Tuesday, August 6, 2019
Understanding Consumer Behavior Essay Example for Free
Understanding Consumer Behavior Essay Why is understanding consumer behavior of such importance to marketers? Give examples of how marketers apply their understanding of consumer behavior to their marketing strategies. The study of Consumer behavior plays an importance role to the marketers which need to study in how individuals, groups and organizations select, buy, use and dispose of goods, services, idea or experiences to satisfy their needs and wants. The marketers need to research and understand how the study of consumer behavior works and only can positioning their production in the particular groups of people. Marketers need to considered about the factors that affecting the consumer buying behavior before starting a business. Some of the factors that may influence consumer purchase decisions are the cultural influences, social influences, personal factors and psychological factors. Those of the factors are vital when using them to apply as the marketing strategies. For example the marketers are planning to launch a non-halal restaurant in a new shopping complex. Firstly, the marketers need to considered throughout the factors that affecting their consumer behavior. For the cultural influences, the marketers need to concern about the nationalities, religions and values norms or the lifestyle of their target consumer. So in this case the halal users are not be able to visit the restaurant since it touch the religions issue. Therefore the marketers have to change their strategies or set the restaurant in other places which accept with the constraints. Furthermore, the occupation, lifestyle and economic situation of consumer are affecting a people buying decision. When comes to the introduction of sports car, family group of people will rather consider to buy a family car whereas some upper social class of people will take it as consideration. For the people in working class are usually driving a normal car or take public transportation. In this case, the marketers should selling the sports car to the consumer who taking the high salary in upper class. Therefore, the marketers need to understand which group of consumer they are targeting and put on focus to target them.
Monday, August 5, 2019
The inter relationship between firm growth and profitability
The inter relationship between firm growth and profitability Abstract There is a widespread presumption that there is a close relationship between firm growth and firm profitability. However, most of the past studies on firm growth and profitability have been conducted without mutual associations. Only a few studies, thus far, have examined the inter-relationship between firm growth and profitability and the results have been inconsistent. The reason for the inconsistency is mainly due to the lag structure of the models in each study. To address the issue, this study conducted panel unit-root tests on firm growth and profitability separately and then made appropriate models using dynamic panel system GMM estimators. Through the analyses of the models, this study found that in restaurant firms the prior years profitability had a positive effect on the growth rate of the current year, but the current and prior years growth rates had a negative effect on the current years profitability. This outcome implies that profit creates growth but the growth impede s profitability in the restaurant industry. More implications are also discussed in this paper. Keywords: Firm growth; Profitability; Panel unit-root test; Dynamic panel system GMM 1. Introduction The dynamics of firm growth and profitability (or profit rate) is an important issue for industrial practitioners as well as academic researchers (Goddard, McMillan and Wilson, 2006). Theoretically, if firm growth rate is unrelated to firm size and prior growth rate, then firm growth follows random walk and the variance of firm size can increase indefinitely. This is known as the Law of Proportionate Effect (LPE). This stochastic growth process implies unlimited industry growth in the long run. However, if growth rate is inversely related to firm size, firm growth would converge in the long run. On the other hand, Mueller (1977) claimed that firm profitability converges at a certain level due to market competition, which is referred to as Persistence of Profit (POP). The POP literature argues that firm entry and exit are sufficiently free to quickly eliminate any abnormal profit and that the profitability of all firms tends to converge toward the long-run average value. However, Goddard, Molyneux and Wilson (2004) stated, even though it is generally presumed that firm growth and profitability effect each other, that firm growth and profitability are not necessarily connected. Overall, the impact and direction of this relationship remains ambiguous. The ambiguity is associated with various econometric issues. First, due to the endogeneity it is difficult to capture a clear causality and direction between them. Further, if firm growth and profitability time lags are incorporated into the models the endogenous relationship becomes more complicated due to the unknown effects of different time lags. Recently, there have been a couple of attempts to investigate the inter-relationship between firm growth and profitability (Coad, 2007; Davidsson, Steffens, and Fitzsimmons, 2009). Although it is worth exploring the relationship, the results of the studies turned out to be inconsistent. In the previous studies, two types of methodologies were used: panel unit-root test and dynamic panel system GMM estimator. The panel unit-root test is appropriate for testing the convergence hypotheses of firm growth and profit rates. It is also useful for finding the significance of the lag term in a simple autoregressive model, but it is difficult to control the endogenous effect in the model. Moreover, the panel unit-root test cannot directly examine the inter-relationship between firm growth and profitability. Dynamic panel system GMM estimator can control for endogeneity and test the inter-relationship, but determining the number of lag terms remains ambiguous. Thus, in order to address the analysis problems in the previous literature, we first employed the panel unit-root test and subsequently made a testable model for the dynamic panel system GMM estimator. Through those analyses, we intended to investigate the inter-relationship between firm growth and profitability under various time lags. More specifically, the objectives of this study were: 1) to examine the panel unit-root test on the series of firm growth and profitability separately and to find an appropriate lag structure; and 2) to make an appropriate model to investigate the inter-relationship between them through a vector autoregression (VAR) model via dynamic panel system GMM estimator. We used restaurant firms for the study sample and, thus, the results are useful for understanding the dynamics of firm growth and profitability in the restaurant industry. In the following section, we summarize prior LPE and POP literature and present the potential inter-relationships between firm growth and profitability. Next section outlines the details of the study methodology. The following section shows the results of panel unit-root test and dynamic panel system GMM regarding the inter-relationship between firm growth and profitability. Finally, we conclude this study with managerial implications and suggestions for further studies. 2. Literature Review 2.1. Law of Proportionate Effect (LPE) and Persistence Of Profit (POP) The notion that firm growth rate is independent of firm size and past growth rate is known as the Law of Proportionate Effect (LPE) (Gibrat, 1931). According to the LPE, firm growth happens by chance and thus past growth is not a reliable predictor of future firm growth (Goddard et al., 2006). Hence, deterministic factors of firm growth (i.e., managerial capacity, innovation and efficiency) are randomly distributed across firms. However, recent empirical studies have claimed that there is an inverse relationship between firm growth and firm size, rejecting the LPE (Hall, 1987; Evans, 1987; Dunne and Huges, 1994; Geroski and Gugler, 2004). Most empirical studies of LPE used cross-sectional regression models through a simple autoregressive model (for example, AR(1)), but the models were criticized due to their arbitrariness in choosing lag terms. Recently, Chen and Lu (2003) and Goddard et al. (2006) tested the LPE using panel unit-root models because the LPE assumes non-stationarity i n the time series analysis. The benefit of the panel unit-root test on LPE lies in its ability to test a long series effect in non-stationarity, while the weakness of the test is its inability to include control variables that may affect firm growth (i.e., prior profitability, leverage, and market competition). Conversely, researchers on persistence of profit (POP) argue that firm profitability converges at a certain level across all firms and no firms could achieve an above average profit rate in the long run. Mueller (1977) developed the deterministic time-series model for testing the POP and subsequently (Mueller 1986) demonstrated profit rate convergence through an autoregressive model. Since Mueller (1986), most studies on POP have adopted the autoregressive model. However, Goddard et al. (2006) stated that the typical methodology for POP estimated individual effects and autoregressive coefficients for each firm, so the estimated coefficients were often unreliable and the testing power was low. Hence, Goddard et al. (2006) tested the profit rate convergence hypothesis using a panel unit-root test in order to find the stationarity in a profit rate time series. 