Analysis of Marks and Spencer Group PLC
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Published: Mon, 01 May 2017
The principal activities of the company are retailing clothing, food and home products. Marks & Spencer operates in the secondary and tertiary sectors. It operates in the secondary sector as it manufactures finished goods and it is associated with textile production. It operates majorly in the tertiary sector as it provides goods and services to the population and to other businesses.
A group of companies is one which consists of two or more companies between which there is a parent/subsidiary relationship and they are usually under the same ownership and maybe management. The group balance sheet will differ from that of the company since it includes the total of each individual company balance sheet of all the companies together us one compared to the company balance sheet which includes all the transactions of the company.
i) total assets – £7258.1 millions
total liabilities – £5157.5 millions
net assets – £2100.6 millions
ii) The difference between the total assets and the total liabilities is the net assets which can be also called as the group’s capital. When you add the fixed assets with the current assets and then subtract the current liabilities from the Balance sheet, the total that you write down is called ‘Net Assets’.
i) profit after tax (52 weeks ended 28 March 2009) – £506.8 millions
(52 weeks ended 29 March 2008) – £821.0 millions
Net profit margin 2009 – 5.6%
2008 – 9.1%
ii) The net profit margin has significantly fell because of the exceptional costs incurred to the firm during the current accounting period due to the economic recession that affected considerably the markets M&S operates in. The firm had to spend £135.9 millions on exceptional costs, due to a change in its strategies, compared to 2008 when it had no exceptional costs.
i) M&S uses straight line method which is a method “that allocates the amount to be depreciated evenly over the useful life of the asset”. Some of M&S’s uses of depreciation are the following:
Freehold land – not depreciated
Freehold and leasehold buildings with a remaining lease term over 50 years – depreciated to their residual value over their estimated remaining economic lives
Leasehold buildings with a remaining lease term of less than 50 years – over the remaining period of the lease
Fixtures, fittings and equipment – 3 to 25 years according to the estimated life of the asset.
ii) The straight-line method of depreciation is a method that allocates the amount to be depreciated evenly over the useful life of the asset. For example for something with a total cost of £500 and an estimated useful life of 5 years, using the straight-line method, the annual depreciation charge will be £100. On the other hand the reducing balance method is the method in which the depreciation is expressed as a fixed percentage on the reducing balance of an asset. In simpler words the amount of depreciation gets reduced every year. For an asset of a total cost of £500, using the reducing balance method by 20%,it means that the value of the asset will decrease 20% of its value each year. After year 1, the net book value will be £400 and then for the next year the value will drop to £320 and so on.
iii) Property, Plant and Equipment as at 29/3/2009 – £4.834.0 millions
(a) £725.1 millions straight line depreciation
(b) £1450.2 millions reducing balance depreciation
iv) By using the straight-line method of depreciation the reported profit of the group will be reduced by about £400 million as depreciation is placed under the expenses category in the income statement and it will also be deducted from the asset’s current value in the balance sheet. On the other hand, by using the 30% reducing balance method, profit will decrease even more and the asset’s value on the balance sheet will be reduced even more. The more depreciation they charge the less net profit they get for the current period.
i) £285.2 millions
ii)1371.9/365=3.76 millions/day 285.2/3.76â‰ˆ76 days worth of sales.
iii) The ratio of trade debtors and customers to sales is about 20%. This seems quite high but for such a large company like Marks and Spencer, which generates so much cash from operations (sales), is not much of a concern. However it would be better for the company to try and minimize this ratio in the next years.
Stewardship accounting is the provision of information by managers to owners for the purpose of avoiding a potential conflict between managers and owners. Directors act as agents of the shareholders, or as stewards on their behalf. The stewardship function requires directors to act in the best interests of the company at all times. Where shareholders are remote from the management of their company there is potential for the directors to take action that benefits themselves rather than benefiting the shareholders. This is one of the potential problems of the stewardship relationship. If directors wish to manipulate financial information they are well placed to do so. Shareholders can be assured that the annual financial information they receive has not been distorted by requiring an audit by an independent auditor. Until recently all companies were required to have an audit of their annual financial statements.
i) current Ratio= Current Assets/ Current Liabilities
= 1389.8/2306.9= 0.60:1
Quick Ratio= (Current Assets- Stock and prepayments)/ Current liabilities
ii) The current ratio and the quick ratio are both liquidity ratios. They are commonly used to assess the liquidity of a business. As a general rule, a current ratio of 1.5 or greater can meet near-term operating needs sufficiently. A higher current ratio can suggest that a company is hoarding assets instead of using them to grow the business not the worst thing in the world, but it’s something that could affect long-term returns. The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. An acid-test of 1:1 is considered satisfactory unless the majority of your “quick assets” are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.
i)There are many factors that determine the share prices but only some factors can directly influence them. One of these factors is demand and supply. The price is directly affected by the trend of stock market trading. When more people are buying a certain stock, the price increases and when more people are selling the stock, the price falls.
Secondly news is a huge factor that influences the share’s price. Positive news about a company can increase buying interest in the market while negative news can decrease it. It is the overall performance of the company that matters more than news.
The earning per share is the profit that the company made on the last quarter and it is also a huge factor that can affect the share prices. Every public company needs to publish a quarterly report that states the earning per share. By this way they influence the buying tendency in the market resulting in the increase in the price of that particular share. So, one needs to watch on the quarterly reports of the companies and before buying any shares.
ii) Marks&Spencer Share prices
My evaluation of Marks and Spencer’s performance thus far for this current accounting period is positive. First of all the company uses a long term plan and any short term decreases in revenues or profits is acceptable. The profit margin ratio has increased in 2009 from 13.43% to 23.45% so despite the recession M&S managed to increase its profit margin. On the other hand the earning per share has decreased for 2009 from £0.49 to £0.32 per share. Though the profit margin has increased the earning per share has decreased and that is not positive for us investors. The firm might have a long term plan that is indeed promising but thus far this season we investors are concerned about the effect of the recession on the firm and more specifically on our earnings per share.
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