Analysing Financial Statements Of Marks And Spencer Group Accounting Essay

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Marks and Spencer Group (M&S) is the premier retailer in clothing, foods and home ware within the United Kingdom. The companys commitment to quality, value, service, innovation and trust is a key contributor to their success as a high street retailer in the UK. Their current core UK operations centre around three divisions, food, general merchandise (including clothing and home ware), and the financial services industry

1.2 Analysis of Financial Statements

M&Ss financial statements represent stability within the company. Revenue increase was a highlight within the key performances, which included a substantial rise in its food business. However the segment information also shows that were less efficient in controlling their product costs (cost of sales).In relation to the Balance Sheet, the Operating director of M&S referred to it as A strong Balance Sheet that underpins our future plans to invest and the figures seem to reiterate this message (M&S annual Report 2008, pg 9). During the last year M&S has seen increases in its current and non-current Assets, particularly in areas such as intangible assets, Property, Plant and Equipment.

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1.3 Analysis of Accounting Ratios

According to M&Ss annual report they have currently completed the first phase of a three point plan that was first implemented back in 2004 (M&S annual Report, pp 5). Since the start of the year Marks and Spencers has enjoyed significant sale growth amounting to 5.1%, despite the economic downturn during the last quarter of the year. However compared to the 10.1% increase achieved in 2007, it has since seen a considerable drop, due to the economic uncertainty encountered during the last quarter of the year. Similarly This threat of the economy addressed by both chief executives who both firmly believe both companies are in a position to ride out the economic climate due to the infrastructure in place.. Unexpectedly the profit margins of both companies revealed a fall in gross margin. The same figures were also posted by similar retailers in their industry, such as Burberry (Burberry annual report, 2008, pg 5). Therefore most retailers in this sector are making less profit on what it sells to that of the previous year (Gene Siciliano, 2003, pg 106). But the net profit margin is where they differ. M&S with their increase of 1.2%, and gradual increase year on year, prove that they have a grip on cost control. As a group M&S have seen this liquidity ratio shrink over the past couple of years.From the perspective of an investor, M&S have showed a consistent growth of earnings per share. Figures stated in the key performance measures highlight the significant growth of the EPS over the past five years.Another key ratio for shareholders is the dividends per share. Since investors invest in companies to see a return on the investment, M&S has provided an attractive proposition. All investors in M&S have enjoyed a year in year increase in dividends per share since 2004. Furthermore the Dividend cover is another important aspect of shareholder ratios. Potential investors can asses the risk of investing in shares through he use of this ratio. But comparatively when the study of 2009 has been done it has been more worst compared to that of the others years and this is mainly due to the economic crisis and the recession all over especially many European countries did suffer a lot due to this recession and the UK was one , where we have M & S. According to one of the sources on the internet it was mentioned Marks and Spencer Group, the U.K.s biggest clothing retailer said full-year sales rose 0.4% to 9.06 billion from 9.02 billion a year ago. Net profit in the year fell 38% to 508.0 million or 32.3 per diluted share compared to net profit of 821.7 million or 48.7 per share a year ago which again clearly shows the affect that the economy has had on both the countries and the biggest organisations.

The organisation also saw a decrease in its overall profit margin when compared to that of the previous year 2008 where the profit margin was 12.5 % where as in the year 2009 this was 7.8 % which means there was a tremendous decrease in the profit . It came to the news that a few Outlets of marks and Spencers were also closed due to the very poor economic situation of the country.

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Comparatively the share value of the company also depreciated in this fiscal year of 2009 where one instrument earned merely 32 P where as in the year 2008 it was nearly 49 P , so comparatively there are was a significance loss in the company and its share value as well when it was compared with the last fiscal year

1.4 Limitations to Accounting Ratios

due to the use of using IRFS standards rather than FRS many figures in the accounts could be misleading. This change due to the requirement by the UK law, and the possibility of Window Dressing all limit the use of ratios. Other reasons such as the use of historical data, different methods of use, and the lack of non financial data all contribute to the limitations of financial Account.

Accounting Policies In M & S

Marks and Spencers are obliged to disclose the Accounting Policies implemented during the year in accordance with IFRS and the companies act 1985. They require M&S to include a summary of all accounting policies used in order to Assist users in interpreting the Financial Statements (Hermanson et al, 2005, 195).Therefore the disclosure of any accounting policies must provide enough transparency to enable users of the report to understand all data provided.

For this reason the FRS 18 was established in June 2001 was primarily established to deal with accounting policies. It governs how companies select, apply and disclose the policies used.

The FRS requires accounting policies to be consistent with accounting standards. Therefore the relevance of an accounting policy should be assessed when it is selected. This requires M&S to judge how appropriate an accounting policy is to the particular circumstance for the purpose of providing a true and fair view.

Furthermore FRS 18 ensures the reliability of a policy is evaluated, and reviewed on a regular basis. If a change in methods takes place, reasons for this will need to be disclosed to the public. These changes should only take place If a new policy becomes more appropriate.

3.0Analysis of property, plant and Equipment

Since the start of the financial year, M&S has been working towards their task of improving their UK property portfolio. To date M&S has amounted a total of 622 stores in the UK, and a further 278 abroad in this portfolio. Included in this is a 70% modernisation of stores, with a further 10% planned in the coming year. All this has had a substantial effect on the companys property, plant and Equipment, of which is analysed below

Land and buildings- This involves any land owned by M&S during the year. As mentioned above for easy understanding Buildings relate to all property that the company owns which is complete.

Things such as office space, stores and warehouses all fall under category. Due to the need to strengthen their portfolio this category represents the highest value of tangible assets that the business owns. Moreover with further additions to come Land and buildings could become a valuable asset in the companies Balance Sheet.

Fixtures fittings and equipment- Fixtures and fittings owned by the company have largely increased due to its expanding property portfolio. Together with new equipment and the commitment to modernise its stores, this category is identified as a key factor in fighting the recession the UK Economy finds itself in.

Assets in Construction- Due to the increase of M&Ss UK portfolio, and the modernisation of its stores many assets remain uncompleted. Therefore the cost of these assets is listed as its value until it is complete.

3.2 Depreciation

The deprecation polices adapted to account for the Land and buildings depend on a number of factors. Freehold Land is deemed not depreciable under the M&S accounting policies, whereas freehold and leasehold buildings are. Depending upon the remaining time the lease term has left, they will either be depreciated by their residual value over their estimated remaining economic lives if over 50 years, otherwise over the remaining period of the lease

In relation to Fixtures, fittings and equipment the principle remains the same. But the assets are depreciated between 3-25 years according to the estimated life of the asset, using the straight line method. This shows a change in their accounting policy compared to the previous year, which stated 3-15 years. Therefore it can be implied that M&S can pay less depreciation on any additions as there is an option to depreciate an asset over a longer period of time.

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Finally the Assets in Construction, as the name suggests refers to the assets that are not yet complete. Therefore any asset of this type is not subject to depreciation until after it has been completed and reclassified to either one of the other categories.

The annual report further shows no impairment took place during the year. Nevertheless, if impairment was to take place, than according to the accounting policies of M&S it would be reviewed annually, and any impairment found would be charged to the income statement as the NBV value is more than its recoverable amount

(http://www.frc.org.uk/asb/technical/standards/pub0209.html).