2.2. The inter-relationship between firm growth rate and profitability (or profit rate) As noted earlier, it is widely believed that firm growth and profit rates are related to each other (Goddard et al., 2004). Some prior studies have suggested that profit rate has a positive impact on growth rate. Alchians (1950) theoretical study argued that fitter firms survive and grow, but less viable firms lose their market share and exit through the evolutionary selection mechanism. Thus, if profit rate reflects the degree of fitness, it is possible to predict that profitable firms will grow. Further, according to the financing constraint hypothesis retained profits can be readily used for investment, whereas firms with low profitability could not grow even if they have positive growth opportunities. This is also consistent with the pecking-order theory, which claims that managers prefer internal capital to external capital, such as debt and equity financing. However, the influence of growth rate on profitability is inconsistent in theories and empirical studies. A Classical Ricardian perspective claims that if a firm shows high profit rates it would grow to exploit additional growth opportunities that are less profitable but still create additional profits. This notion implies three things. First, the profit rate is converges at zero from a long-term perspective. Second, high profit rates have a positive impact on growth rates until the profit rate is zero. Finally, firm growth has a negative influence on profit rate. Along similar lines, the Neoclassical view argues that firms first exploit their most profitable growth opportunities and then consider less profitable opportunities until the marginal profit on the last growth opportunity is equal to zero. Consequently, profitable firms maximize their overall level of profits through profitable growth opportunities but experience a decrease in profit rates. Even though this argument exclud es market competition, it theoretically explains the relationship between firm growth and profit rates. However, managerial growth-maximization hypothesis under market competition (Marris, 1964; Mueller, 1972) claims that the managerial objective of a firm is to maximize growth rather than profit. Thus, this hypothesis proposed that growth and profits are in a competitive relationship with each other, which suggests the possibility that growth victimizes profit. Nevertheless, there are a number of theoretical claims that growth rate has a positive impact on profit rate. First, the Kaldor-Verdoorn Law in economics (Kaldor, 1966; Verdoorn, 1949) claims that growth increases productivity and in turn the enhanced productivity increases profit rates. This notion is consistent with scale economies (Gupta, 1981). Thus, because firm growth contributes to an increase in firm size, the larger size could gain benefits from an economy of scale and in turn this affects profit enhancement. That is, growth can help increase profitability. However, empirical studies on the effects of growth rate on profit rate have not always been supportive. Capon, Farley and Hoenig (1990) reported that firm growth is related to high financial performance, but it was significant only in some industries. Chandler and Jansen (1992) and Mendelson (2000) reported a significant positive correlation between sales growth and profit rates, whereas Markman and Gartner (2002) found no significant relationship between growth and profitability. Furthermore, Reid (1995) claimed growth had a negative effect on profitability. The relationship between growth and profit rates are more complicated when time lags of the two variables are considered. Only a few empirical studies have considered the link between growth and profit rates using various time lag terms. Goddard et al. (2004) found profitability to be important for future growth in European banks. Conversely, through panel data estimates of French manufacturing firms Coad (2007) found that the opposite direction of causation (i.e., growth to profitability) might be true. Both Goddard et al. (2004) and Coad (2007) investigated the relationship between firm growth and profit rates with vector autoregressive models using dynamic panel system GMM estimators. The difference between the two studies was that Goddard et al. (2004) used a one-year time lag but Coad (2007) incorporated three-year time lags in the analysis. More specifically, Goddard et al. (2004) found that a one-year lagged profit rate had a positive significant effect on the current-years gr owth rate, but a one-year lagged growth rate did not have a significant impact on the current-years profit rates. However, Coad (2007) showed that two- and three-years lagged profit rates have a positive significant influence on the current-years growth rate and that the current-years growth rate was positively significant in terms of the current-years profit rates. As noted, Goddard et al. (2004) and Coad (2007) reported opposing empirical results, which could be attributed to the difference in lag length. Considering the scarcity of past studies on the growth-profitability relationship and the problems with analytic methods, there is a need for a study that can verify this important relationship in a more holistic way. Hence, we intended to address the above research need in this study. A detailed outline of how the study was conducted follows in the next section. 3. Data and methodology The data used in the analysis was collected from the COMPUSTAT database using SIC 5812 (eating places). The data covers fiscal years 1978 to 2007 for U.S. restaurant firms. Profit rate (or profitability) was measured as net income divided by net sales and growth rate was gauged as the difference between the current and prior years net sales divided by the prior years net sales. After deleting severe outliers in the two main variables, growth rate and profit rate, this study used 2,927 firm-year observations for the analysis. As previously indicated, this study first conducted panel unit-root tests on growth and profit rates separately. The Dickey-Fuller unit-root test was set up for testing the stationarity of a time series. For example, if à †1 is equal to a unit in equation (1), the series is non-stationary. Equation (1) could be expressed as equation (2) by subtracting Yt-1 on both sides. Yt = à †1Yt-1 + ÃŽÂ µt (1) ΆYt = ÃŽÂ ³Yt-1 + ÃŽÂ µt (ÃŽÂ ³ = à †1 1) (2) Equation (2) above is a simplified Dickey-Fuller unit-root test (DF test). The null hypothesis of a DF test is that ÃŽÂ ³ equals zero and the alternative hypothesis is ÃŽÂ ³ p ΆYt = ÃŽÂ ³Yt-1 + à ¢Ã‹â€ ‘à †iΆYt-i + ÃŽÂ µt (ÃŽÂ ³ = à †1 1) (3) i=1 However, the data structure of this study was an unbalanced panel. Thus, equation (3) could be expressed as a panel setting following equation (4): p ΆYi,t = ÃŽÂ ³Y i,t-1 + à ¢Ã‹â€ ‘à †iΆY i,t-i + ÃŽÂ µ i,t (ÃŽÂ ³ = à †1 1) (4) i=1 Equation (4) is the testable model for the panel unit-root test in this study. A few studies have developed panel unit-root tests (Im, Pesaran and Shin, 2003; Levin, Lin and Chu, 2002; Maddala and Wu, 1999). However, in the case of an unbalanced panel setting, the Fisher test is the only one available. It combines the p-values from N independent unit root tests, as developed by Maddala and Wu (1999). Based on the p-values of individual unit root tests, Fishers test assumes that all series are non-stationary under the null hypothesis against the alternative that at least one series in the panel is stationary. Unlike other panel unit-root tests, Fishers test does not require a balanced panel. Thus, this study conducted Fishers test on the growth and profit rates and selected an appropriate lag length in ADF formula. After selecting the proper lag length in ADF formula, it was transformed as follows: p ΆYi,t = ÃŽÂ ³Y i,t-1 + à ¢Ã‹â€ ‘à †iΆY i,t-i + ÃŽÂ µ i,t i=1 = ÃŽÂ ³Y i,t-1 + à †1ΆY i,t-1 + à †2ΆY i,t-2 + à †3ΆY i,t-3 + à ¢Ã¢â€š ¬Ã‚ ¦ + à †pΆY i,t-p + ÃŽÂ µ i,t = ÃŽÂ ³Y i,t-1 + à †1(Y i,t-1 Y i,t-2) + à †2(Y i,t-2 Y i,t-3) + à ¢Ã¢â€š ¬Ã‚ ¦ + à †p(Y i,t-p Y i,t-(p+1)) + ÃŽÂ µ i,t = (ÃŽÂ ³ + à †1) Y i,t-1 + (à †2 à †1) Y i,t-2 + (à †3 à †2) Y i,t-3 + à ¢Ã¢â€š ¬Ã‚ ¦ + (à †p à †p-1)Y i,t-p à †pY i,t-(p+1) + ÃŽÂ µ i,t (5) Consequently, equation (5) could be expressed as follows: Yi,t = (1 + ÃŽÂ ³ + à †1) Y i,t-1 + (à †2 à †1) Y i,t-2 + (à †3 à †2) Y i,t-3 + à ¢Ã¢â€š ¬Ã‚ ¦ + (à †p à †p-1)Y i,t-p à †pY i,t-(p+1) + ÃŽÂ µ i,t (6) Thus, if the panel unit-root test chooses p lags in ADF formula, it could be transformed to AR(p+1) model. This AR(p+1) model was then used for the dynamic panel system GMM estimator. Also, since the purpose of this study was to investigate the inter-relationship between firm growth and profitability, this study adopted the vector autoregression (VAR) model to find the reciprocal relationship between growth rates and profit rates. p+1 q+1 p+1 SGi,t = ÃŽÂ ²0 + à ¢Ã‹â€ ‘Π·iSGi,t-i + à ¢Ã‹â€ ‘à ₠¬iPRi,t-i + ÃŽÂ ²1Salei,t-i + ÃŽÂ ²2LEVi,t-i + à ¢Ã‹â€ ‘Π¶iΆDMAi,t-i