The subject that I have chosen for this Research and Analysis Project ( RAP ) is topic figure 8: “ The concern and fiscal public presentation of an administration over a three twelvemonth period ” . Having to take this subject among others was a challenge as each of the 20 subjects provided by the Oxford Brookes University is non merely really interesting but besides presents a monolithic range for research and analysis.
In my sentiment the analysis of concern and fiscal public presentation of a company is one of the most of import facets of the modern twenty-four hours accounting profession and hence, I decided to choose for this subject. Besides, by analyzing the public presentation of a existent company, I had the chance to use my theoretical cognition, which I learned through ACCA test, into a practical scenario. Furthermore, I feel that by using the acquired accomplishments to a existent universe scenario will broaden my cognition of assorted fiscal analysis techniques. After settling for subject 8, I had to do an every bit of import determination about my pick of company on which to establish my RAP.
After a twenty-four hours of research I was convinced that Marks & A ; Spencer Plc ( M & A ; S ) would so be a much better company for me to analyze by taking history of the easiness in handiness of assorted information available for the company. Though taking everything into position, i.e. the handiness of information, the graduated table of operations of the company, its impact on the socio-economic kineticss of a state, taking M & A ; S so came as a natural pick. I have worked for M & A ; S, although in a limited range, and have admired the company both as an employee and as a client. But in order to efficaciously analyze the concern and fiscal information of any company one needs to hold entree to its fiscal every bit good as non-financial informations.
Since M & A ; S is a big company, which is listed in assorted stock markets with operations in many states, there would non be any famine of information available. M & A ; S one-year studies are readily available over the web sites and assorted other imperativeness releases and intelligence points are easy available excessively. Another ground for taking to compose on this company was due to magnitude of its operations and it is extremely regarded in the retail industry.
Undertaking OBJECTIVES AND RESEARCH QUESTIONS
The primary aim of this research study is to show a thorough analysis of the concern of Marks & A ; Spencer Plc and its public presentation over a three twelvemonth period from the point of position of an investor. The period in consideration would be the three fiscal old ages from 2nd April 2007 to 28th March 2009. This will chiefly be accomplished by using a elaborate ratio analysis on the fiscal informations available for a three twelvemonth period.
Merely concentrating on the fiscal facets of a company will non supply a better and complete analysis of its public presentation. Therefore, this study will besides concentrate on the non-financial facets of M & A ; S Plc utilizing a strategic planning tool called SWOT analysis which will concentrate on strength, failings, chances and menaces inherent in the company of faced by it. The chief purposes and aims of the study on which my research inquiries were based can be summarised as follows:
To garner, present and analyse the fiscal information of M & A ; S Plc for the three twelvemonth period ended 28th March 2009 in a signifier which can help an investor to measure the overall fiscal public presentation and chances of the group.
To analyze the strengths, failing, chances and menaces which have resulted from the adopted scheme and their impact on the company and the group as a whole.
To measure the effectivity of the scheme of M & A ; S Plc.
To measure whether the company has sufficient resources to shrivel the economic downswing.
To present decisions on the analysis carried out and to give recommendations to help a possible investor to do a well informed determination sing investing in the company.
In add-on to the above, I had to establish my research on replying the undermentioned inquiries:
Which beginnings and methods should be used to roll up information?
Which rival should be selected to supply a footing for comparing with M & A ; S?
What are the grounds for M & A ; S being one of the taking retail merchants and how is it get bying with what has been described as the worst recession in 50 old ages?
Explanation OF THE OVERALL RESEARCH APPROACH
The first and first thing I did to garner cognition about the company was to get down reading on assorted intelligence articles M & A ; S and the UK retail industry to derive a basic thought of the company and the market in which it operates. I so rechecked the subject and made a list of the aims for my research. I besides looked into any theoretical accounts that could assist me in transporting out the analysis. I so collected information on the methods and beginnings that I could utilize for effectual secondary research. The following stage was the most of import one as it required me to transport out existent, mark oriented research on the subject.
Here I gave a particular idea to any ethical issues associating to the research and made an attempt to avoid any opportunity of plagiarism or collusion. With sufficient information at my disposal I carried out the existent analysis utilizing the theoretical accounts identified earlier and put out decisions at the terminal. Finally, I made a cheque list and ticked off each of my undertaking aims and research inquiries that I felt had been answered upon the completion of the undertaking.
