Financial Analysis Of Mark & Spencer Case Study

Financial Analysis Of Mark & Spencer

Introduction - Financial Analysis Of Mark & Spencer

Want the Best Assignment Help in the UK? Look to Native Assignment Help for unparalleled expertise and support. Our dedicated team of professionals goes above and beyond to ensure you receive top-quality assignments that exceed your expectations.

1. A. Performance analysis of Mark & Spencer

Mark & Spencer has been one of the greatest retail organizations in the British country. The company is known for maintaining 120 years of great heritage and currently it has nearly 450 stores of retail opened in the UK along with 65000 workers (Alali et al.2021). However, in the recent year, the performance of the organization has been influenced due to its competitors. An analysis related to the earning along with M&S dividend has been discussed.

After some time, M&S has been the most preferred brand among the consumers. Recently the company also focused on the product quality that can be value for money. Therefore, the company also can generate revenue in every sector. In the global market M&S has different types of competitors that help the company to maintain stability. The company also organized a transformation program. In that way, brands are also able to reach potential customers as well as be able to deliver some high-quality products. Next plc also has an executive collection of luxury products like shoes and clothes. The company’s headquarter is in the United Kingdom. From there the company has 200 stores in different countries like Asia, Middle East and Europe and has 500 stores all over the UK. Next plc. Slowly overtake the M&S Company. The gross edge is recognized to produce deals income. Then, at that point, equipping proportion assists with estimating the organization's drawn out business structure. EPS can be checked to gauge the presentation of the offer. P/E proportion assists with really taking a look at the organization's productivity as well as execution. Profit payout proportion has been checked to accumulate information about the partner's speculation on returns. These proportions help to make contrasts between both of the organizations. The Next plc’s stock has been provided through different types of suppliers. The distribution process is also good. The company doesn't sell their clothes to a third-party brand. There are different types of ratios that have been calculated. Therefore, the current ratio has been used to check the current liabilities. Then, a quick ratio has been used to convert the company’s assets into cash. After that, the net profit ratio has been checked to implement a new strategic transformation program. After some time, M&S has been the most favored brand among the purchasers. As of late the organization likewise centered around the item quality that can be an incentive for cash. Accordingly, the organization additionally can create income in each area. In the worldwide market M&S has various kinds of contenders that assist the organization with keeping up with steadiness. The organization additionally coordinated a change program. In like that, brands are ready to arrive at possible clients as well as have the option to convey a few top notch items. Next plc likewise has a leader assortment of extravagance items like shoes and garments. The gross margin is identified to generate sales revenue. Then, gearing ratio helps to measure the company’s long-term business structure. EPS can be checked to measure the performance of the share. P/E ratio helps to check the company’s profitability as well as performance (Eisenberg, 2019). Dividend payout ratio has been checked to gather knowledge about the stakeholder’s investment on returns. These ratios help to create differences between both of the companies. Through that way, one also can make a decision to invest in the shares of the companies. That way, one of the companies also will be able to generate profit. Both of the company’s financial as well as non-financial analysis has been discussed. [Referred to Appendix 1]

B. Analysis

In a performance analysis, it is determined that the Basic EPS of M&S in the year 2021 is 1.50 which shows the company is profitable while giving a positive earning of more than 1 on each share.

In the above analysis it is also determined that the P/E ratio of M&S in the year 2021 is 141.6 which is also considered to be ideal. It means the earning the M&S is providing is almost 1/3 of the price of its shares which is potentially very beneficial and attractive to the investors.

As per the calculation of gearing ratio, it has been analyzed that the Mark & Spencer is highly geared and in order to pay off and reduce the debts on it the company must pay a lower value of dividend.

“Return on equity ratio of M&S” in 2019 is 1.39. “Return on equity ratio of M&S” in 2020 is 0.74. “Return on equity ratio of M&S’ in 2021 is -8.80. Therefore, in the year 2019, the company’s Return on equity ratio is high.