i=1 i=1 i=0 + DYeart + ÃŽÂ µi,t Model 1 q+1 p+1 PRi,t = ÃŽÂ ²0 + à ¢Ã‹â€ ‘à ₠¬iPRi,t-i + à ¢Ã‹â€ ‘Π·iGRi,t-i + ÃŽÂ ²1Salei,t-i + ÃŽÂ ²2LEVi,t-i + ÃŽÂ ²3MarketSharei,t-i i=1 i=0 + DYeart + ÃŽÂ µi,t Model 2 SGi,t is the sales growth rate and PRi,t is the profit rate at time t for firm i. Salei,t is the net sales at time t for firm i. We also included control variables in both models. In the LPE literature, recent studies showed that prior firm size is inversely related with current growth rate (Evans, 1987; Hall, 1987; Geroski and Gugler, 2004). On the other hand, Baumol (1959) provided evidence that firm profitability increases with firm size, while Amato and Wilder (Kwangmin!!, Year and reference?) showed that no relationship exists between firm size and profit rate. Finally, Samuels and Smyth (1968) stated that profit rate and firm size are inversely related. Thus, we included the prior years net sales as a firm size variable in both models to control for size effect. Debt leverage (LEVi,t) was also incorporated in both models as a control variable, which was calculated as total debt divided by total assets. Theories of optimal capital structure based on the agency costs of managerial discretion suggest that the adverse impact of leverage on growth increases firm value by preventing managers from taking on poor projects (Jensen,1986; Stulz, 1990). Opler and Titman (1994) empirically found that sales growth is lower in firms with higher leverage. Thus, the influence of debt leverage on growth could be negative. However, the prior literature on the relationship between debt leverage and profit rate, has shown mixed results. Debt affects profitability positively according to Hurdle (1974), but negatively according to Hall and Weiss (1967) and Gale (1972). Debt could also yield a disciplinary effect under the free cash flow hypothesis (Jensen, 1986; Stulz, 1990). Firms with high debt leverage can reduce wasteful investment opportunities and increase f irm performance, suggesting a positive relationship between debt leverage and profit rates. However, using debt can increase conflicts between debt and equity holders. Equity holders encourage managers to undertake risky projects because the benefits are transferred only to equity holders (Stiglitz and Weiss, 1981). Thus equity holders tend to support the use of debt. However, high uses of debt could deteriorate firm profitability by taking on overly risky projects. The effect of leverage on profit rate may not be uni-directional. Consequently, we incorporated leverage as a control variable due to its important potential effects on profitability. In the growth rate equation (Model 1), we incorporated mergers and acquisitions (MA) dummy variables from time t to t-(p+1) because MA execution abnormally increases growth rates. MA executions were identified from the SDC Platinum database. In the profitability equation (Model 2), we included a market share variable, which was calculated as the net sales of firm i at time t divided by the sum of net sales at time t. According to Buzzell, Gale and Sultan (1975), market share had a positive impact on firm profitability. Because a larger market share means stronger market power, firms with large market shares could have the power to control market prices and be in a better position to negotiate with their suppliers. Thus, a positive relationship between market share and profit rates is expected. Because the current years growth could affect the current years profit rate, following Coad (2007), we included the current years growth rate in Model 2. Statistically, ordinary least square (OLS) regression requires that the right-hand side variables should be independent of the error term. However, if there is a bi-directional causation between dependent (left-hand side) variables and explanatory (right-hand side) variables, this condition is not satisfied and thus OLS regression produces biased and inconsistent estimates. This endogeneity problem could be solved by choosing appropriate instrumental variables, which are correlated with the explanatory variables but not the error term. This means that the instrumental variables should be exogenous but if they are endogenous, the equation would be over-identified. However, if the instrumental variables are weakly correlated with the explanatory variables, which is called a weak instrument, the estimates are biased and inconsistent. Arellano and Bond (1991) proposed the GMM estimator for panel data, which could control the potential endogenous explanatory variables. This method uses the first difference model, which eliminates the time-invariant firm-specific effect, and instrumental variables for the endogenous variables were generated by lags of their own level. However, if the lagged level instruments are weakly correlated with the endogenous explanatory variables, there could be a finite sample bias in estimators. In particular, if the variable series tends to show a highly persistent profit rate series (Mueller, 1977), this weak correlation between lagged level instruments and endogenous explanatory variables is problematic. Arellano and Bover (1995) and Brundell and Bond (1998) developed a dynamic panel GMM estimator that estimated with level-equation and difference equation, which is called a system GMM. Consequently, the dynamic panel system GMM estimator has better asymptotic and finite sample propertie s than the one used by Arellano and Bond (1991). Thus, this study analyzed the proposed models using the dynamic panel system GMM estimator, which produces unbiased and consistent estimates after controlling for endogeneity and firm-specific effects even when the sample period is short. Even though the full sample period of this study is 30 years, the panel structure is not balanced due to the entry and exit of firms. Bludell and Bond (1998) suggested the minimum requirement for panel length as T à ¢Ã¢â‚¬ °Ã‚ ¥ 3. Thus, we excluded firms which did not exist at least three years in the sample period. Another requirement was that there is no serial correlation of the second order error terms. We conducted the serial correlation test for panel GMM estimators developed by Arellano and Bond (1991). In order to test the exogeneity of instrumental variables, we used the Hansen test instead of the Sargan test because the Sargan test is not robust enough to detect heteroskedasticity and autocorrelation (Roodman, 2006). Finally, as Roodman (2006) suggested, we included year dummies in the models and estimated the system GMM by two-step estimator because the two-step estimator is robust enough to detect the heteroskedasticity. For comparisons with the dynamic panel system GMM estimator, we conducted ordinary least square (OLS) and fixed-effect regression. 4. Results 4.1. Panel unit-root test for firm growth and profit rates As indicated, we conducted the panel unit-root test developed by Maddala and Wu (1999) using Fishers test, which assumes that all series are non-stationary under the null hypothesis. Equation (4) was tested on both growth and profit rates. The results are presented in Table 1. For the series of sales growth and profit rates, lag(4) was justified. Thus, the law of proportionate effect hypothesis was rejected but the persistence of profit hypothesis was validated. The results indicate that the growth rates are serially correlated and the profit rates are convergent. The purpose of the panel unit-root tests on growth and profit rates was to examine the stationarity of the two series and to make an appropriate model for the dynamic panel system GMM estimator. As shown earlier, if the panel unit-root test justifies p lags, the ADF formula could be transformed to AR(p+1) model. Consequently, the testable model is AR(5) for both growth and profit rates. Based on the lag length from the pane l unit-root test, we excluded any firm that existed less than five years in testing the dynamic panel system GMM estimator. Then, we tested the proposed models using AR(5) in order to identify the inter-relationship between firm growth and profit rates in various time lag structures. (Insert Table 1 Here) 4.2. Descriptive statistics and scatter plots of growth and profit rates Table 2 shows the descriptive statistics of the major variables of this study. The average sales of the sampled restaurant firms was 541.8 million dollars and the average growth rate in sales was 16.3%. The average profit rate (return on sales) was 1.3% and total debt rate (debt leverage) was 61.3%. Thus, the figures show that the restaurant industry has a high growth rate, but its profitability is not positive and it uses more debt than equity. (Insert Table 2 Here) Before conducting the dynamic panel system GMM estimator, we checked the scatter plots between growth and profit rates using various time lags. As Coad (2007) indicated, the non-parametric scatter plots of growth and profit rates gave us a visual appreciation of the underlying phenomenon. Thus, before testing the quantitative relationship, we can obtain useful information via scatter plots. Figure 1 shows the scatter plots of growth at time t (Y-axis) and growth rates at time t-1 to t-5 (X-axis) for all samples. Except for the first plot (growth rate time t versus t-1), all other plots seem to show no relationship. The plots, excluding the first plot, look like a cloud shape but are a bit scattered horizontally. Based