Beginnings used and grounds:
Annual histories of Marks & A ; Spencer Plc: They are the most of import beginning of fiscal informations on which the key ratios are based and are critical in analyzing the fiscal state of affairs of the company and can besides be used for Trend-Analysis.
Annual histories of Following Plc: These are used to cipher the cardinal ratios of Following Plc. They are indispensable to this study as they act as a yardstick to pull comparative analysis of M & A ; S with Next.
The official M & A ; S web site: The web site provides entree to AGM studies, concluding histories and scheme of M & A ; S Plc. The information from this web site has been used contentiously in my undertaking as it could be favorably biased towards the company.
Fiscal Analysts ‘ studies: These studies provide an impartial analysis of the current state of affairs, future chances and the feasibleness of the determinations made by the company. Furthermore, web sites such as that of The Economist and Financial Times and databases such as FAME and Datamonitor provide utile informations, fiscal ratios and commentary on the senior direction ‘s policies/strategies over the concerned period.
Newspapers/Media: Articles and commentaries published in newspapers such as Financial Times supply adept analysis on the strategic determinations made by the managers and frequently have a important impact on the portion monetary value of a company. The Independent and The Guardian newspapers provide up to day of the month fiscal intelligence.
Text Books and Student Accountant Magazine: The survey texts published by Kaplan Publishing UK for ACCA course of studies and Student Accountant magazine of ACCA were a portion of my background reading and have aided me greatly in bring forthing utile thoughts as to the formation and analysis of this study.
METHODS USED TO COLLECT THE INFORMATION
LIBRARY RESEARCH: This fundamentally involved the following two activities
General reading: This chiefly involved reading different articles, newspapers, magazines, books and diaries to understand the company and the environment in which it operates.
Specific reading: This involved traveling through different databases and studies to acquire specific information about M & A ; S and Next Plc. Some of the specific reading stuff included the followers:
FAME Database ( Financial Analysis Made Easy ) : This provides elaborate fiscal informations on companies registered within the UK such as one-year histories, ownership information and cardinal ratios of the two companies.
DATAMONITOR ( Electronic Database ) : It provided me with elaborate non-financial information that I needed on Marks & A ; Spencer from a beginning that avoided prejudice and was besides dependable. Libraries used for general and specific reading include: British Library and City Business Library.
Web sites USED: As mentioned earlier, the official web sites of M & A ; S and Next were used for the intent of information assemblage. Other web sites used include www.economist.com ; www.ft.com ; www.guardian.co.uk and www.telegraph.co.uk.
Medium: Bloomberg, BBC and other intelligence channels provided information on current concern personal businesss and the general prevalent economic conditions.
LIMITATIONS OF INFORMATION GATHERING
The information used in this study has been collected from assorted beginnings and utilizing assorted different methods. Hence, it may hold restrictions some of which are highlighted below:
Some information was collected from M & A ; S website which may be favorably biased towards the company. Some beginnings of information may incorporate research carried out with different aims than this RAP. It is hard to judge whether such information should be used for the intents of this RAP or non. The fiscal statements of the company may be a spot favorably biased towards the company as through these the company aims to show itself in the best possible mode.
ETHICAL ISSUES THAT AROSE DURING INFORMATION GATHERING AND HOW THEY WERE RESOLVED
Some of the ethical issues that arose during information assemblage and the manner they were resolved is as follows:
One issue that arose was of plagiarism. As most of my research is from secondary informations, there was a hazard of plagiarism if any information that was used was non decently referenced. For this I took particular attention. I clearly identified and attributed any ideas or citations which were non my ain at the points where they occur in my RAP and used the Harvard Referencing System to extinguish beyond any possible uncertainty any opportunity of plagiarism. Another ethical issue that arose was of possible collusion. One of my co-workers requested me to transport out research together with him as he had to make a similar research undertaking for his university. By transporting out the research together it would hold taken less clip, but it would hold resulted in collusion. This issue was easy resolved as I did non consent to transporting out the research together with him or to sharing my research with him.
Accounting AND BUSINESS ANALYSIS TECHNIQUES USED AND THEIR LIMITATIONS
Ratio analysis is one of the chief accounting techniques of fiscal analysis to measure the fiscal place and public presentation of a company. It involves comparing and computation of a figure of profitableness, liquidness, efficiency, pitching and investor ratios which in bend pigment a thorough image of the company ‘s public presentation over a period of clip.
