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fianancial performance of M&S,Uk

Extracts from this document...

Introduction

Table of Contents Table of Contents 1 Chapter 1: Introduction 2 Chapter 2: Computation of Ratios 3 Profitability ratio 3 Liquidity ratio 4 Efficiency ratio 5 Gearing Ratio 6 Investment ratio 7 Chapter 3: Findings and Analysis 9 Efficiency 10 Gearing 11 Liquidity 11 Investment 12 Chapter 4: Discussion 13 Chapter 5: Recommendations 14 References 16 Chapter 1: Introduction Back in 1884, Michael Marks, a Russian born refugee opened a stall at Leeds Kirk Gate market. Ten years later, Micheal entered into a partnership with tom Spencer. In 1926, the partnership Marks and Spencer limited became a public company. Today, Marks and Spencer is one of the UK's leading retailers of clothing, food, home ware and financial services with over 65,000 people working in office and stores. The retail giant has over 400 stores in the UK and operates retailing business in over 30 countries worldwide. Though, the company passed through turbulent times in the recent past, it has re- emerged from the storm and posted a group turnover in excess of �7942.3m in 2005. The company is run by season management professional with Stuart Rose as the CEO while the Chairman is Paul Myners. Chapter 2: Computation of Ratios Profitability ratio 2005 2004 (a) ROSF = Net profit after tax plus preference dividend Ordinary share capital plus reserves = 442. 0 x 100 = 563.0 x 100 521.2 1 2454 1 = 84.77% 22.94% (b) ...read more.

Middle

This action might deter customers and cause them to seek a competitor like TESCO, ASDA etc who gives a longer period for credit. Sometimes, discounts are given but is reduces the profit of the business marginally. In addition, it took an average of 4days for the business to pay its creditors in 2004 as against 3 days in 2005. It suggests that the business can at the shortest possible time pay its creditors. The creditors will be willing to advance more credits to the business knowing fully well that Marks and Spencer can readily pay. But, it will reduce the liquidity of the business. Gearing From the computations, the gearing ratio in 2004 was 1.03: 1 as against 3.68: 1 in 2005. It showed a 257.28 per cent increase in the gearing ratio. The implication is that the financial risk of the business has increased by well over 250 per cent. The above scenario is attributable to the insufficient shareholders fund, loan interest is allowable charge against tax, borrowed funds exceed the lost of paying interest. In other words, in 2004, for every pound owned, the company owes �1.03. In this situation, for every pound owned, the company owes �3.68. High risk it is! This could lead to bankruptcy if necessary measures are not adhered to. In a nutshell, this high percentage indicates a high exposure to financial risk because it means that there are interest charges to be met and a requirement to repay the loans on the due date. ...read more.

Conclusion

Nonetheless, the company should be more innovative in areas of product development and delivery. They should stop over trading. Their assets were over utilized. It resulted in more charges which reduced their profit for the year. In this instance, the company should find the optimal trading level. They management as a process should identify the less profitable products, reduce their cost and discounts, increase their prices, or modify the products so that they can command higher sales price. In addition, management should ensure that new products improve the overall profit margin other of the business. To deliver better product, they need to buy better, buy smarter and buy more quickly. The management should place emphasis on budgets and budgetary control measures. They should be used to their full potential to ensure that strategic and operational objectives of the business are met. Great emphasis should be placed on sales, total production and overhead budgets. The cost of research and development should be moderate to ensure optimal level. The product life cycle and the age of the product will be examined to meet with the challenges of changing taste and choice. Financial decisions should not be made in isolation. All the department of the company should be involved when such decisions are made. Proper cash flow should be planned. The management should as a matter of urgency look into the looks of their store environment which may have a negative influence on customers. They should restructure it to meet customers expectations by improving the in- store decoration and signage. . ...read more.

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