on the plot for growth rate time t and t-1, the current and prior years growth rates are positively correlated. However, Figure 1 represents all firms, including MA firms. Apparently, firms with MA can experience abnormally high growth rates compared with non-MA firms. Thus, we checked the same scatter plots after excluding MA firms, as presented in Figure 2. The relationship between current and prior years growth rate is clearly positive and growth rate at t-2 also looks positive on current years growth rate. However, the earlier years growth rates (i.e., t-3, t-4 and t-5) appear to have no relationship with the current years growth rate. Figure 3 shows scatter plots of profit rate at time t (Y-axis) and profit rates at time t-1 to t-5 (X-axis). Interestingly, clear heteroskedasticity is detected in the relationship between them. Thus, the usage of the two-step estimator in the dynamic panel system GMM estimator is justified by Figure 3. In all of the scatter plots there is a tendency toward a positive relationship between current and prior profit rates. (Insert Figures 1, 2, and 3 Here) Figure 4 shows scatter plots of profit rate at time t (Y-axis) and growth rates at time t-1 to t-5 (X-axis). In all plots, points were spread horizontally. It seems that there is no effect of growth rate on profit rate. Surprisingly, the scatter plot of current growth rates appears to have no relationship with current profit rate. On the other hand, Figure 5 shows that profit rates clearly have a positive influence on the current growth rate. The majority of the points were spread vertically. The scatter plots show that prior profit rates seems to have a positive influence on current growth rates, but the influence of prior growth rates on current profit rates was not found. (Insert Figures 4 and 5 Here) 4.3. Results from Dynamic panel system GMM estimator Tables 3 and 4 show the results of the proposed models explained in the methodology section. Even though yearly dummies were not reported in Tables 3 and 4, they were included in the models. As shown in Table 3, the prior years growth rate at time t-1 was found to be positively significant on current growth rates in all three regressions (OLS, fixed-effect and system GMM). However, the directions and significances of the coefficients of the other prior growth rate terms varied across the three models. As explained earlier, however, the system GMM is the most appropriate model for this study due to the endogeneity and time invariant firm-specific effect and the results of the OLS and fixed-effect regression models were used simply for the purpose of comparison. Goddard et al. (2004) reported that the prior years (time t-1) growth rate was positive but not significant. It is difficult to directly compare their results with ours due to the difference in the lag length structure. Interestingly, our study showed that growth rates at time t-1 and t-5 were positively significant on current growth rates, but growth rates at time t-2 and t-4 were negatively significant. These results suggest that short-term and long-term prior growth rates have a positive impact, but mid-term prior growth rates have a negative influence on current growth rates. Our primary interest in Model 1 was the effect of the prior years profit rates on current growth rates. The system GMM results show that profit rates at time t-1 and t-5 were positively significant. The magnitude of the coefficient of profit rate at time t-5 was small, meaning that the positive impact of long-term prior profit rates on current growth rates is small. However, the prior years (time t-1) profit rate has a positively significant effect on current growth and the magnitude of the coefficient is large. Coads (2007) study showed that profit rates at time t-1 to t-3 were all positive but the prior years (time t-1) profit rate was not significant. Coad (2007) used an AR(3) model and thus a direct comparison of ours to Coads (2007) is not possible. Yet it is clear that the direction of the coefficients were very similar. Overall, our study results provide evidence that recently profitable firms may grow faster. In terms of the relationship between prior years firm size and current growth rate, all three results show a negative coefficient but the negative effect was significant only in OLS. Also, debt leverage had a negative effect on current growth rates but the system GMM result was not significant. Additionally, all serial correlation tests were not significant, showing that there was no serial correlation problem. Also, the over-identification tests were not significant, meaning that our instruments were not endogenous and the estimates were reliable. (Insert Table 3 Here) Table 4 shows the results of the profitability equation (Model 2). The results of the system GMM shows that profit rates at time t-1, t-2 and t-5 were had positively significant effect on current profit rates. However, profit rates at time t-3 and t-4 were negatively significant. The results suggest that short-term and long-term prior profit rates have a positive impact on current profit rates, but mid-term prior profit rates have a negative influence on current profit rates. Similarly, Goddard et al.s (2004) results showed that the prior years (time t-1) profit rate was positive and significant in its AR(1) model. Table 4 also presents the effect of the prior years growth rates on current profit rates were negatively significant in time t and t-1. Unlike our results, Goddard et al. (2004) found that the prior years growth rate was posi
Wyeth Pakistan Limited Business and Financial Analysis
Wyeth Pakistan Limited Business and Financial Analysis 1. INTRODUCTION 1.1 REASONS FOR CHOOSING THE TOPIC Business and financial analysis has been my area of interest during ACCA. I have already studied the models that I require to answer the research questions of this research project, namely Ratio analysis, PESTEL analysis, and SWOT analysis, RATIO analysis. This project came as a golden opportunity to demonstrate the practical application of my knowledge. It has always aroused my curiosity why some businesses outperform and why some underperform financially. This topic will utilize the financial and business analytical skills I have acquired so far and prove my skills once I get the degree in applied accountancy to prospective employers. The research will give me an opportunity to brush up skills that require searching internet for information. It will also brush up my spreadsheet capabilities. 1.2 REASONS FOR CHOOSING THE ORGANIZATION I want to work in my uncle’s pharmacy in future. Knowing the pharmaceutical sector will give me an edge in identifying the strengths and weaknesses of suppliers of medicines. Most of the medicines I have seen in my uncle’s pharmacy are by Wyeth, therefore it aroused my curiosity. 1.3 PROJECT OBJECTIVES AND RESEARCH QUESTIONS: The aim of this report is to evaluate the effectiveness and efficiency with which Wyeth Pakistan Limited has been performing over the past 3 years in business and financial matters. The report will include the business analysis in terms of: Assessment of the macro environment of Wyeth using PESTEL analysis. Typical PESTEL factors to consider include: Factor Political Could include: e.g. EU enlargement, the euro, international trade, taxation policy Economic Social Technological Environmental Legal e.g. interest rates, exchange rates, national income, inflation, unemployment, Stock Market e.g. ageing population, attitudes to work, income distribution e.g. innovation, new product development, rate of technological obsolescence e.g. global warming, environmental issues e.g. competition law, health and safety, employment law (PESTEL analysis of the macro-environment) Assessment of the strategic capabilities of Wyeth using SWOT analysis SWOT analysis is a basic, straightforward model that provides direction and serves as a basis for the development of marketing plans. It accomplishes this by assessing an organizations strengths (what an organization can do) and weaknesses (what an organization cannot do) in addition to opportunities (potential favorable conditions for an organization) and threats (potential unfavorable conditions for an organization). (DANCA, Anthony C.) Assessment of Wyeth’s future prospects The financial analysis will include: Sales analysis: Sales analysis helps the company know it is meeting its sales objectives in a given timeframe. (MANDA, Gilbert) The analysis will include sales revenue and growth. Profitability Analysis: Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the companys bottom line. Profitability ratios show a companys overall efficiency and performance. (PEAVLER, Rosemary) The analysis will include Gross Profit (G.P) ratio, Net Profit (N.P) ratio and Return on Equity (ROE). Liquidity ratios: A class of financial metrics that is used to determine a companys ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. (Liquidity Ratios) The analysis will include Current ratio, quick ratio, debtor turnover ratio and inventory turnover ratio. Investor ratios: The holders of the ordinary shares of a company (its equity) are interested in the return on their investment and the value of their shares. (Advanced Level Accounting, 1996) The analysis will include Earnings per share, Price Earning ratio, Dividend per share and dividend yield ratio. The research questions for my research report are: The growth in sales between 1 January 2008 and 31 December 2009? What is the effect of Governments price freeze policy on profits of Wyeth? What is the effect of the economic crisis of Pakistan on the financial performance of Wyeth? What was the effect of changing the policy of selling on credit to selling on advance on the working capital of Wyeth and hence its liquidity position? What are the strengths and weaknesses of Wyeth? How well did Wyeth perform compared to its major competitor GSK? How well is Wyeth utilizing its strategic capabilities? 