Ratio analysis helps in the undermentioned ways:
It simplifies the comprehension of fiscal statements. It provides a reasonably complete image of the assorted alterations in the fiscal status of a concern.
It facilitates in doing inter-company comparing and foreground the factors which are normally associated with successful and unsuccessful houses.
It helps in doing investing determinations by looking at assorted ratios, as mentioned above.
The inside informations of each of these ratios are mentioned in the Analysis section of the Research Report and their definitions provided in the Appendix.
LIMITATIONS OF RATIO ANALYSIS
Ratio analysis has a figure of restrictions which are as follows:
Companies may follow differing accounting policies from each other. Different methods of depreciation will take to different accounting net income figures and hence it may non be appropriate to pull decisions of the two ratios without doing suited accommodations.
Although ratio analysis assistance in supplying hints to the company ‘s public presentation or its fiscal place but on their ain they can non demo whether public presentation is good or bad and hence, they need to be carefully interpreted to pull meaningful decisions on which informed determinations could be made. Furthermore, comparings need to be made with the ‘best in the concern ‘ or with industry criterions.
The figures in a company ‘s latest one-year histories is likely to be several months out of day of the month and may non supply most current and best indicant of its public presentation.
Different concerns may hold different sizes and hence may bask different degrees of economic systems of graduated table. Comparisons of such concerns utilizing ratio analysis may non be appropriate as smaller concern may non bask installations which are available to big 1s ( e.g. majority price reductions, extended recognition periods, etc ) .
Inflation could render the comparing of fiscal consequences misdirecting if compared over longer clip period as fiscal figures will non be within the same degree of buying power. Bettering tendency of assorted ratios could bespeak that the company is executing good but if accounted for inflationary alterations it may paint a different image.
A SWOT analysis is carried out in this Research Report as the chief concern technique used to analyze internal and external factors which have an impact on the company. It carries out an appraisal of a company ‘s strengths and failings which relate to internal factors such as resource and capablenesss. It besides assesses the chances and menaces that may originate in the hereafter. This involves an analysis of external factors such as the economic environment and the industry construction.
SWOT analysis provide a simple four box model which facilitates in understanding the strength and failings of the administration and enables the development of strategic thought. ( MANUAL ACCA PAPER P3: Business Analysis ( 2009 ) )
LIMITATIONS OF SWOT ANALYSIS
One major shortcoming with the SWOT analysis is that although it emphasises the importance of the four elements associated with the organisational and environmental analysis, it does non turn to how the company can place the elements for their ain company. Many organizational executives may non be able to find what these elements are, and the SWOT model provides no counsel. For illustration, what if a strength identified by the company is non genuinely a strength? While a company might believe its client service is strong, they may be incognizant of jobs with employees or the capablenesss of other companies to supply a higher degree of client service.
Marks and Spencer started as a little stall in 1884 in Leeds, UK where all merchandises were sold for a penny. Since so the company has established itself as a taking UK retail merchant of vesture, nutrient and homeware which is universe renowned for its quality, value for money and its client services ( M & A ; S, 2008 ) . During the late 90s and the early old ages of 2000, M & A ; S experienced deteriorating fiscal public presentation due to fierce competition, hapless supply concatenation direction, inferior merchandises and uneffective cost direction. However, when Sir Stuart Rose took charge as the CEO in 2004 M & A ; S has regained its lost flicker and established itself as the taking trade name. M & A ; S is traditionally called a ‘bell-weather ‘ of the UK retailing industry, which means that if M & A ; S is fighting so difficult times are in front for the whole sector.
Analysis of the fiscal place of M & A ; S Plc requires a glimpse at M & A ; S ‘s long term scheme in add-on to a elaborate expression at the fiscal histories of the group. Furthermore, a three twelvemonth tendency analysis and intercompany comparing with Next Plc coupled with a SWOT analysis provides a moderately realistic position of the public presentation of M & A ; S over the three twelvemonth period ended 28th March 2009. The analysis of M & A ; S ‘s public presentation is as follows:
Increasing the gait of alteration and operational executing in the concern
Accelerating towards going a multi-channel retail merchant, concentrating all our actions on the client, whichever channel they wish to utilize
Driving the international concern, peculiarly China, India and Southern and Eastern Europe, equilibrating investing and returns ; and
Invigorating the trade name communicating with clients, foregrounding our ethical and sustainability aims.
