture the customer relationship? What I mean by that is are you talking to the potential end users? Are you talking to the budget owners? Are you talking to the influences within a specific company that you want to sell your product to? How do you approach that?Donal: I think there are three kind of main personas that we solve problems for.So the sales user, I’d like to think that we wake up every day going, how do we make a life of the sales user better? And that means how do we accelerate their paths to revenue.Then we try and solve problems for the frontline sales manager. They have a tough job and they have lots of things to do. But at the end of the day, they are only measured by one thing which is the results that they achieve. But at the same time, they’re tasked with achieving metrics around sales presence productivity, forecast accuracy, corporate reporting, all those kind of things. So we try and solve that problem.And then the kind of executive sales leader who look at things from kind of a helicopter view, much higher. So they are interested in kind of key performance indicators in the business and how they can have a longer term use.So we spend a lot of time speaking to each of those personas. I just came back just this weekend from a customer advisory board event that we had in San Francisco, where we get kind of twelve of our customers in a room and we listen to the pain that they have. We share with them the vision of where we think we should go. We had a very collaborative conversation a bout how do we best invest our resources to maximize the long term return that they can get.Martin: Donal, you said before that for the first three years or so, you felt very alone in the market. So you were the only company offering this type of software solution for sales organizations. This sounds to me that other competitors entered the market. Another question, what is the unfair advantage that keeps you ahead of those competitors?Donal: Well I think what’s interesting about, in fairness to the people who I kind of looked at and said, why didn’t they come into the market? I was probably a bit slow in figuring out why they didn’t. But if I think about it, what we do today is a combination of two distinct disciplines:One is deep sales methodology.And the other is smart software.So the team that I had, had been building smart software for a long period of time. My first company was NAI. The team that we have built many cloud applications well before it was called cloud and a long the way, we acquired the TAS methodology business. So we ended up in this kind of unique situation where we had you know 25 years of methodology expertise and 25 years of smart software expertise.So as a consequence, when I thought about this a little harder and I figured out, okay, so the methodology people who are schooled on sales training and putting people in a classroom and going through those kind of either paper or fairly manual processes didn’t have the benefit of the decades of software experience. And the software people who knew how to build software didn’t have the methodology expertise. Now we were in the fortunate situation where we had both of those.And because the first company that we were involved in, the first company I started was NAI and expo systems. And we go, that’s a really cool way of taking knowledge and applying it in context to help your knowledge worker and in this case, that’s the sales person. So I think that’s the unfair advantage tha t we have right there.Martin: Okay, cool. How’s the pricing model working and how did you come up with the pricing structure?Donal: We’re a subscription software business. We very much believe in the subscription economy. We think it’s a long term contract that you enter into with your customer and you earn their trust every month, because they can turn you off.So we started life as a subscription software company, where everything that we do is focused around the software that we provide which has the kind of embedded knowledge therein. And of course we also provide the appropriate consulting and kind of learning and training services to make the customer successful. Fundamentally, subscription software business with appropriate services to support the customer.ADVICE FROM DONAL DALYMartin: Donal, if you look back over the last 30 years or so, where you started and grow those five businesses, what type of learnings can you identify that you think is very applicable to other p eople starting their first company?Donal: I dont know. I guess you’re never as smart as you think you are. And there’s a lot to be learned from other people. I think that if you take care of your employees first, they will take care of your customers. I don’t subscribe to the notion that it’s the job of the CEO to look after the shareholder value. I think it’s the job of the CEO to look after the employee value, who looks after the customer value, which has a consequence to deliver shareholder value. And I think that’s something that’s very sustaining and that people can do.I think that if the people in your company have a vision of where you’re going as a business, have a sense of purpose for what they’re doing everyday in their job, if you actually care about the outcome for the customer, again I think that’s a very sustainable thing that you can do. But as an entrepreneur, as someone who’s thinking about starting a business, I’ll often say to people, so yo u should think really hard about why you want to do it. Because it’s much easier to start than stop. And it’s much easier to come up with a smart idea than it is to deliver a total execution and stay with it when things are tough. So I think real belief in what you do and in the value of what you do I think is really important.Martin: I like the concept of this employee value. How do you measure and optimize this employee value?Donal: People talk about us sometimes as you know we’re a little bit of an Italian family. Now I’m Irish. But people, Italian families, so people don’t leave. The company is ten years old, and we have a substantial number of people in the company who have been working with us for ten years.And so the tenure of our employees is really high. I remember having a board advisor conversation maybe three years ago. A new board advisor and he was saying, things will revert to the norm. You will move to the normal attrition rates, you will move to the normal turnover insurance rates. I don’t think so. I know, and it took a couple of years. Later he goes, you know what? You might be right. And as it turned out just before that happened, or between the two conversations we’ve had, one of our guys had left. And I said to him, actually you know what, one of our guys had left. And just yesterday he called and said: Can I come back?Because if there is a true culture of mutual respect across all the employees, then it’s a place where people want to come to and people want to stay. And we think that’s really important.Martin: And are you only trying to let’s say clean up this kind of culture when you’re hiring people or are you also taking some measures once people are there that you are strengthening this type of culture?Donal: Yes, so it’s a bit like, we tend to say to people and I’m conscious of the fact that I’m in a recorded entity so I want to not swear. And this is a no BS