1.4 OVERALL RESEARCH APPROACH I started my research by carrying out a financial analysis using ratios as the tool for my analysis. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firms financials to those of other firms. (Financial Ratios) Then I carried out an analysis of the environment of Wyeth using PESTEL analysis. This was followed by SWOT analysis to assess its strategic capabilities. 2. INFORMATION GATHERING 2.1 SOURCES OF INFORMATION PRIMARY DATA Information that has been collected at first hand. It involves measurement of some sort, whether by taking readings off instruments, sketching, counting, or conducting interviews (using questionnaires). (Primary Data) To gather primary data I tried reaching Mr. Khwaja Bakhtiar Ahmed, the company secretary, through his assistant. After persistent efforts I finally got an appointment. He was a charismatic person with a lot of knowledge. He enlightened me about Wyeth policies and answered many of my questions. He also handed me the annual reports of Wyeth and management accounts. For the purpose of collecting data I also emailed a questionnaire to a sample of employees of the organisation. The response was good. SECONDARY DATA Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. (Secondary data, 2011) My secondary sources of information included the following: The annual reports of Wyeth and GSK. News papers such as Business recorder, pharmaceutical literatures. ACCA text books especially for Paper F1, F3, F7, P3 and P5. News websites such as â€Å"The news†and â€Å"Jang†. Books that I found in the library of Superior college. Internet 2.2 METHODS USED TO COLLECT INFORMATION 2.2.1 Visiting stock Exchange: I visited the stock exchange to get the hard copy of the annual reports of Wyeth and GSK. 2.2.2 Interview: My interviews with Mr. Khwaja Bakhtiar Ahmed, the company secretary and Mr. Imran Baig, my mentor proved to be a good source of information. 2.2.3 E-Mail survey: I conducted an e-mail survey. The questionnaire was sent to different employees of the organization as a word attachment and asked them to fill up the word file and send it back as attachment 2.2.4 On-line Access: Various websites were visited for the purpose of research. The most important ones were the website of Wyeth, Karachi stock exchange, and Pakistan Pharmaceutical Manufacturers Association. I also visited ACCA website for archives of student accountant articles. 2.3 QUESTIONNAIRE AND SAMPLING TECHNIQUES USED The questionnaire was emailed after having it reviewed by the different department heads. The population I used was the one that was using an email. I had taken the email addresses from the records maintained by the company. The method I used for sampling was haphazard sampling. I chose the email addresses at random 2.4 LIMITATIONS OF INFORMATION GATHERED Some information was collected from Wyeth website which may be favourably biased towards the organization. It is possible that in spite of all the efforts some information sources may not have been identified which could have lead to a different conclusion. The sample chosen for the email questionnaire might not be representative of the population The views of the company secretary about future prospects might be biased or over optimistic The information present on internet can be subject to the authors own judgements instead of presenting facts. 2.5 ETHICAL ISSUES DURING INFORMATION GATHERING As per the guidelines of Oxford Brookes university I was supposed to disclose the full details of the information sources that I used, but it was in the best interest of the employees of the organization to have their names kept anonymous so they do not face problems with their employer. I put special care into making sure the questionnaire kept the identity anonymous. During the interview with Mr. Khwaja Bakhtiar Ahmed, the company secretary I asked some questions about the new product launch of ENBREL and ORISTIQ. He was hesitant in answering at first but then I assured him that this information was publicly available, after knowing this he co-operated. 2.6 ACCOUNTING / BUSINESS TECHNIQUES USED AND THEIR LIMITATION The accounting/business techniques used for the project were as follows: 2.6.1 Ratio Analysis The term accounting ratios is used to describe significant relationship between figures shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of accounting organization. Accounting ratios thus shows the relationship between accounting data. The ratios analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations. Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example, non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a very great extent by accounting conventions and concepts. Personal judgment plays a great part in determining the figures for financial statements. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations. Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen. Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to interpreted and different people may interpret the same ratio in different way. Incomparable: Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading. (Accounting Ratios | Financial Ratios) 2.6.2 SWOT analysis SWOT analysis is a tool that is used to evaluate the Strengths and Weaknesses of an organization and the external Opportunities and Threats faced by the organization in the external environment. Limitations of SWOT: The way SWOT analysis is often conducted does not allow for proper communication, discussion, and verification of all external and internal factors proposed by all involved. On such occasions, SWOT results prove less reliable an input to the strategy generation process than they are capable of being. Still worse, as documented later, the results of SWOT analysis are sometimes never meant to be used as an input to the strategy generation process. If that is known, or anticipated, by those involved in SWOT analysis, the quality of their inputs will most likely suffer and be lower than otherwise possible, and desirable.(KOCH, Adam J.) 2.6.3 Porter’s five forces analysis Porter looked at the structure of industries. In particular, he was interested in assessing industryattractiveness, by which he meant how easy it would be to make above average profits (forshareholders and to fund adequate investment). He concluded that industry attractivenessdepends on five factors or forces: Competitive rivalry between existing firms Threats of new entrants Threats of substitute products Power of suppliers Power of customers (Paper P3 Business Analysis Essential Text) Limitations of five forces model: Porter’s 5 forces of competition have a few weaknesses and limitations. The modelunderestimates the influence of a company’s core competencies on its ability to achieve profit.It, instead, assumes the industry structure is the sole determining factor. Porters 5 forcesdefinition is difficult to apply to large multinational corporations with synergies andinterdependencies achieved from a portfolio of businesses. Additionally, the five forcesframework assumes there is no collusion in the industry. Finally, Porter’s analysis doesn’tconsider the possibility of creating a new market. (Porter’s Five Forces of Competition , 2010) 3. ANALYSIS 3.1 PHARMACEUTICAL SECTOR 2009 was a challenging year and witnessed modest growth in Pakistan’s economy due to uncertain law and order situation and global economic recession. The economy continues to witness double digit inflation; low economic growth and continued depreciation of the rupee against major currencies. During this period the pharmaceutical industry has been adversely impacted by both inflationary trends as well as Rupee depreciation. The government has not allowed any across the board price adjustment to pharmaceutical industry for nine years. Growth in pharmaceutical markets is mainly volume growth. (BENGALI, Iqbal, 2010) Pharmaceutical Industry is one of the major manufacturing industries in Pakistan providing employment to thousands of people directly and indirectly. The industry, however, is facing many challenges, which are hindering its growth. The major challenge faced by the industry is the complete freezing of price of pharmaceutical products since 2001. Pakistan is the only cou ntry in the entire Asian region that has not given its pharma and biotech industry tax-breaks and R D incentives. Government’s requirement that drug production lines should be separate is raising cost and reducing the ability of local manufacturers to compete not only in the global market but even at home. (JAVED, Aamar, 2009) Pakistan has a very vibrant and forward looking Pharma Industry. At the time of independence in 1947, there was hardly any pharma industry in the country. Today Pakistan has about 400 pharmaceutical manufacturing units including those operated by 25 multinationals present in the country. The Pakistan Pharmaceutical Industry meets around 70% of the countrys demand of Finished Medicine. The domestic pharma market, in term of share market is almost evenly divided between the Nationals and the Multinationals.