• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month
Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7
  8. 8
    8
  9. 9
    9
  10. 10
    10
  11. 11
    11
  12. 12
    12
  13. 13
    13
  14. 14
    14
  15. 15
    15

Report composed of an interpretation of the ratios for Marks and Spencers and the House of Fraser

Extracts from this document...

Introduction

Findings This section of the report will be composed of an interpretation of the ratios for both companies. All ratios that form the ratio analysis will be explained, and any trends from within ratios will be highlighted. OVERALL PERFORMANCE Return on Capital Employed: Net profit before tax and interest x100 = % Capital employed The Return on Capital Employed ratio (R.O.C.E) is a hugely significant ratio, and a great deal can be taken from this ratio. The ratio relates to the profit earned in relation to the long-term capital invested in the business. The term 'capital employed' in this equation means the owners' capital plus any long term liabilities (for example long-term loans). This ratio shows the % return on capital invested in the company. A business will aim to have this ratio as high percentage as possible. If the percentage return on capital invested is less than that offered elsewhere, then it may be wise to close the business and invest elsewhere. The ratio analysis shows that Marks and Spencer saw a slight drop on their R.O.C.E from 1999 to 2000, however, they managed to increase the R.O.C.E the following year. The next year, 2002 shows the most significant changes. The R.O.C.E increased from 9.61% in 2001, to 20.89% in 2002. This is almost a 120% increase on R.O.C.E. The House of Fraser had a slightly better R.O.C.E than Marks and Spencer in 2000, however, the following year they experienced a drop of around 1.5%. The result for 2002 shows that The House of Fraser managed to almost double their R.O.C.E from 8.6% in 2001 to 15.91% in 2002. Although this was a healthy increase, The House of Fraser currently have a R.O.C.E that is more than 5% less that that of Marks and Spencer. The results also show that 2002 was a good year for both companies. PROFITABILITY Gross profit Margin. ...read more.

Middle

This may be due to a number of factors. In late 2001, the chairman, Luc Vandevelde set out a number of objectives in a recovery programme, one of the major objectives of this re structuring programme has been the aim to return capital back to the company by selling or closing its European stores (Farndon, 2002. Daily Mail). By selling off large numbers of loss making European stores, the company has been able to reduce the volume of money owed to creditors, and has thus reduced the capital employed. The sale of these stores led to a figure for total capital employed in 2002 of only �3.081 million. This is a reduction of over �1.5 million in a year. The reduction comes by the fact that there is a far smaller capital expenditure in 2002, in fact they made money, where as in 1999, when the European expansion started, capital expenditure was �628.1 million. The results in 2002 show that Marks and Spencer started to recoup capital that was previously employed. This inevitably leads to a higher R.O.C.E. Also, the figure for cost of sales for 2002 is at its lowest point over the four-year period. This makes a very big difference to the ratio. A reduction in capital employed, and an increase in sales will give an increase in R.O.C.E. A group of ratios that highlight a number of problems for Marks and Spencer are the productivity ratios. When compared to the results of the ratio analysis of The House of Fraser, Marks and Spencer's results are poor. A ratio from the productivity group of ratios is the asset turnover ratio. This ratio shows the number of times the assets utilised by the business have been covered by sales. Both Marks and Spencer and The House of Fraser are in the retail sector, so it would be expected that the results should follow the same trends. ...read more.

Conclusion

By reducing the levels of stock being held, the company could also improve asset turnover. This would be due to the fact that less warehouses would be needed, giving Marks and Spencer the opportunity to sell or lease these unwanted assets. When dealing with the clothing market, Marks and Spencer have to be aware of seasonal and fashion trends. A problem they have faced in the past is that they have overestimated demand for a particular season of clothing range. This inevitably leads to surplus stock. There are many external factors affecting the seasonal demand. For instance, this winter seasons demand was less than expected due to the late summer that Britain experienced. Customers were still buying summer wear, or were simply waiting to buy their winter wear until they felt the weather changed. The year 2000 saw Marks and Spencer putting �400 million of unsold stock in the winter sales, this caused a great loss in revenue. This problem could have been avoided with a more efficient purchasing system. By changing the purchasing system to a 'just in time' system, the chances of being left with surplus stock would be greatly reduced. Fashion trends are changing constantly. The company needs to be more flexible with the volume and style of clothing they stock. People are much more fashion conscious than they used to be, it is essential for the credibility of a company that they are consistently at the height of fashion. The results for the debtor's collection period for Marks and Spencer are very worrying, especially when compared to The House of Fraser. Marks and Spencer need to dramatically reduce the collection period in order to avoid any problems in the future. Marks and Spencer currently offer their customers the option of having a store card. Although in theory, this is a good idea, especially form a marketing perspective; it can cause many problems in the long run. Customers can leave payment for long periods of time. This leads to Marks and Spencer not being paid for stock they no longer own, and should have been paid for ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Structures, Objectives & External Influences section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Structures, Objectives & External Influences essays

  1. Marked by a teacher

    Marks and Spencer aims and objectives

    4 star(s)

    In 2007/08 Marks and Spencer's international business had contributed 7.9% of their total group turnover. When there sales figures where up at �712.9 million there sales went up by 16.8% and their profit was up by 33% to �116.4 million.

  2. Btec National Business Level 3 Year 1 - Exploring Business Activity

    Another most important area of government activity comes in the form of taxes and subsidies. The government uses taxes for various purposes such as: * To raise revenue for government spending * To discourage certain activities such as the creation of pollution.

  1. For my portfolio, I was asked to do an assignment on two businesses. I ...

    Shareholders Shareholders in Vectone Gnanam Telecom want their company to make more profit and they want their business is to be secure because Vectone Gnanam is a private limited company and the shareholders are the owners of the company and they used to work in the business and they do not want to spoil their reputation in their neighbourhood.

  2. Spreadsheet Report for Tuck Shop

    I have also formatted a cell to 'date', for the date to be displayed properly. There is a screen shot bellow showing the cell data that is formatted. Screen shot showing formatted cells Sheets 2 and 5 (Product Expenses) are also the same.

  1. The Business Environment Coursework. Describe the type of business, purpose and ownership of ...

    Different countries also have different work attitudes, for example in Britain we have a 'long hours culture' compared to many other European countries such as France and Italy, however hours worked in Britain are lower than in many South East Asian countries.

  2. This is a detailed business report on Sainbsurys.

    They also now hope to start Sainsburys banking. One of their future goals according to a store manager is to start motor vehicle insurance just like its competitors Tesco. Sainsburys has also merged with other known companies such as BP, Debenhams, and Barclaycard to produce a Nectar card whereby customers can get points for every purchase they make

  1. Business report on Bp Amoco.

    The nationalisation caused a major crisis that brought Anglo-Iranian operations on Iran to a halt. Due to the nationalisation in Iran, Anglo-Iranian had to broaden its operation to make up for the loss of oil supplies from Iran. Crude oil production was greatly increased in countries like Kuwait and Iraq, and more refineries in Europe and Australia.

  2. Investigating Business. Tesco PLC. I will be describing the aims and objectives of ...

    shows that to be an outstanding retailer Tesco?s staff do what they can to improve customers shopping experience and this leads to customer satisfaction and customer loyalty ? this can then lead to attracting more customers and lead to more sales & revenue.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work