( M & A ; S Annual Report 2009 )
An analysis of the strengths, failings, chances and menaces associating to M & A ; S has been carried out as follows to demo the impact of retail industry and the general economic environment on the company.
M & A ; S is the UK ‘s largest vesture retail merchant, where more than 1 in 10 vesture points is bought from M & A ; S ( M & A ; S Annual Report 2009 ) . Although value market portion declined but M & A ; S is still the UK ‘s taking vesture retail merchant keeping a healthy market portion of 10.7 % by value and 11.2 % by volume in general ware.
Strong trade name image
The M & A ; S trade name commands a strong trueness particularly from the UK consumers, which has enabled it to shrivel the economic downswing. The strong trade name image has besides helped the company to diversify into new markets like Personal Finance and electrical goods. M & A ; S trade name has been at the bosom of its success throughout its being. Overall, the strong trade name image has farther facilitated the company ‘s growing scheme by leting the company to perforate new markets, while keeping a strong control of its bing 1s. Harmonizing to Kate Bostock, the executive manager of vesture, M & A ; S trade name is the figure one in womenswear on the High Street ( M & A ; S Annual Report 2009 ) .
M & A ; S had been marketing itself sharply over the past several old ages. It has introduced mottos such as ‘Quality Worth Every Penny ‘ and ‘Your M & A ; S ‘ , the advertisement had been client focused ( M & A ; S Annual Report 2009 ) . This had the consequence of the client trueness even in the times of recession. The Television advertizements have been peculiarly powerful and have involved famous persons such as Twiggy, Myleene Klass, Laura Bailey and Take That ( M & A ; S, 2007 ) .
Furthermore, the executive squad of M & A ; S is really experient with CEO Sir Stuart Rose at the helm of personal businesss. He had been widely praised of holding bend around the one time tapering concern of M & A ; S since his reaching in the May 2004. In the same twelvemonth he had ward off several hostile take-over command from Philip Green. hypertext transfer protocol: //business.timesonline.co.uk/tol/business/article788500.ece ( accessed 23rd October 2009 )
Worsening fiscal public presentation
M & A ; S public presentation slipped over 2007 Christmas period. While all retail merchants did severely, M & A ; S was peculiarly exposed. As at the clip of authorship, the portion monetary value was 361p with the 52-week depression of 367p and high of 759p, which means that M & A ; S has lost more than 50 % of its value during the twelvemonth ( Sunday Times, 2008 ) . Similarly, the price/earnings ratio of 9.4 is much lower than that of its rivals. P/e ratio is the major index of investor assurance in a company ( Arnold, 2002 ) .
Possible loss in trade name value
In order to pull monetary value witting shoppers M & A ; S started cutting monetary values and seeking to be all things to all people. This may devaluate the trade name and the company has been assigning more floor infinite to its ‘outstanding value ‘ line ( The Economist, 2008 ) .
Poor corporate administration
The company was harshly criticised for advancing CEO Stuart Rose to chairmanship every bit good, fuelling accusals of hapless corporate administration, deficiency of transparence and segregation of responsibilities. The move infuriated many big investors. ( The Independent, 2008 )
hypertext transfer protocol: //www.independent.co.uk/news/business/news/investors-attack-ms-plan-to-make-rose-chairman-794061.html ( accessed 24th October )
hypertext transfer protocol: //bizcovering.com/major-companies/a-case-study-on-marks-and-spencer/
Developing new markets
Developing markets such as India and China presents great chances for M & A ; S and its trade name to turn even further. Whereas in the UK market M & A ; S have been confronting stiff competition, it could boom in new markets and capitalise on its trade name power.
Targeting Younger Coevals
M & A ; S had traditionally been aiming a center aged client. This had the consequence of estranging the younger client base. An chance arises for M & A ; S that it design and promote trendier apparels to provide to younger clients.
Online nutrient distribution
On-line nutrient gross revenues are a great chance every bit good, since online borders are higher though it would necessitate big initial investings into puting up distribution channels. hypertext transfer protocol: //www.dailymail.co.uk/news/article-1220159/Marks — Spencer-looks-online-food-shopping-boost-sales.html accessed 23rd October 2009
Hazard of fring younger client base
Presently, M & A ; S mark group are older clients many over the age of 45. This may be hazardous as today ‘s 20-30 twelvemonth olds will still stay voguish after 10-20 old ages and might be loath to shop in M & A ; S, particularly taking into history people ‘s compulsion to look younger these yearss. Although the company is seeking to appeal to younger clients but it needs to make more as trendier challengers such as Next will eat into this market section.
