Identifying Financing Needs and Constraints

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I will be carrying out an investigation on a Morrison financing needs and any constraints placed on them in regard to their legal form. I will be looking at their legal form and its advantages and disadvantages. I will also be looking at what financial sources they have available. I will also use their Accounting documents i.e. Balance Sheet and Profit and Loss Account to carry out my analysis.

The Business I Have Chosen is Wm Morrison Supermarkets PLC

Morrisons was established by William Morrison in 1899, initially as egg and butter merchant in Rawson Market, Bradford, England. His son Sir Ken Morrison is chairman of the company now. The company was taken over by Sir Ken in 1952 and started to grow the business. In 1967 the business became public limited and the company was listed in the London Stock Exchange. Morrisons as a company now has 368 superstores in United Kingdom including the new store opening by the end of 2007 and those it retained following its purchase of Safeway plc. The company has its core focus on groceries and homewares, with fewer electronics, clothing and furnishing than the company’s key supermarket rivals.

The Trading Performance of Morrisons Morrisons has announced that the outcome of its strategic review, as well as its initial results on 15 March 2007. The Turnover was up 3% to 12.5bn (2006: 12.1bn), like for like sales (ex fuel) up 5.2% (2006: 2.4%), and profits jumped to 369.0m before taxation- a company record (2006: (�312.9m)). It also announced that most of the targets from its original three- year ‘Optimisation Plan’ had been met, including its plan to increase gross profit margin by 90bps, in one year.

The business now has �450m to modernise itself. Morrisons has become Public Limited Company in 1967. Companies within PLC should audit their accounts and make sure the accounts are ready for any inspection. Morrisons uses PLC abbreviation in its name to indicate that it is a public limited company. This is also stated to warn traders that their liability is limited and debts cannot be recovered from the personal funds of the company shareholders. Some advantages of public limited company are to raise large amount of capital from share issue and benefit from economies scale such as bulk buying. Disadvantages may be the possibility of takeover or merger because shares can be bought by anyone, and may become too large resulting in poor labour relations.

Morrisons is a public limited company which also means that some of its capital is raised from the sale of shares. The share capital cannot be redeemed because it is permanent capital. Morrisons also uses retained profit to refurbish its own shops. All limited companies are incorporated (a firm with separate legal existence) this means that they are able to sue or own assets in their own right. The ownership of limited companies is divided up into equal parts which are known as shares and whoever owns a share is called the shareholder.

There are differences which legal structure makes on the finance available to the business. This also has some advantages and disadvantages for the business. Public Limited Companies Advantages Disadvantages Raise large amount of capital from share issue. Become too large resulting in poor labour relations. Benefit from economies of scale, e.g. bulk buying, cheaper borrowing Conflict of interest between shareholders and the Board of Directors.

Produce goods at lower unit cost. Possibility of takeover or merger because shares can be bought by anyone The other advantages for this type of ownership are economies scale such as bulk buying. They can also benefit from earning capital from selling of their shares. The other disadvantages are being takeover by another company or merger with another company. Morrisons has been a merger with another company which is the detriment for the business itself.

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