environment. You know there’s no room for BS . There’s no room for disrespect in your colleagues. There’s no room for any of those things. And it kind of self governs at this point because everyone understands that we don’t do that kind of thing here. I believe in self governs.SALES ACCOUNT PLANNING FROM DONAL DALYMartin: Cool, Donal, you’ve wrote a nice book about account planning. Let’s dive in about             this. What I would love to know is, how do you get a sales team more productive?Donal: I often say that if we can think about this for a second that the impact on a customer of a bad buying decision is typically greater than the impact on a sales person of a lost deal, right. So if someone buys the wrong CRM or they buy the wrong bit of machinery for their plant or they do those kind of things, typically the impact on the customer of making that bad decision is typically greater than the impact of the sales person who might lose a deal. And people think about that and actually take it to heart, what happen s is they start to think about the impact on their customer. So when they start to do that, then they adopt the buyer perspective, and they think about the things that the buyer actually cares about. And as a consequence, it becomes much more of a valued conversation than it does as a cost conversation.So what we’re trying to do is we’re trying to put some software in tools and processes and give people the right in their mindset tools, skill set to bring those pieces together to enable the sales person to actually understand what their buyer cares about, understanding the path to closing a deal is much shorter.Martin: I like this idea of really focusing on the customer value. But the question to me is how do you align this with short term orientation in terms of the sales incentive for sales people?Donal: So I don’t believe in short term orientation. I believe that at best, you can have spotty success; at worst, you can have disenfranchised customers; and a satisfied customer is your best marketing machine.So if a sales person cannot honestly say, if I was a customer I would buy from me, if you know what I mean. Then their win rate will be lower. Their average deal cites will be lower. Their sales cycle will be longer and it takes just a few examples of actually you know what? I thought a lot from the customers point of view. And at the end of the day, they didn’t push me on price, they understood the value that I delivered. And instead of having to discount by 20%, I actually had to sell a few more deals.So it takes a bit of sustained messaging if you like but also good examples and role models. So I don’t think there’s a professional sales person out there who is at the top of their profession, who doesn’t get the fact that looking after the customer actually shortens the sales cycle and actually gets better revenue.Martin: What are the best practices for sales account planning?Donal: There are really two reasons why you lose a deal. One is yo u shouldn’t have been there. Two is you were out sold. So with respect to account planning, it means that I like to kind of think about account as a market place. So in other words, I’m selling into you know galactic corporation under hood, right. And there’s a lot of places within vast accounts that I can sell my solutions and maybe there’s a number of different solutions I can apply. So if I think about where in that business I can best add value with solution A or solution B, and disqualify and defocus from the other areas, then I end up delivering more value to my customer, and getting to a place where this is what I call the kind of mutual value equation. It’s of most value to you and most value to me. Then that’s the place where account planning works.Martin: So this was the first question, right. So am I at the right place in the company?Donal: Totally, yes.Martin: What was the second?Donal: I guess the second question is, okay one of the… as we kind of think th rough account planning practice generally just to give you a fuller answer. One is I do need to research my market. I need to think about what’s going on in their customer. Understand what their goals are, what business pressures they are under, what initiatives or projects that might have underway. And as I do that across a larger account like that, then what I need to do is I need to segment my market into the different areas of what we call A, B, C, D kind of segments. And that said my A’s are where I can deliver most value to you and I get most value from. Once I do that, I can work through, what we call a kind of the white space in an account. White spaces are areas where there’s an intersection between maybe divisions in the larger account and products or solutions that we sell.When I do that exercise, what should happen is, I should come up with a large number of what we call potential opportunities. Potential areas where I can add value and deals that I can sell and I should come up with more than I can handle. At which point what I would then suggest is using a similar process to your segmentation, but this time add opportunity level and try and figure out which of these opportunities that I should focus on next.Once I do that, I need to look at them and think about: Okay, that’s kind of my planning process, but now if I want to execute against that process, I need to determine what objectives I’m trying to achieve, what strategies I want to employ to achieve those objectives. And what specific timed actions I’m going to undertake to make it happen.So that’s kind of account planning you know in a nutshell from a research through segmentation, through some white space analysis, a bit of prioritization on the opportunities, but then get into the actual execution. And what we found is when people can do that as an account team and kind of collaborate on it, in our case with the cloud application on a team, then their velocity or delivering success to their customer and revenue of the company are accelerated.Martin: And what questions do you ask yourself if you are talking to somebody in the company and you want to really identify whether you are currently at the right place or at the wrong place, so you don’t waste time talking to a person who will never buy from you?Donal: Yes, I think it’s kind of a broad question because it is very context dependent. So I was going through that, simply I’d go okay, so here is what I understand. I understand that you have a business problem. Now I’d like to understand what you think the cause of that problem is. And based on my experience of dealing with people like you in several industries, I should be able to suggest to you what those cases might be, if youre not familiar with them all. Once I understand the problem and the cause of the problem, the next thing I want to understand is from your perspective, what you think the impact is. So what’s the impact on you? And t hen you come and figure out who else is impacted?And again because in this situation, I would probably have worked with other customers that are similar in similar industries or with similar problems. I should be able to kind of prompt and suggest and think about, well maybe you’re impacted this way or that way. So maybe these other people are impacted.And once I understand the problem, the cause and the impact, then it’s a point for me