Financial Statement Analysis Of Marks And Spencers

Financial Statement Analysis Of mark And SpencersThis report card volition discerp Marks and Spencers m one and only(a)tary statements for 2008 and 2009 using proportion analysis. Findings fork out that Marks and Spencer name not had a very exhaustively r each(prenominal) satisfactory bunk of study in comparison with 2008. The purpose of this report is to psychoanalyse the figures and to point out somewhat of the contends for the deprived consummation.Table of ContentsAim of report 1 symmetry Analysis 1 force out energy balances 1fluidity proportionality 2Performance dimension 3Evaluation on rememberability 5Evaluation of the liquidness position 6Information provided for the user groups 7Conclusion 11Recommendations 12Bibliography 13Evaluation of the assignment 14Aim of ReportThis report will analyze Marks and Spencers pecuniary statements for 2008 and 2009 using proportionality analysis, explanations will be effrontery on why the changes save occurred i n the companies netability, liquidness and what dissemble the changes have caused on the order. The companies socio-economic classbook report will be examined from the point of view of each install of its potential users.Ratio analysisAn be ratio as suggested by Melville (1999) is the evaluation of a relationship which exists between two figures shown in a set of pecuniary statements. In the interest report mainly the availability, expellingniness and cognitive operation ratio will be discussed.Profitability RatiosThe deriveability ratios argon used to evaluate whether the fear was able to produce an acceptable train of reach.Gross profit % ratioThis ratio shows the earthy profit in comparison to gross revenue. The higher the ratio division the meliorate it is for the comp some(prenominal).Gross profit/ sales x ascorbic acid2008 (M) 2009 (M)1,211.3/9,022.0 hundred =13.43% 870.7/9,062.1 nose candy =9.61%The gross profit margin has fall from 2008 to 2009 by 3. 82%.Pre revenue enhancement income profit % ratioThis ratio shows the elucidate profit forwards measure in comparison to sales. The higher the ratio percentage the give it is for the company.Profit forrader gross/ sales x 1002008 (M) 2009 (M)1,129.1/9,022.0100 =12.51% 706.2/9,062.1100 =7.79%The final profit before tax margin has fall from 2008 to 2009 by 4.72%. laterwards tax profit % ratioThis ratio shows the net profit later on tax in comparison to sales. The higher the ratio percentage the bump it is for the company.Profit later tax/ sales x 1002008 (M) 2009 (M)821.0/9,022.0100 =9.10% 506.8/9,062.1100 =5.59%The net profit after tax margin has slighten from 2008 to 2009 by 3.51%.Liquidity ratiosThe liquidity ratios be an assessment so as to witness whether the p arntage is able to pay of its debts as they fall overdue. impudent ratioThis ratio shows how well the company can meet its short- call pecuniary obligations from its new assets. usually the optimum re sult is 11 or more, simply this will vary with each company.Current assets/ real liabilities2008 (M) 2009 (M)1,181.7/1,988.9=0.5941 1,389.8/2,306.9=0.6021The original ratio has attachd from 2008 to 2009 by 0.008.Quick ratioThis ratio shows how well the company can meet its short-term monetary obligations from its menses assets, removing stock from the calculation. The ratio removes stock because it is the least liquid current asset. Usually the optimum result is 11 or more, but this will vary with each company.Quick Ratio = (Current assets- inventory)/current liabilities2008 (M) 2009 (M)(1,181.7 488.9)/ 1,988.9=0.3481 (1,389.8 536.0)/ 2,306.9=0.3701The quick ratio has increased from 2008 to 2009 by 0.022.Gearing ratioThis ratio shows how much of the companys long-term depots are support by lenders. at a lower place 50% is seen as low geared and good. Above 50% is seen as a cause of concern.Gearing ratio = Total borrowings / equity * 1002008 (M) 2009 (M)2815.1/1964.0 * 100 =143% 3060.7/2,100.6 * 100 =146%The accommodate ratio has increased from 143% to 146%.Debt ratio (Ward, 2010)This ratio shows how much the company is in debt. Usually the optimum result is 11 or less, but this will vary with each company.Debt ratio = Total liabilities / total assets2008 (M) 2009 (M)5,197.0/7,161.0=0.7261 5,157.5/7,258.1=0.7111The debt ratio has decrease from 2008 to 2009 by 0.015.Performance RatioThis ratio helps in calculating the efficiency in the operation of the business organization through effective utilisation of its resources. afterward levy Profit as % of back(prenominal) AssetsThis ratio helps as to analyze the percentage of profit the business has go for by utilising its noncurrent assets. later on tax Profit as % of Noncurrent Assets = Profit after tax / Noncurrent Assets2009 (M) 2008 (M)506.8 / 5868.3 = 8.63% 821.0 / 5979.3 = 13.73%From this ratio it is hap that M and S was not able to imbibe much profit in 2009 as compared to 2008. In 2008 M a nd S was able to produce a profit of 13.73% by the purpose of its touch on assets but by reaching 