Cash tied clients
As the economic downswing continues, there are increasing figure of clients who are now turning to cheaper retail merchants such as Primark. M & A ; S faces menace of losing its current market dominant market portion as a prima apparels retail merchant.
Menace from other premium nutrient retail merchants
M & A ; S touts itself as a premium nutrient retail merchant but it is coming under increasing menace from other rivals who are offering premium quality nutrient such as Waitrose or Tesco Finest.
The current CEO of Marks & A ; Spencer Sir Stuart Rose is to step down from his place of the main executive and his term expires in 2011 as a president. Failing to happen a suited Chief executive officer could turn the company into confusion and fiscal troubles which Stuart Rose several old ages to turn around the company to its one time dominant place in the apparels retailing market. Even if a suited campaigner is found but the passage from the old leading to the new leading is non smooth so it could hold terrible effects for the company. The cardinal stakeholders of the company are in the quandary whether to seek campaigner internally or externally. ( Guardian 2009 ) 4th October
hypertext transfer protocol: //www.guardian.co.uk/business/2009/oct/04/succession-planning-itv-marks-spencer
Possible investor rebellion
Accusation of hapless corporate administration have damaged the repute of the retail merchant and dent investors ‘ assurance in it as Sir Stuart Rose took the place of president while being CEO of the company at the same clip. Under the UK ‘s Corporate Governance Codes it is advised that the function of president and that of the main executive order be kept separate.
hypertext transfer protocol: //business.timesonline.co.uk/tol/business/industry_sectors/retailing/article3638573.ece.
SALES REVENUE GROWTH
The gross revenues gross increased by a little 5.5 % from the twelvemonth 2007 to 2009 and a negligible 0.4 % from the twelvemonth 2008. This shows the inexorable market conditions faced by an up-market retail merchant. This growing has mostly been due to the important enlargement by the company in the abroad market. There has been an increase of 47.0 % from 2007 to 2009 in the international market and 25.9 % from 2008. Although the international market merely comprises 9.9 % of the entire gross. But however this important growing has proven that the company is prosecuting its cardinal scheme of enlargement of its international concern.
As opposed to M & A ; S, Next has struggled to turn over the three old ages from 2007 and in 2009 its gross shrunk back to even below that of 2007. Consumer disbursement have been tight and this is reflected in Next ‘s gross figures. While M & A ; S, in order to keep its market portion has slashed monetary values and promoted it ‘outstanding value ‘ merchandises more.
Gross net income border
It can be inferred that gross net income border ( GPM ) for Next, has stayed reasonably changeless ( 27.8 % in 2007 and 27.7 % in 2009 ) . Although in absolute footings the GPM has fallen. Likewise, GPM for M & A ; S remained steady throughout the three old ages from 2007. It was 38.9 % in 2007 to 37.2 % in 2009. The economic downswing and predominating recession inflicted a force per unit area upon net income borders for both companies during the last two old ages. Marks & A ; Spencer celebrated its hundred-and-twenty-fifth birthday on the month of May 2009 by selling about 2 million points at the monetary value of a individual penny and they called this a ‘Penny Bazaar ‘ . ( http: //www.dailymail.co.uk/femail/article-1181381/Penny-Bazaar-2009-M-S-turns-clock-offering-million-items-1p-each.html )
The company besides had 20 % price reduction twenty-four hours sale to tempt recession hit shoppers to pass more in the M & A ; S UK shops.
hypertext transfer protocol: //www.telegraph.co.uk/finance/financetopics/recession/3512248/MandS-planning-second-one-day-sale-as-high-street-becomes-hooked-to-discounts.html
Both of these factors contributed to take down gross net income borders. Although M & A ; S has showed improved public presentation relation to Next in this respect as it enjoyed superior provider relationships. ( M & A ; S, 2008 )
OPERATING Net income MARGIN ( OPM )
The operating net income border in 2007 was 12.2 % which fell by 2.6 per centum points in 2009. Since the twelvemonth 2007, the OPM border dropped by a important 2.6 % . This was mostly due to the addition in retail tenancy, which are the energy costs and higher distribution costs which in bend was due to higher fuel monetary values. Although the selling costs were lower as the company sought to cuts back on promotional and Television run with fewer ads running.