to say: Okay Martin, so you have a magic wand, now we understand this, what would you like to have next? And what’s your ideal solution? If there are no barriers, no constraints, what’s your ideal solution? And then that helps me to understand whether we’re aligned in terms of what we think can happen. And I could understand whether the value is like that. And look to, in your case whether you’re applying the resources that you need to do it your end, whether there what we call compelling event there’s a time in which you need to act b efore something happens, those kind of things.Martin: Okay.Donal: If that’s helpful.Martin: Definitely. What types of trends do you see in sales organizations? And what type of happenings do you expect over the next five to ten years?Donal: So some of the trends I see are kind of worrying. I see areas where people are fixated on statistics that they see in the market. I see people are fixated by, this is kind of what I referred to as access of evil right now which is, people were talking about there are some general trends in the market. People say that buyers are 57% or 60% through their buying decision before they contact the supplier. And the other one that worries me is people say, predictive analytics can solve all sales problems. I think both of those are fundamentally flawed, but they have some value at the core. And particularly in business to business sales, I’m seeing people, I suppose in some cases, buying into those myths without thinking it through for their busines s. In both cases, in those two examples, the stats are true but the stats are based on averages, and businesses across the different spectrum. So I get concerned about some of that and sometimes it requires a bit more critical thought than people are applying.Martin: So if those are the two problems, what’s the solution then?Donal: The solution is to enable kind of critical thinking by trying to surface with people knowledge in context of what they’re doing. Because people look at data, people tend to think about, I’ve got a lot of data, I can run some reports, I can do some predictive analytics. I can do some prescription perhaps and the solution in that case is to take a little bit of time thinking about what we will call descriptive analytics, which is what’s the actual data that matters.There’s like three percent of the world’s data has been analyzed, of which people think one percent is useful. So thinking about what data matters. In the sales world it really comes down to a couple of things. One, the number of qualified deals that you’re working. What’s your win rate? And by win rate, I don’t necessarily mean you win three out of four, so that’s 75%. Because people don’t often think about the different values of those deals. So think about the number of qualified deals, an informed view of your win rate. Thinking about your average deal value and your sales cycle, because at the core, they are the only four things that impact the revenue that you do. So thinking about everything that you do to focus on those four levers, are the things that we think can impact it.Martin: So this would mean basically once you’ve identified the let’s say four key metrics that are driving the revenue and sales, then you can apply some predictive analytics, for example for improving one of those metrics by looking at the data?Donal: Yes, I think you can little bit with the data. But there’s a factor that people don’t often bring into it, you kno w, is that there is a fifth factor to those four, and that’s the sales person.Martin: Yes, right.Donal: And sales person A can be very different than sales person B. So we would try to encourage critical thought as you look into those factors. And think about okay, in many cases, it’s similar if you’re dealing in high volume transaction oriented business, I think it’s very similar and you can use a lot of that kind of stuff. But if you’re in high value B2B sales that is measured in hundreds of thousands of dollars, and millions of dollars, then it’s hard to find a sample that is appropriately homogeneous to predict accurately.Martin: It’s true. Okay, thank you so much for your insights, Donal.Donal: Thank you very much for taking the time.Martin: Sure.Donal: Thanks, Martin, bye bye.THANKS FOR LISTENING!Thanks so much for joining our 14th podcast episode!Have some feedback you’d like to share?  Leave  a note in the comment section below! If you enjoyed this episode, p lease  share  it using the social media buttons you see at the bottom of the post.Also,  please leave an honest review for The Cleverism Podcast on iTunes or on SoundCloud. Ratings and reviews  are  extremely  helpful  and greatly appreciated! They do matter in the rankings of the show, and we read each and every one of them.Special thanks  to Donal for joining me this week. Until  next time!

Thursday, May 21, 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   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.49   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.53   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.51 Acid test Ratio   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.25   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.28   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   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)   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   65.17   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   59.30   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   76.67 Receivable collection period (days)   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   5.60   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   6.16   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   4.76 Inventory turnover times   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   29.34   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   29.41   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   26.71 Inventory turnover in days   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   12.44   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   12.41   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   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   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.32   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.37   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   0.34 Interest Cover (times)   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   10.20   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   11.18   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   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)   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   20.79   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   17.39   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   22.80 Price/earnings ratio   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   13.90   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   15.57   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   13.13 Dividend per share (pence)   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   4.80   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   5.80   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  Ãƒâ€šÃ‚   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.