(Pakistan Pharmaceutical Industry) Pakistan’s $1.61 billion pharmaceutical market is now expected to post a five-year compound annual growth of 8.95 per cent, down from 9.39 per cent forecast in the previous quarter, according to Business Monitor Internationa l, a global business intelligence firm. (Pharmaceutical sector growth slowing down: BMI , 2010) 3.2 THE COMPANY As a result of the global acquisition of Wyeth by Pfizer Inc.,on October 15, 2009, Wyeth has become a wholly owned subsidiary of Pfizer Inc.. Pfizer Inc has become the ultimate parent company of Wyeth Pakistan Limited. Wyeth however continues to be the principal shareholder of Wyeth Pakistan Limited. (AHMED, Khawaja Bakhtiar, 2010) Wyeth, with its pharmaceutical and over-the-counter divisions, is a leader in the research and development, manufacturing and marketing of a broad range of health care products. (WYETH PAKISTAN LIMITED ) 3.3 RATIO ANALYSIS The following ratio analysis is based on the Annual Reports of WYETH and GSK Pakistan. Comparison has been made with the results of GSK for FY2009 since these were the latest financials available. Ratios 3.3.1 SALES Analysis GSK 2009 Sales Revenue (Rs. in million) Growth in revenue (%) Cost of sales. (Rs. In million) Growth in cost of sales.(%) 14,719 9.8% 11,173 17% FY2010 2,310 0.17% 1,830 1.4% FY2009 2,306 3.3% 1,805 8% FY2008 2,384 13% 1,699 22% 3.3.2 Profitability Ratios GSK 2009 24.1% FY2010 FY2009 FY2008 G.P Margin N.P Margin ROE 20.82% 1.13% 2.58% 21.73% -3.77% 8.86% 29.87% 6.04% 12.73% 6.3% 11.5% 12 3.3.3 Liquidity Ratios Current Ratio Quick Ratio Debtors’ Days Inventory Days 3.3.4 Investor’s Analysis GSK 2009 3.2 1.6 25 67 FY2010 2.56 1.01 26 163 FY2009 2.71 0.98 38 144 FY2008 3.43 1.38 29 143 Ratios GSK 2009 5.5 20 5 4.6% FY2010 FY2009 FY2008 Earnings per Share (EPS) (Rs.) PE Ratio (Times) Dividend Per Share (Rs.) Dividend Yield 18.61 49.08 10 0.92% -61.09 _ _ _ 101.50 25.62 250 10.55% Comments on Ratios The operating results of currents year are for a 12 months period ended November 30, 2010 compared to the previous year which for an 11 months period ended November 30, 2009. Sales analysis. The growth in company’s net sales for the period ending 30 November 2009 reduced by 3.3% as sales were Rs. 2,384 million in year ending 31, December 2008 and in 2009 period it was Rs. 2,306 million which is due to challenging conditions of external environment in 2009. On the other hand cost of sales for year ending 2008 was Rs. 1,699 million which increased to Rs. 1,805 million in period ending 2009. It was an increase of 8% which shows that company does not have efficient policies to control its operational expenditure. In year ending 2010 overall sales increased by 0.17% but as we mentioned above that this period comprises 12 months comparing last 11 month period and if we compare like with likes then sales reduced by 8%. This is due to due to uncertain law and order conditions of Pakistan. But this year company showed efficiency in controlling its costs as this year cost of sales increased by just 1.4%. This could be due to training and development of employees as training on six- sigma was conducted after the losses incurred by company in 2009. This training was to increase efficiencies of employees to control the cost. GSK: Sales of GSK are in year ending 2009 were Rs. 14,719 million as compared to Rs. 2,310 million of Wyeth which is due to major market share of GSK. Out of to 20 products 9 are manufactured and sold by GSK. Profitability analysis GP Margin: In year ending 2010 gross profit margin reduced as it was 21.73% in year ending 2009 and it was 20.82% in year ending 2010. This decrease was mainly due to adverse economical conditions of country as inflation increased and cost of resources and operations increased accordingly. In period ending 30 November 2009 the GP margin decreased from 29.87% in 2008 and 21.73% in 2009. In year 2009 the profit also reduced as compared to sales which is also mainly to due to increase in cost of operations. On the other hand the government has not allowed an increase in price since year 2001. The GP margin of GSK is 24.1% for year ending 2009 as Wyeth has GP margin 20.82% in year ending 2010 which shows that GSK has more ability to control its cost and transfer it to its customers. NP Margin: In period ending 30 November 2009 the net profit margin reduced from 6.04% in 2008 to 3.77%. The major cause of this reduction in profitability was the economical condition of Pakistan. Costs of operations increased due to inflation and at the same time the devaluation of currency. However, company maintained control on expenses as their advertising and promotion costs were in line with last year. Administrative cost increased due to cost of Voluntary Separation Scheme. Other operating expenses were lower than last year. NP margin for year ending 2010 increased to 1.13% from -3.77% in the last year. This improvement was due to increase in efficiency of employees and efficiently controlling the operational cost of company as the operating expenses reduced by 10% in year ending. There has been a long stand price freeze by the government since 2001 due to which company was not able to earn abnormal profits. The net profit of GSK was 6.3% in year ending 2009 which also reduced as it was 14.6% in 2008. This shows that the industry was adversely affected by increase in operational costs and long standing price freeze by government due to which companies cannot pass their cost to customers. ROE: Return on equity increased for year ending 2010 to 2.58% as it was -8.86% in year ending 2009 this increased was due to increased operational efficiency of organization. While in period ending 2009 the ROE reduced significantly from 12.73% to -8.86%. . ROE of GSK is 11.5% in year ending 2009 as compared to % of Wyeth. Liquidity analysis. Current ratio: Current ratio indicates how many times the company’s current assents can meet company’s current liabilities. A ratio of 2 is considered sufficient for current ratio generally. In the period ending 30, November 2009 the current ratio reduced from 3.43 times to 2.71 times. This shows that the company can meet its current liabilities 2.71 times by its current assets. This decreasing trend could cause an alarming situation for Wyeth because a company can survive without profits for some years but without cash it can’t survive more than one year. So worsening condition of Wyeth needs effective and efficient policies for fund management. Current ratio for year ending 2010 reduced to 2.56 times as it was 2.71 times in year ending 2009. This shows that now company can meet its current liabilities by 2.56 times. A ratio of 2 is a standard for current ratio. Company improved its working capital condition this year as they changed their sales and distribution model from credit to advance cash. Current ratio of GSK for year ending 2009 is 3.2 times which shows strong policies of funding are in place. Quick ratio: Quick ratio indicates how many times company’s current assets can fulfill its current liabilities but it ignores inventory from current assets because in some organizations inventory takes times before it can convert to sales. Quick ratio of Wyeth is reducing quicker than current ratio for years ending 2009Quick ratio for period ending 2009 also reduced from 1.38 to 0.98 times which was an alarming situation for Wyeth. It indicates that major part of current assets consist inventory and company’s inventory increased from last year due to increase in cost of materials. . Ratio of 1 is considered a standard for quick ratio so company’s liquidity is worsening. Quick ratio improved in year ending 2010 which is 1.01 times as it was 0.98 times in 2009. This is due to improved working capital management policies as company received cash in advance instead of credit. Due to which company earned interest on deposits too. Quick ratio of GSK for year ending 2009 was 1.6 whi ch shows a healthy liquidity position. Debtors Days: Debtors turnover period indicates how many days debtors take to pay their debt to company. Debtors are part of working capital and for the successful operations of company good debtor management strategies need to be in place. In period ending 2009 the debtor’s turnover period increased by 9 days as these were 29 days in 2008 and 38 days in 2009. During this year due to inflation and devaluation of currency the company had to extend debtors turnover period as company made loss after tax this year. In year ending 2010 company’s debtor days reduced to 26 days as compared to 38 days in 2009 this also shows the improvement in fund management policies as this year company received advance cash from sales and distribution instead of credit. Debtor’s days of GSK for year ending 2009 were 25. This shows that debtor collection policies of GSK are more efficient than Wyeth. Inventory days: Inventory days indicate the period during which inventory of a company remains in its warehouse or in work in progress before it is finally converted into sales. Inventory holding initiates many expenses like warehouse, damages