Part 1 - Introductory Financial Accounting (MM1F2)

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Introduction

Part 1 - Introductory Financial Accounting (MM1F2) Assessed Work 2 Title: Ratio Analysis Report of Marks and Spencer plc Name: Andrew Powell Course: Business Management & Administration Date: 14th March 2005 Abstract: This following report has been put forward to show the decline in the Marks and Spencer share price during the past years. The report will show deterioration in the financial aspects of the company's operations between January 1998 and August 2000, before a steady improvement is made until March 2002 when share price once again drops. Furthermore, the report should show speculation following Philip Green's first offer to buyout the company immediately raises the share price of Marks and Spencer. Also, changes in related ratios will be exposed along with possible strategic business reasons why the company has encountered so many difficulties during the past few years. Contents Page: Introduction - Page 2 Presentation of Results - Page 2 to 3 * Change in share price 1.1, 1.2, 1.3 - Page 2 * Ratios to represent financial situation 2.1, 2.2, 2.3 - Page 2 2.4 - Page 3 * Reasons to support changes in share price and ratios 3.1,

Middle

This represented in appendix 2. 2. Ratios to represent financial situation 2.1 The gross and net profit margin shows the improved efforts by Marks and Spencer in recent years to improve efficiency. The higher the percentage figure the superior the company is in turning revenue into profit. In 2000 the company's gross and net profit margin was 31.8% and 6.6% respectively. In 2004 this had changed to 36.6% and 9.9%. 2.2 In the same period Marks and Spencer's profitability has increased from 6.3% to 9.4% 2.3 Due to the increased efficiency of being able to turn a greater percentage of turnover into profit shareholders have seen a greater earnings and dividend per share return. The earnings per share ratio has increased from 9.6p in 2000 to 24.2p per share in 2004. Likewise, dividend per share has increased from 9p to 11.5p in the same time period. 2.4 As regards to capital expenditure the figure goes down from £450.6m in 2000 to £290.5m in 2002. The figure then rises again and in 2004 the capital expenditure is £433.5m.

Conclusion

This has been a by-product of the success experienced by retailers such as Next and Debenhams and also due to the expansion of its product portfolio. Not only has there been increased competition but also it has become apparent that Marks and Spencer operations have lacked efficiency in recent years. Such problems include poor management, a deficient hierarchical structure, a product-driven approach, an inability to experience the same success in foreign countries and an overall inefficient way of conducting business, a good example being its centralised buying system. As a direct result, profitability has been affected, which can be seen from the ratios and this in turn has led to a huge drop in share price. Changes had to be made and were. It was not until late 2000 that these changes improved the financial outlook of the company by rising share price and improving certain ratio figures. Having said that, it appears that from the research undertaken that even though a steady increase is being made it will still be a long time before share price rises to that experienced before 1998.

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