Recommendation and advice for sher holder in companies - Research Paper Example

A thorough analysis of the financial ratios of Morrisons would illustrate that the outlook of the company, in financial terms, took a downward plunge in the financial year 2009, but through prudent risk management and effective allocation of resources, the company was able to put its operations back on the track. The liquidity, profitability and the investor’s ratios for the financial year 2010 represents a stabilized and profit making company. Although the current and quick ratios of the company have declined incrementally during the current financial year, the EPS offered by the company has increased by an impressive 30.4%. Following the same pattern, the dividend yield has also shown sign of improvement.

Evaluating the financial outlook of Morrisons from investor’s point of view, it would be most prudent to invest in it, and the current shareholders of the company should hold their investment in the company as it promises to reap more benefits in the future. The fact that the investors should further invest or hold their investments in Morrisons is advocated by the fact that the company offered notable dividend of 8.20 per share. The dividend offered by the company during the current financial year is almost 41% higher than the one offered in the prior year.

Selling stakes in Morrisons at this point of time when the company is offering attractive dividends to its shareholder, would be reckless and not at advisable. As quite obvious from the gearing ratio of the company, the operations are now more driven by the capital raised through issuance of share in the capital market, rather than acquiring financings from institutions. This shows that the investors have confidence in the company and are ready to bear the risk. The prospective and current investors should also analyze that the company is making the best use of its capital which is represented by the inclining return on equity (ROE) and return on capital employed (ROCE).

The stable ROE and ROCE ratios project that the company is liable to generate higher return on its capital in the future years and investors would equally be prized with higher dividends on their investments. After reviewing the financial performance of Morrisons, it can be deduced that the company is also heading towards the right direction from strategic point of view. The repercussions of the recent global economic meltdown are still prevalent, realizing which Morrison focused on its primary revenue generating activity and did not allocate its precious resources to other ventures which could later proved to impossible.

The company adopted the strategy of market penetration which is regarded as when the company introduces its current product in the existing market which it had already explored. Such strategy is useful when the economic environment is unstable and it is not financially viable to take any sort of risk. From the investor’s point of view, it would be practicable to invest in Morrisons as the company is planning to assert to its core activities and is not planning to take any sort of financial risks.

In addition to the above mentioned analyses, it can be further concluded that Morrisons has adopted the strategy of focusing on what it does best rather than adopting the strategy of differentiation or implementing measure to reduce its cost. The company is adhered to market its products to its existing customer base and is planning to enhance its profitability through better advertising, building customer relationships thorough offering better service and implementing the state of the art supply chain management system.

Morrisons decision to adopt the strategy of market penetration, and focusing on its primary product, highlights the fact that the company is cautious and is trying to averse all the risks which it feel threatened by in the current turbulent economic scenario. After analyzing the financial outlook and marketing strategy of the Morrisons, it would be advisable to the current/prospective shareholders of the company to hold/buy shares in the company as it is expected to earn higher return through dividend income rather than through capital gain by disposing off the shares.