etc. which can be mitigated by good inventory management policies in place. Inventory turnover period in 2009 increased by 1 day as it was 143 days in 2008 and became 144 days in 2009. This increase was nominal but instead improvement this increase was due to decreasing in underlying sales. Inventory days increased this year too from 144 days in 2009 to 163 days in 2010. This increase was mainly due to increase in inflation and instability of prices in material. Sales for this year was lower than last year. Inventory turnover period of GSK in year ending 2009 was 67 days which is less than half of Wyeth. This shows that GSK has more efficient working capital policies and sales of GSK were more than Wyeth which is due to the higher market share of GSK. Investor’s analysis. EPS Earning per share can be used to indicate the profitability of a company. It shows the earning allocated to each common share. In period ending 2009 the EPS reduced badly by Rs.162 per share. In this year company’s EPS was -61.09. This major decrease was due to consistent inflation and devaluation of currency of Pakistan. These factors became the reason for increase in operational cost. And due to the price freeze by government the company was not able to transfer the cost to customers. In year ending 2010 EPS increased from Rs. -61.09 last year to Rs. 18.61 this year. This year company made a net profit margin of 1.13% which was loss of (3.77) % in last year. This improvement is due to controlling the operational expenses of the company this year. The EPS of GSK for year ending 2009 was Rs. 5.5 which is consistent with previous years. PE ratio: The PE ratio of Wyeth moved adversely during last years. In year ending 2008 the PE ratio was 25.62 times while In year ending 2009 the company’s made a loss. Which was due to increase in cost which company was not able to pass to customers. In year ending 2010 PE ratio improved to 49.08 times which was nil in last year this improvement also due to improvement in operational efficiency of company during 2010 as the company improved its cash position as well as its productivity. The PE ratio of GSK was 20 which show good performance of GSK compared to Wyeth. Dividend per share Dividend per share ratio indicates the dividend earned by an investor by holding one share of company. There was no dividend per share in year ending 2009 as company was in loss. This loss was mainly due to adverse environmental, economical, and political situations. In year ending 2010 company announced the dividend of Rs. 10 per share which shows the attractive position of company in this year. Company improve its profitability as well as its operational efficiency during year ending 2010 as retrospective measures taken in 2010 like training on six-sigma plan. The dividend per share of GSK for year ending 2009 was Rs.5 which also indicates that company performed well in such crises. Dividend yield This ratio represents the cash flows earned by the investor by investing each rupee in form of shares. In year ending 2010 earning yield improved to 0.92% as it was nil in year ending 2009. This improvement was due to improvement in operational efficiencies during year ending 2010 while economical and political instability remained consistent in year ending 2010. In the period ending 2009 company made a loss. While GSK’s dividend yield in this year was 4.6% which shows the good governance of GSK as compare to Wyeth. 3.4 PESTEL ANALYSIS PESTEL analysis is a tool which is used to understand external environment. It deals with external environmental factors like political, economical, social and demographical, technological, environmental and legal. By considering these factors we can judge the influence of all above factors on the operations and profitability of any company. Political factors. In political factors we consider the government policies like tax policies, their stability, political environment and institutions. In 2008 there was instability in political conditions of Pakistan which adversely affected the pharmaceutical industry. Policies of government about electricity price raises also contributed adversely to pharmaceutical industry. Government’s price freeze policy since 2001 also reduced the profitability because firms were not able to transfer their increasing operational cost to the customers. In the last quarter of 2008 government gave some relaxation on price increase but that was for some products that did not contribute too much to improve the conditions of profitability. Economical factors: Inflation (too much money chasing too few goods) remained the major problem of Pakistan in the last few years. Due to consistent rise in cost of electricity, labor, and fuel the profitability of pharmaceutical industry reduced as firms could not increase prices according to cost due to limitation by government policies. But demand in the public remained unchanged. Devaluation of Pakistan currency also adversely affected the industry as value of rupees consistently reduced against major currencies of world especially against US$. Due to which many firms had
Sunday, August 4, 2019
Great Gatsby :: essays papers
Great Gatsby Two prevalent themes portrayed in The Great Gatsby are money and social status, both which coincide with the novel’s four settings: East Egg, West Egg, the Valley of Ashes, and New York. As Natania stated, these different locations are used to â€Å"show the absurdities of modern life,†as well as to dictate social class from the upper royal status of the East Egg community to the common folk of New York. Fitzgerald uses these settings and the actions of characters within them to define and set boundaries between financial and social status of the roaring 20’s. An example of Fitzgerald’s technique lies in the comparison of Myrtle Wilson’s party in her New York apartment to one of Gatsby’s many summer parties in his West Egg mansion. Through descriptions of guests coming and going frequently, and the obnoxious drinking and wild conversation going on at the New York and West Egg parties, the reader can conclude that neither of these locations are above the social standing of an upper class party of East Egg, such as one at Tom and Daisy Buchanan’s without the slight insanity of their dysfunctional family. However, the differences between Myrtle and Gatsby’s parties are great and relevant to Fitzgerald’s theme. For example, the physical description of guests attending the party in New York gives knowledge to the reader of their lower class standing. Myrtle’s sister arrives with a â€Å"sticky bob of red hair†and wild, unnatural eyebrows and makeup, and Mr. McKee with lather showing on his cheekbone. His wife is described as â€Å"shrill, languid, handsome, and horrible,†quite the opposite of guests attending Gatsby’s party, and even the host himself. Fitzgerald describes Gatsby as a very clean cut, proud postured, gentlemanly looking man with hair which looks like it â€Å"were trimmed every day,†just as a stereotypical member of the social upper class should appear. Myrtle’s party included obnoxious, almost insane guests who were quick to speak their rude, blunt opinions and provide proof to Jordan Baker’s statement that â€Å"at small parties there isn’t any privacy.†In fact, Tom Buchanan was so uncivilized a guest as to punch Myrtle, his lover and the party’s hostess, and cause a bloody mess.
Saturday, August 3, 2019
when i was a youngster :: Free Essay Writer
When I Was A Youngster†¦ Well I don’t really remember much of my childhood. But here is one story that I do remember. This was when I was about four of five. I was at my dad’s house for his birthday one weekend. That was also his birthday and memorial weekend too. That means that he will be having a lot of people over to party all night. He lives on a lake so when he has parties all his friends bring over there jet skies and boats, but I couldn’t drive them cause I was too little. It was still fun getting rides on them though. My dad also had a huge pull-barn. It was about as big as the cafeteria. That’s where everyone usually hangs out but not a lot of people were in there today. They were all out on the lake, playing volleyball, and sitting by the fire. It was getting pretty late into the night and the party started to calm down a little. A few people were still talking but the fire and also few people in the pull-barn. I decided to go talk to the guys by the fire. The cool thing about my dad’s friends is that they don’t talk to me as a little kid. They talked to me like I was the same age as them. That’s probably why I never had trouble with speech. After a while I got bored and I started walking into the pull-barn. All of a sudden a car came flying down the driveway and slammed on its breaks! They had a canoe on top of their car. I guess they forgot to tie it down tight cause as soon as they hit there breaks the canoe went flying across the yard and came within inches from my dads house. I could tell the driver was pretty messed up cause of the way he was driving and the way he was walking after he got out of the car. My Dad heard the accident and came running to see what happen. When he sees what the guy did he got really mad and started cussing him out and everything. It was crazy I have never seen my dad that mad in my life. But he wasn’t mad enough to hit him in front of me. So he just yelled and told me to left.