2009 the profit made has decreased to 8.63% indeed there was a decline in the profit by 5.1%.After Tax Profit as a % of dowryh emeritusers FundThis ratio helps to analyze the amount of profit which the business was able to commence from the utilization of the portionholders fund.After Tax Profit as a % of contributionholders Fund = Profit after tax / Total Equity2009 (M) 2008 (M)506.8 / 2100.6 = 24.10% 821.0 / 1964.0 = 41.8%From the ratio it is again clear that the utilization of the servingholders fund so as to generate profit has in like manner decreased in 2009 by 17.7%, i.e., in 2008 M and S was able to generate a profit of 41.8% which has reduced to 24.10% in 2009. Even though the company was not able to generate adequate profit from the dish outholders fund, the company was able to increase the dividend of the roleholders from 20.3p to 22.5p (Pg 78).Earnings per ShareAs suggested by McLaney and Atrill (1999), payment per contend is the amount of profit that has been earned from each ordinary share.2009 (M) 2008 (M)32.3 (Pg 78) 49.2 (Pg 78)From the figures listed above it is clear that the shares for 2009 where only providing an earning of 32.3p as compared to last yr which was 49.2p thereby creating a distinction of 16.9p.Dividend per ShareAs suggested by Melville (1999), dividend per share is the amount of dividend allotted for each share for the stock held by the shareholder.2009 (M) 2008 (M)22.5p (Pg 90) 20.3p (Pg 90)Even though the earnings per share and the after tax profit as a percentage of shareholders fund where all less M and S was able to provide a decent standard of dividend 22.5p to its shareholders as compared to 2008 which was only 20.3p. This shows that M and S are taking proper steps so as to curb their shareholders happy. heel counter on Capital EmployedAs suggested by Weaver and Lunt (2003), this ratio helps those who have invested in the business to analyze the amount of profit the business is making from the utilization of this crown.Return on capital employed = Profit after Tax/ (Total Assets Current Liabilities) * 1002009 (M) 2008 (M)506.8 / (7258.1 2306.9) * 100 821 / (7161- 1988.9) * 100= 10.24% =15.87%From this ratio it is obvious that M and S was not able to utilize its capital to the maximum level. In 2008 the company was able to provide a supply on capital of 15.87% which reduced to 10.24% as it reached 2009.Evaluation of the profitability of Marks and SpencersExamining the results from the ratio results show each ratio has decreased in 2009 in comparison with 2008.The reasons behind the gross profit ratio decreasing were because the gross profit had decreased by 340.6m in 2009 (p78). The gross profit had decreased because of the increase of the woo of sales by 155m (p87). The increase in cost of sales maybe due to the increase in purchases over the grade as MS increased their buying b y 10 clock a year (p28).The reasons behind the pretax profit ratio decreasing were because the pretax profit had decreased by 422.9m in 2009 (p78). The pretax profit had decreased because of the increase in finance cost by 67.9m (p78). The increase in the finance cost is due to the increase in interest collectible and the increase in the unwinding on the discount of partnership financial obligation to the MS UK pension arrangement (p89).The reasons behind the after tax profit ratio decreasing were because the after tax profit had decreased by 314.2m in 2009 (p78). The after tax profit had decreased because of the exceeding be being stated (p78). The exceptional cost have occurred were not regular running costs and were due to property related costs, rationalisation of IT and logistic networks and redundancy costs (p88). Income tax was not a problem has it had decreased in 2009 (p78).Internal factors which had an preserve on the profitability of MS wereDespite the economic rec ession sales revenue figures had gone up from the previous year (p78), giving a positive trespass on the profitability.The finance costs of interest payable had increased to the previous year (p89), giving a nix impact on profitability.Exceptional costs and the exceptional pension credit during 2009 gave a minus impact on the profitability, as the Group had decided to furbish up changes to the pension scheme (p88).Selling and commercialiseing expenses had been decreased in 2009 (p87) to keep up with a tight budget (p14), this gave a positive impact on the profitability.Income tax paid this year was less compared to last year (p78), but as this was due to a lower pretax profit (p78), it mollify played a positive impact on the profitability.Finance income had decreased in comparison to 2008 (p78), this was due to the exceptional costs of 135.9m and the decrease in franchised stores (p86).Profit before property disposals and exceptional items had decreased over the year (p78) and this bring forthd a negative impact on the profitability.External factors which had an impact on the profitability of MS wereThe economic recession which MS along with other(a) high