In comparing, Next ‘s OPM had been higher throughout the old ages in consideration connoting connoting that nucleus concern operations were profitable. OPM increased from 15.5 % to 16.1 % in 2008 due to Next ‘s hyperbolic merchandise monetary values, though it dropped by 1.4 % in the undermentioned twelvemonth.
Net Net income MARGIN ( NPM )
In the twelvemonth 2007, the net income after revenue enhancement was ?659.9m stand foring 7.7 % of the turnover. 2008 was a good twelvemonth for M & A ; S where its pre revenue enhancement net income was over ?1.1 billion and its NPM was 9.1 % . The NPM border from 2008 to 2009 faired a small better than the OPM through the same old ages. OPM dropped by 3.8 % points whereas the NPM dropped by 3.5 % points. This is perchance due to significantly lower corporation charge in 2009 than that in 2008.
Once once more M & A ; S has performed ill in comparing to Next. Next had an mean NPM of approximately 10 % while M & A ; S mean NPM was 7.5 % .
Asset turnover measures direction ‘s efficiency in bring forthing gross from net assets utilised by the concern. ( Manual: ACCA Paper F7: Fiscal Reporting ( 2008 ) )
Next ‘s plus turnover was 5.58 in 2007 which dropped to 5.11 and later dropped to 4.76 in 2009. This means that in the twelvemonth 2009 Next generated ?4.76 for every lb invested in non-current assets. Although this plus turnover tendency had been worsening during the three twelvemonth under analysis but Next had been a better performing artist as compared to Next.
Marks & A ; Spencer plus turnover had been reasonably abysmal, it declined somewhat from the twelvemonth 2007 ( 1.89 ) to 2009 ( 1.54 ) . Though 2008 was a good twelvemonth in footings of gross revenues but due to heavy capital outgo the plus turnover still declined to 1.51, M & A ; S invested ?1.1bn in 2008. As it can been seen from the fiscal statements, the gross revenues gross in 2009 dropped 0.44 % but besides at the same clip the capital outgo was reduced significantly to ?652m which led to a little addition in the plus turnover. Furthermore, non-trading shops deserving ?58.3m were sold off. Another ground for M & A ; S holding a hapless plus turnover ratio is due to the fact that the company has a monolithic land portfolio and has investings in land and edifices worth over ?2.4bn. Having freehold land and edifices ever proves good to the company as when the clip of demand arises where the company is happening hard to raise equity capital so it could ever seek loan from bank or other fiscal establishments by maintaining these lands as collateral.
Tax return ON CAPITAL EMPLOYED ( ROCE ) AND RETURN ON SHAREHOLDERS ‘ FUNDS ( ROE )
ROCE is a just index of the profitableness as it presents a image of the net income of a company in comparing to the sum of the assets used to gain that net income. It is a combination of operating net income border and plus turnover. The decreasing net income tendency in M & A ; S has been translated to the ROCE for M & A ; S. Since 2007 ROCE has deteriorated well, from 27.7 % in 2007 to 17.6 % in 2009. Lower ROCE is besides due to turning recession which adversely impacted Christmas gross revenues in 2008 and 2009 and turnover did non increase every bit well as expected ( Keynote, 2008 ; The Economist, 2008 ) .
The current ratio measures the adequateness of the current assets to run into the company ‘s current liabilities. Harmonizing to Atrill and McLaney ( 2007 ) , minimal liquidness ratio should be 1:1, nevertheless, the ratios for M & A ; S and Next presents a different image. Though both the current and speedy ratios have been bettering for M & A ; S since the twelvemonth 2007 ( from 0.53 to 0.60 and 0.27 to 0.37 ) but they are still good below the recommended ratios for companies that represent improved liquidness place. However, for companies runing in retail industry it is considered normal for them to hold low current and speedy ratios.
INVENTORY TURNOVER DAYS
Efficiency ratios measure the efficiency with which the concern manages its assets and liabilities. From the computations it is apparent that the stock list turnover yearss have deteriorated. It took 29 yearss to sell stock in the twelvemonth 2007 which increased by two yearss on twelvemonth on twelvemonth footing. This reflects the economic downswing M & A ; S is confronting where it is happening difficult to sell to hard currency strapped clients.
In comparing, Next ‘s stock turnover had been significantly higher throughout the old ages in consideration. Next ‘s increasing merchandising monetary values adversely affected consumer disbursement and stock turnover increased by 6 yearss to 49 from 2007 to 2009. While on the other manus M & A ; S adopted a moderate pricing policy during recession hence clients have a greater penchant for its merchandises ( Financial Times, 2009 ) .