Friday, August 2, 2019
1. How, Specifically Is the Process of Attribution Illustrated in This Case?
Case Module 5 1. How, specifically is the process of attribution illustrated in this case? Ans. The process of attribution regarding the case referred, flags relatively regarding the behavior of the customer’s eye contact wrong implication. The case study stated that a in certain supermarket dozen females claimed the issue of drawing the unwanted attention for maintaining eye contact. There was no clear information as how many female employees were employed there. This may raise several questions of the internal causes and external causes of behavior.The nature of the twelve women was unknown regarding other issues outside their work place. The case study does not apparently satisfy the â€Å"consistency†of the attribution. This implies the behavior of the female employees and the customers they face behave in the same manner in other situations for knowing the distinctiveness of their claims. If the case study had satisfied the arguments then this would have helped in better understanding of the concept of attribution. 2. What do you suppose is being done to help train people to be friendlier toward customers?In other words, what would you imagine goes on in Safeway’s †smile school†? Ans. There is an underlying concept of positive reinforcement that satisfies the organizations in treating people for the desired returns in the form of sales or goodwill. In the Safeway supermarket they send their employees for the friendliness school called â€Å"Smile school†. They make their employees to follow certain trivial manners that greatly affect the positivity in people like smiling face towards customers, maintaining eye contact for three seconds, calling the people by their name when they pay by check or credit card.Respective to the case study the smile school seems enforcing its policies irrespective of the employees’ consignment. 3. Describe what you believe might be the progressive discipline steps outlined in the warning letter sent to unfriendly Safeway clerks? Ans. The concept of the progressive discipline elevates the steps form letting know the curtness of the respective unfriendly employee individually, and then increasingly enforce the degree of the punishment like officially state the undesirable behavior of the employee, then warning the employee in form of a letter with all negative evaluations.Considering the case study the letter must state all the previous warnings to the unfriendly employee, and then warn the employee that continual curtness leads to suspension without pay and may lead to dismissal for unchanged unfriendliness. 4. What perceptual errors did the customers make? Ans. In accordance to the case study the questions gives ideas regarding the issue of the false judgment. As stated in the case the male customers anticipated the positive reinforcements from the supermarket employees as acts of flirtation.This relates the concept of the Halo effect where the appearance of the employees and their positive behavior triggered the false judgment. The basic idea formation of the first impression is totally based on the internal causes of individual behavior. In another instance stated in that case, one shopper followed a female employee to the car in a false disposition. This may lead to the negative reinforcements form the employees and can effect the other customers. 5. What forms of operant conditioning did Safeway use? Ans.The case study relating to the operant conditions inclines to the policies of the supermarket, one such is â€Å"superior service†policy. The concept states that the reaction provided initially, gets back. It is also called Law of effect. The principle of any customer service is providing best customer service. In the case study the Safeway supermarket also provides it employees a positive reinforcements strategies like maintaining the eye contact for three seconds, smile at customers, anticipating the customers needs. It a lso maintains undercover shoppers to ensure the employees are working properly.There is a â€Å"Smiling school†that helps the employees in understanding the operant conditioning and outcome from it. This can be drawn from its spokesperson that their concentration is not on discipline but on treating customers the best way. 6. What characteristics would a Safeway clerk need in order to be successful in complying with Safeway's policy? Ans. Abiding to the policies of the Safeway supermarket, that employees should maintain smiling face and should have at least three seconds of eye contact. There should be certain point in the causalities of the individual behavior where one can personally realize awkwardness beyond that.Maintaining three seconds of eye contact may be offensive for some of the customers and smiling for that long may trigger false impulses in some of them. These external issues of the behaviors of the shoppers are not in the hands of the employee. As stated first in the case study, smiling and eye contact are basic manners in any customer care services. It is individual realization that smiling and maintaining eye should be at a level that does not cause any false perceptions on the shoppers. In that way an employee may successfully sustain in customer services field with out encountering a surly experiences.
Thursday, August 1, 2019
Federalist Paper No. 16
The Federalist Papers: Federalist Paper No. 16 Alexander Hamilton By Joshua Trottier HIST 146 Professor Bramson TTH: 2:15-4:45 Joshua Trottier HIST 146 Professor Bramson TTH: 2:15-4:45 In previous papers I have given you clear reason to support the union for your own benefit. I've presented the dangers that would follow, should the union that binds the states together, break. Finding the correct information can be difficult and it is my goal to help you understand the current status our union is in, in the best manner that can be done.I want to discuss the â€Å"insufficiency of the present Confederation to the preservation of the Union. †It could be asked what reason there is for someone to ask such a question that many men, friends of the new constitution or not, agree upon. This raises the truth of our situation to be acknowledged in order to keep clear of nearing anarchy. The people no longer speculate the facts of our situation, they have been accepted by the masses. The reality is that there were some defects in the scheme of our federal government, which has already been addressed by current members of the Union.Have we reached the final stage of our nation humiliation? There's nothing that could make our country feel any less of it self than it does now from what we are experiencing. Do we owe debt? Have we valuable territories under foreign control? Can we repel this in our current situation? We have no army, no money, and no government. Our country is experiencing many difficulties currently and this is what we have been given by the people who would now discourage us from the proposed Constitution, who have pushed us to the edge of an abyss.My men, let us stand up for our own security, our peace, our pride, and our reputation. Let us find the paths of prosperity. There's nothing wrong with the idea of an alliance or treaty between independent nations so long as their purpose is precisely stated, regulating every detail of time, place, circums tance, and quantity; making sure to leave nothing that could be up for debate between those who will eventually be living with that alliance.Contracts of this kind are apparent all throughout the globe, bringing with them times of peace or war, observation and non-observance, as the powers at head dictate. These treaties; however, if based on the idea of good faith for peace and justice, which goes against human nature, can be broken when the those who represent the people, act on impulses or immediate passion.Abandoning all prior beliefs towards a confederate government would bring the States into frequent battle among their neighboring States; however, If we take action to avoid this situation and readdress the design of a national government, then we would be presented with the opportunity to include in our plan those characteristics that differentiate between a league and a government. The ability to create laws, within the states, belongs to the identified government. If howeve r, these laws did not include sentences or penalties for being broken, then they would only serve as helpful tips or suggestions to the people.The sentences should bring some form of punishment for not doing what had been advised. In a society where the government works internally, will mean that every infraction upon the laws should involve a state of war; this is not a government and no person would freely choose it. It is also important to point out that within every political association that is formed in order to unite a group(s) of people there will that there will be those who want to break free from the common.This is nothing new though, it comes with the love of power. The enemy to power is almost always that power that is being inflicted upon. From this we have little reason to expect our representatives to act accordingly to what we have intrusted them with, for their actions are the result of human nature. What reason do we have to believe that they will in according; pu nctuality, a sense of fair play and good-humor, and to have an unbiased and open view of what the public is presenting them.If the confederacy cannon be achieved without the intervention from a particular administration then there is very little chance that they will achieve at all. Those who hold power over the respective members will take it upon themselves to judge every measure presented before them. They will consider such things as, monetary gain and lose, or their own personal interests before the interest of those who they represent. This will be done in ignorance towards national circumstances or State reasons which in order to have correct judgement, is required.How difficult would it be for sovereignties who participate with each other, from afar, during different times, and under different circumstances to participate with each other towards the same views and pursuits, to hold together if, for example, our popular assemblies are already so difficult to establish a compr omise without any outside source of pressure upon the representatives. Until the States figure out a better replacement for the current government, then congress can do nothing to help keep forms of administration. This situation we are in now did not come by happenstance but by the acceptance of propositions by the Union.
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