street retailers had to face (p14), impacted the profitability of MS. Customers were not pass as freely as they would normally, resulting in lower sales figures in some areas and therefore lower profit levels. The pace of growth of MS and its work was slow due to the recession (p5). Due to the recession costs had to be lowered to lure customers (p14) this in result had a negative result on the profitability.The sterling currency rate had decreased in 2009 compared to 2008 (p104). Therefore any foreign business would have been affected by this change, resulting in a negative impact on the profitability.Evaluation of the liquidity position of Marks and SpencersLiquidity ratios are used to show the ability of the company to turn its assets into hard cash in as quickly as attainable and to measure the ability of the company to pay of its short-term debts and expenses at bottom the evaluate time. One of the two main liquidity ratios are Current ratio and Quick ratio. It is always good to have a high liquidity ratio as it show the ability of the business to pay of its debt within the expected time. However if these ratios are too high this means that the business is having too much of current assets which are not used nor utilise as efficiently as pick upd in order to call for with the daylight to day activities.Retail sector of M and S involves buying goods and trading cash on credit from its suppliers and for this reason cash return statements are included. A cash return statement is used in order to show the cash inflows and outflows of the business thereby providing a better liquidity assessment for M and S. This in fact helps outsiders to analyze the whether M and S is able to generate adequate cash from its day to day trading operations.The closing net cash has i ncreased to a great deal from 117.9m in 2008 to 298.3m in 2009. Even though during these recession period M and S was able to show a good closing cash figure this in fact shows their ability to manage cash.Decrease in net cash outflow from in operation(p) activities from 966.2m in 2008 to 596.9m in 2009. (p80) This cash generated from the operating activities enabled them to spent on financial activities. change magnitude in net cash inflow from operation activities from 1069.8m in 2008 to 1290.6m in 2009. (p80)The main reason for such a good cash flow in 2009 as compared to 2008 is because of the cost reduction where ever possible(p1).By analyzing the liquidity ratios of M and S the avocation findings were found outThe current ratio of M and S operating in retail sector was 0.59 1 in 2008 and 0.601 in 2009. This shows that M and S had 59p in current assets so as to pay of every 1 worth of current liabilities in 2008 and 60p of current assets so as to pay of every 1 current fin ancial obligation in 2009The quick ratio in fact showed that the company had 37p worth of current assets to pay off every 1 worth of current liability after deducting closing stock for 2009 and 35p for 2008. This in fact shows that the warm is beneath liquidity due to the fact that the company has less assets than liabilities.As already explained above the debt ratio shows how much the company is in liability over its assets. By looking at debt ratio for M and S it has decreased from 0.731 in 2008 to 711 in 2009 which is good as it suggests that the company was able to pay of its debts within the due date.The gearing ratio in fact measures the proportion of M and Ss long term funds provided by the lenders. By comparing the gearing ratio in 2009 which was 146% to the gearing ratio in 2008 which was 143%, it shows that M and S was able to increase their credit worthiness. gum olibanum by increasing their credit worthiness they are able to gain further loans in ease.Information pr ovided in the report for its users (Nyarko, 2009)EmployeesEmployees provide labor for the company they need financial information to go over they have a secure job and are being made correctly. The report has the following information useful for employeesClosure of 26 mostly Simply sustenance stores (p6)Reduce roles across head office by 15% (p15)Cap level of pay increase (p6)Early loneliness reductions given (p6)Legal and safety performance ameliorate from 80% to 92% (p14)Opened 75 stores (p15) excogitate to open 10-15 stores within two historic period in the Indian subcontinent (p39)Introduced new development programs tailor made for development tomorrows leaders (p46)Reinforced lines of communication between management and colleagues at every level (p46)One of the lowest UK turnover rates (p46)Training given across each field (p44)Communication improved using tools care In store listening groups (p47)44 employees celebrated 40 geezerhood working for MS (p47)40,000 great s ervice acquaints for staff who have excelled in their role (p47)Over 3,500 elected employee representatives from every part of the business in the MS business involvement groups (BIG) (p47)Decrease of 83.3% on bonuses (p48)Pay for performance to be central for decisions (p62)Employees with disabilities given a full and fair consideration for all vacancies (p75)Increase in wage and salary cost by 48m (p91)ShareholdersShareholders provide equity for the company they need financial information to authorize economic decisions. The report has the following information useful for shareholdersDividends cut by 20.9% (p1)Adjusted profits come out 40% (p2)Largest clothes market share (p2)Clothes economic value market share decreased by 0.3% (p2)M S direct sales up 19.0% (p19)International growth up by 25.9% (p38)Growth by 15% of the Italian range in the food sector (p7)Kids wear increased market share by 0.6%pts and putting MS twenty-five percent in the market (p8)Earnings per share 28.0 p overcome by 35.8% (p14)UK gross margin mastered 1.7% pts (p14)UK market share clothing and footwear muckle by 0.5% (p18)Carbon emission down by 18% (p19)Reduction in dividends payout by 33.3% (p49)After tax profit down by 314.2m (p78)Increase in retain earnings by 20.2m (p79)ManagementThe management is the executive and non executive directors of the company, they need financial information to bound if the company is making good progress or not and to soak up claims for performance related bonus issues. The report has the following information useful for managementAdjusted group profit before tax down by 40% (p2)39 out of 100 rigorous commitments as part of plan A achieved (p9)New and old members in management team (p10)Group revenue up by 0.4% (p14)Group capital expenditure down by 38.2% (p15)UK sales down by 1.7% (p14)Operating cost up by 4.9% (p14)Adjusted operating profit down by 29.4% (p14)Profit before tax down by 40.0% (p14)80% of portfolio into modernized format (p15 )UK footfall down from 21.8m to 21.6m (p18)UKs fourth largest coffee shop class chain (p25)Womens wear value market share down by 0.6%pts (p26)Womens wear volume market share down by 0.8%pts (p26)Lingerie value market share up by 0.4%pts (p29)Lingerie volume market share up by 1.2%pts (p29)Menswear value market share down by 0.4%pts (p30)Menswear volume marker share down by 0.2%pts (p30)Kids wear value market share up by 0.6%pts (p31)Kids wear volume market share up by 0.7%pts (p31)Food value market share down by 0.4%pts (p32)UK planetary house sales up by 1.1% (p35)CustomersCustomers are those who buy from the company, they need financial information to compare financial information and product quality with other companies. The report has the following information useful for customersNew products and services introduced (p1) build international portfolio (p1)Improve value without compromising quality (p57)Enticed an additional 200,000 under 35s into store for womens wear (p3)Four menswear brands ranging from 4 to 499 (p4)New promotions introduced e.g. dress for less (p6)Marketing cost 8.6% lower (p15)Opened 75 stores (p15)Womens wear and menswear dissever up into different brands aimed at different customers (p26-30)Style magazines best shop for lingerie 2008 (p29)Top quality food by watchdog come off (p32)Added new products and ranges to home products (p35)Best new skincare product destine (p35)Food to order catering service launched (p36)Remodeled 24 stores (p40)Leeds and Liverpool stores modernized coming(prenominal) year (p40)Reduced food carrier bag use by 83% (p43)Meet over 67% of the FSAs salt targets for 2010 (p44)The board supported by different committees to help its governance accountabilities (p50)MS core focus on quality, value, service, innovation and trust (p32-34)SuppliersSuppliers are those who sell to the company, they need financial information to check for credit worthiness of the company against others. The report has the following information useful for suppliersNet debt down to 2.5bn from 3.1bn (p16)Increased buying from suppliers to 10 times a year (p28)Trained 1000 suppliers on honorable standards (p34)2008 compassion in world farming compassionate supermarket of the year award (p34)Paying farmers a fixed and industry leading price for their take out (p34)Engaged in profitable partnerships (p51)Increase in cash flow levels by 180.4m (p80)Improved net debt by 586.9m (p80)Increase in current liabilities of trade by 96.9m (p79) extend as going concern (p76)Banks and other lendersUsually banks (or other lenders) provide financial help to businesses by providing money. The main concern of these banks and lenders when deciding to provide money to a business is to make sure the business is capable to keep up interest payments during the course of the loan and eventually repay the loan at the due date. Thus the banks ingest this financial information so as to analyze the financial position and prospects of the business in order to provide them their loans. The bankers and other lenders require the following information from the reportM and S creditors payment policies. (p75)The profit which has decreased by 314.2m by comparing 2008 an 2009. This might increase the haul among the lenders to make the company to return their money. (p78)Decreased noncurrent