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# I am going to produce a report which assesses the working capital management of Marks &amp; Spencer using information from their annual report

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Introduction

ï»¿Angela Osei-Tutu[unit 11-Task 2] September 26, 2012 In this section I am going to produce a report which assesses the working capital management of Marks & Spencer using information from their annual report as seen in the table below; 2010 Value £m 2011 Value £m Current Assets 1,53.8 1,641.7 Current Liabilities 2,210.2 1.890.5 Debtors 250.3 281.4 Stock 685.3 613.2 Creditors 1,347.6 1,153.8 Turnover 9,740.3 9,536.6 Credit Purchases 6,015.6 5,918.1 Working capital measures how much in liquid assets a company has available to build its business. The number can be positive or negative, depending on how much debt the company is carrying. In general, companies that have a lot of working capital will be more successful since they can expand and improve their operations. Companies with negative working capital may lack the funds necessary for growth. Working capital is a critical aspect of business operation, without adequate working capital a business may not be able to reach success or the aim of the business, for example, if M&S don’t have enough working capital to found employees’ wages then the employees may decide to quit and this will slow down productivity which in turn will cause the business to stop functioning. Also if M&S don’t have enough capital then they may not be able to pay their suppliers and their suppliers may decide not to supply them with goods anymore which may have an effect on the company’s market share, because customers will choose to go to rival companies instead. The key components of working capitals are current asset and current liability. To find the working capital of a business we use the formula: CURRENT ASSETS- CURRENT LIABILITIES= WORKING CAPITAL Based on this formula the working capital of M&S at the end of 2010 & 2011 financial year can be calculated as; 2010 £1,153.80 – 2,210.20 = (1056.40) 2011 1,641.7 – 1,890.5 = (248.80) Both figures from M&S working capital show a negative figure, this means that currently the company is unable to meet its short-term liabilities with its current assets. ...read more.

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Conclusion

1500 suppliers are supplying clothing, footwear, beauty and home products and rest 500 provide food products. Keeping the record of 2000 suppliers is not easy and in future complex supplying chain could create problem for M&S. M&S could improve on this issue by probably looking to find suppliers that could offer more than one products at a cheaper price to the company and this will help to reduce the number of suppliers they have and hopefully be able to keep track of their creditors payment period. In 2011 the acid ratio test which measures the liquidity of the business has fallen below 1 and it is 0.54, this is very unhealthy for M&S because it means that for every £1 liability they owe they have just 0.54p to cover it, for M&S to improve on its liquidity, it needs to reduce its expenses that are incurred through rent, payment of indirect labour and professional fees and also the amount of money spent on advertisement. Also if the business has any assets that are unproductive they could sell it and the money gain would help increase their current assets figure. To add up M&S can improve profitability by looking at stocks that could be charged at a higher a price or they might want to reduce the price of certain stocks as this will attract more customers. M&S can also improve in its stock turnover by targeting at different age groups, because currently the shop has an image of selling clothes that are targeted to people over their 30’s and in the current market of retail clothing it is known that people below the ages of 30 spend lots of money of clothing. The company could focus on buying and selling products that sell consistently, because there are some products that might sit in the shelf for so long and this will cost cash to be tied up in the stock. Page | ...read more.

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