The ratio represents the recognition period taken by the company from its providers. From the computations in Appendix 2 it is apparent that, Next has been paying off liabilities instead easy ( at 96 yearss in 2007 ) . During 2008, Next took 24 yearss less to pay off creditors chiefly due to lifting grosss. However, in 2009 the creditor yearss increased by 3 yearss. Compared to Next, M & A ; S had been paying its creditors much quicker, 23 lesser yearss in 2007. The mean recognition period taken by M & A ; S dropped by 9 yearss in 2008 but this rose to 69 yearss in the undermentioned twelvemonth. This possibly could be the ground of increased hard currency and hard currency equivalents. One possible account of this increasing creditor twenty-four hours ratio could be that the company in this clip of recession is seeking to maintain clasp of hard currency and investment in the concern.
Following appears extremely geared, it depicted a important rise in pitching from 359 % in 2007 to negative 1452 % in 2008. This is due to considerable decrease in maintained net incomes that reduced by 19 % in 2008 together with relentless adoptions which exceeded stockholder financess. Gearing ratio augmented as Following borrowed overly for funding shop enlargement which increased long term debts. As geartrain is transcending 100 % it indicates significant bankruptcy hazard for Next.
Gearing ratio for M & A ; S besides indicates that, investings are largely financed by borrowing instead than stockholder financess. Gearing increased from 157 % in 2007 to 209 % in 2008 when adoptions exceeded stockholder financess. The rise of pitching in 2008 is explained by heavy adoption of ?235.3m in the twelvemonth 2008. M & A ; S pitching ratio has been significantly lower over the three old ages from 2007, though it shows a similar increasing tendency as Next.
M & A ; S have relied on debt funding to fund its enlargement schemes. From the company ‘s amalgamate statement of hard currency flows it is apparent that in 2008, it issued medium-term notes worth ?631.7m together with a drawdown bank loan of ?317.6m. Even though M & A ; S geartrain besides exceeded the 100 % benchmark for high hazard companies, it is better-off than Following as it has greater stockholder financess and retained net incomes and using them efficaciously. M & A ; S hence, entails lower bankruptcy hazard compared to Next as it has over ?5.7bn of maintained net incomes to pay off its debts.
Interest screen indicates the ability of a company to pay involvement out of the net incomes generated. The involvement screen for Next was 15.3x in 2007 which bit by bit decreased to 9.4x in the twelvemonth 2009. But even so, this is pretty healthy rate as such companies with high involvement screen are deemed to be less likely to default on involvement payments. Next ‘s high pricing scheme has lead to greater net income borders and thereby supplying adequate operating before involvement and revenue enhancement to pay off the involvement. In comparing, M & A ; S involvement screen rate was about half that of Next ( 7.3 times ) and it has shown a uninterrupted downward tendency. M & A ; S had been seeking to increase its market portion at the disbursal of lower borders, which is translated to its diminishing involvement screen. Though involvement screen of 4 times in 2009 is still good above the threshold of 1.5 times but M & A ; S should look to diminish its load of debt disbursal.
Share Price Chart 1.jpg
The above chart indicates that shuting portion monetary values for both companies deteriorated from 2007 to 2009 due to economic uncertainnesss. Worsening economic crisis resulted in M & A ; S portion monetary value to drop from 676.50p in 2007 to 265.25p in 2009 ; doing a important decrease in portion monetary value, of about 61 % . Similar tendency was observed for Next, where portion monetary value declined from 1946p in 2007 to 1097p in 2009 ; describing a diminution of about 44 % . Compared to M & A ; S, Next ‘s portion monetary value declined by a much lower per centum and portions were traded at comparatively higher monetary values from 2007 to 2009. In the twelvemonth 2009 the maximal portion monetary value for Next was 1522.0p, while for M & A ; S the portion monetary value peaked to 417.0p.
EARNING PER SHARE ( EPS ) & A ; DIVIDEND PER SHARE ( DPS )
The dividend per portion and the net incomes per portion are of extreme significance to the stockholders and the possible stockholders of a company. While DPS gives a position of the immediate returns that an investor can anticipate on his/her investing ; the EPS, which is widely regarded as the most of import index of a company ‘s public presentation, shows the possible returns on investings and the future value of the stock of the company.