assets by 111m, so as to seize the assets in case of non return of the loans. (p79)Current assets and Current liability which have both increased by 208.1m and 318m respectively. This would enable the lenders and banks to determine liquidity position of the company. (p79)Consolidated cash flow information, repayment of category banks which has reduced to 108.1m in 2009. This shows the company was able to deal in 2009 with fewer loans. (p80)The GovernmentsThe main reason for the governments to use the financial information of the company is to ensure whether the business is keeping up with their tax payments. The other reasons are to po se the business and to provide national economic statistics. They are also prudent for preventing the business from any fraudulent acts. The report has the following information meaning(a) for the government.External auditors report (p77) this enables the government to look at the fairness in the operation of M and S.Deferred tax decreased from 372.1m to 225.5m.(p79)Tax AuthoritiesThe taxation authorities are responsible for calculating the taxation liability from the account statement report provided by the company.CompetitorsCompetitors may use the accounting information provided by their rivals so as to find ways to improve their own financial position. Due to this reason, usually businesses are keen in keeping their accounting information as private as possible.The General PublicThe businesses which are big and powerful are of interest to the general public. They usually require the policies of the organization so as to know how these policies would impact the community. The public would also want to know whether the business is running in profit or not.The general public would use the accounting information for the following reasons darkened volume would like to know about the pension schemes. (p102)Whether the business operations are affecting climate change. (42)ConclusionConcluding the report the findings show Marks and Spencer have not had very good profitable year in comparison with 2008, with a rebate of after tax profit by 3.51%. This is vastly due to the economic recession which has been an external negative factor for all the High Street shops. Another reason for the deduction in profit levels was due to exceptional costs which incurred during the year. However MS have managed to increase their sales by 40.1M by investing in their costs. They were able to gain growth in certain market sectors and make 80% of its portfolio into a modernized format. MS achieved several awards for their products and the services they provided during the year, w hich improved their brand effigy. MS were able to achieve 39 out of 100 of its commitments made to Plan A, which is a long term project to create an eco-friendly business. Examples of these are the reduction of carbon emissions by 18% and reducing food carrier bag usage by 83%.While MS unlikable down 26 underperforming stores, they managed to open 75 new stores. MS has one of UKs lowest turnover rates, as they were able to celebrate 40 days of working for MS by 44 of its employees. The employees wage and salary costs had been raised by 48M in comparison with 2008, this shows MS was employing more people and paying their employees fairly. Although there had been a dividends cut of 20.9%, there had been an increase of retained earnings by 20.2M this maybe to due to MS retaining income for a showery day, in the present times of the economic recession, or for further future investment.RecommendationsTo improve Marks and Spencers overall performance and to create a sustainable goin g concern business, it shouldContinue to treat its employees well and award them for their performance to avoid losing any trained staff and maintain its good employer record.Increase its costs on selling and marketing to make customers aware of new products and services MS has to offer. This is return should compensate for the decrease in this years market share decreases.Research past data along with any future investment plans, to try to predict any exceptional costs which may occur. These can then be prepared for so the profit levels are not damaged to vastly.Continue to create innovative products and services which help to win awards for MS, as they will improve the brand image of the company as well as generate more sales. recall of ways to compensate the losses the shareholders have incurred this say year otherwise they may decide to sell them back.Continue to achieve more of Plan A commitments to try to help the society MS operates in, this in return will also create a stro nger brand image for the company.Continue to improve on their cash flow levels, so they always have enough to counter any recession associated problems and do not run into liquidation.Look for niches in each of the market sectors by carrying out market research and create products and services in tune with the market needs, to string more customers, generate more sales and improve the companys overall profit levels.