By the terminal of the twelvemonth 2007, the EPS for the Next ‘s portions at the terminal of the fiscal twelvemonth was 144.3p which increased by about 15.5 % to 166.6p. This rise suggests that the growing in the net incomes of the company has been at a higher degree than the growing in stockholders equity.
But as the borders deteriorated the EPS dropped by 6.5 % to 155.7p in the undermentioned twelvemonth. A similar tendency could be observed in the EPS of M & A ; S, it rose by 25.8 % from the twelvemonth 2007 when it enjoyed healthy net income but as the company tried to keep its market portion in the economic downswing it had to put in its border. This resulted in the EPS of 32.3p stand foring a bead of 34.3 % from the predating twelvemonth.
Monetary value TO EARNINGS RATIO ( P/E )
From the investors perspective P/E ratio is another of import ratio. It represents the figure of old ages of net incomes it will take to payback the purchase monetary value of the portion. It could besides be interpreted as how much the investors are willing to pay per lb of net incomes. hypertext transfer protocol: //www.bized.co.uk/compfact/ratios/investor12.htm ( accessed 22nd October 2009 )
M & A ; S ‘s P/E ratio was higher than Following even though its portion monetary value was lower
Consequently, Next ‘s P/E ratio was higher as its portion monetary values are comparatively higher than M & A ; S ; hence Next ‘s portions appear to give higher returns and attract investors. However, P/E ratios for both companies have declined since 2006 connoting that investors might be unwilling to put in company portions if the tendency persists ( Yorkshire Post, 2008 ) . However, Next is extremely geared compared to M & A ; S and portion monetary values might fall even further as investors perceive higher hazard of puting in Next ‘s portions. EPS for Next and M & A ; S increased from 2006 onwards as both companies reported lifting after revenue enhancement net incomes which exceeded growing in figure of outstanding portions. The primary ground for lifting EPS in 2007 for both companies pertains to a lifting ROCE value which reduced in the subsequent twelvemonth. Compared to Next, M & A ; S has lower EPS during 2008 so from an investing point of position, investors might be more willing to put in Next ‘s portions.
It could be concluded from the above analysis that Marks and Spencer like Next is confronted with deteriorating fiscal public presentation. Its UK net incomes were down by 33 % in the twelvemonth to 28th March 2009. In position of the worsening public presentation, the group finance and operations manager Ian Dyson is taking a alteration plan called ‘2020 – Making the Right Thing ‘ ( M & A ; S, 2009 ) . Some of the hapless public presentation could be attributed to the economic recession. As the UK ‘s largest vesture retail merchant and with a premium nutrient offer, M & A ; S is bound to be affected by consumers who are looking to cut their disbursement. Clothing dropped by 4.1 % and although M & A ; S fared better in kidswear and intimate apparel, the major menswear and womenswear vesture lines continue to do jobs.
Food gross revenues comprises 49.9 % of the turnover for M & A ; S but it has been confronting stiff competition as consumers turn to cheaper challengers such as Sainsbury who offer good quality nutrient. In order to fend off competition M & A ; S has been doing significant investing in border and holding a strong promotional stance. On the brighter side, M & A ; S online impart, M & A ; S Direct, has seen a significant addition of 19 % ( M & A ; S, 2009 ) with gross revenues amounting ?324m. It now delivers to over 73 states worldwide and is aiming to make M & A ; S Direct gross revenues to ?500m by 2010/11 ( M & A ; S October 2009 )
hypertext transfer protocol: //corporate.marksandspencer.com/media/press_releases/International/InternationalDelivery
Although portion of Sir Stuart ‘s original scheme was to alter the civilization of the company ( a scheme which he states has been achieved ) , M & A ; S still appears to be trailing retail tendencies instead than puting them, as was one time the instance. The velocity of alteration must speed up fast if the retail merchant is to contend off greater competitory menaces to its client base from the likes of Sainsbury and Next. If Ian Dyson can present on this purpose so he will travel a long manner towards turn outing himself a worthy replacement to Sir Stuart Rose.
M & A ; S must take history of consumer ‘s buying capacity and investment in border by holding aggressive pricing schemes could gnaw turnover. M & A ; S must revise its investing determinations and use existing resources expeditiously to keep its competitory border. Expansion programs can intensify fiscal costs and will take to more adoption, hence M & A ; S must sagely put in undertakings which will take to greater productiveness.