“Price to book value ratio” of M&S in 2019 is 4.33. “Price to book value ratio” of M&S in 2020 is 4.83. “Price to book value ratio” of M&S in 2021 is 3.05. Therefore, in the year 2020 the “Price to book value ratio” is high. [Referred to Appendix 1]

 C. Financial factors affect the earnings and dividend ratios of a company

There are different financial factors that affect the earnings and dividend ratios of the company. This is the return on assets, “debt to equity ratio”, and growth of the asset of the company.

Return on assets

Profitability has an impact on dividend distribution since dividends represent an amount of net earnings of the company. As a consequence, if the company produces a profit, the dividend will be paid. Profitability ratios, such as Return on Assets, are studied. Profitability has a positive influence on a company's dividends paying ability. Profitability is a major determinant of dividend distributions and the company's dividends paying ability.

“Debt to equity ratio”

The “Debt to Equity Ratio” measures a company's ability to meet all of its obligations, as indicated by a portion of its own capital being used to service debt (Wang and vom Hofe, 2020). Because profits are used to pay down obligations, companies having a larger leverage ratio must pay a lower dividend. Companies with the most financial leverage often pay a tiny dividend.

Growth of the asset

Assets are used to support the company's operations. The more the assets, the greater the organization’s expected operational performance. Companies with a high rate of growth and large investment potential, on the other hand, will require a significant institutional fund to support these activities; therefore, they tend to pay a reduced or even no dividend. Investment prospects impact the decision to pay dividends (Gibby et al. 2021). They observed that companies with better development and investment possibilities paid lower dividends. As a result, dividend payments have a negative relationship with the company's investment and development potential. In the case of Mark & Spencer, it is highly developed and therefore it pays lower dividends and enhances its performance in being profitable.

Non-financial factors affect the earnings and dividend ratios of a company

Major non-financial factors affect the earnings and dividend ratios of a company are diversity, structure of the company (management), and growth potential. Mark & Spencer is running in an environment which is very competitive and various factors outside the social environment impacts the business. As the organization is known for trading various items and commodities such, clothing, foods and products, M&S has numerous competitors in the market which are also known for manufacturing and providing almost identical items. However, social, technological and economic factors impact the business M&S in various ways.

Structure of the company (management)

The structure of the company means the strong management of the company has a key role in this matter. When the owner of a company hires a good management team, then it directly impacts the organization’s long-term viability. It is easier to train the new owner about the business's operations and ensure the firm's long-term viability if key people continue with the organization.

It is vital that shareholders, in particular, make the effort to examine this objectively. However, since they have been so focused on their firms' day-to-day operations, one-third of business owners have not addressed management transition. Only 25% are confident that management teams would be effective in the absence of the owner's involvement. 

Diversity

The company can be detrimental if it is totally dependent on one employee, supplier, and customer. Then it becomes a contractor more than the owner of the company. This raises issues for the company. The earnings and dividend ratios of a company are affected by this in a negative way (Keay and Iqbal, 2019). The culture of the company should be diverse in order to create a positive value in the earnings and dividend ratios of a company and it needs to decrease the dependence on the limited employees.

Growth potential

The growth potential of the company is important in order to create a positive impact on the earnings and dividend ratios of a company. Potential buyers and investors want to see the clear growth rate; the business plan includes the expansion in the customer base, potential products, and the markets of the company in order to invest in the company. Potential buyers and investors want to see how this impacts the sales and bottom line. 

2. Performance analysis of Next Plc.

In a performance analysis, it is determined that the Basic EPS of M&S in the year 2021 is 1.50 which shows the company is profitable while giving positive earnings of more than 1 on each share. Earnings per share ratio of Next Plc in 2019 are 456. Among the M&S and their competitor Next Plc. company’s earnings per share has been discussed.

The price-to-earnings is mainly measured to the company’s price per share that will be related to the earnings per share. It helps to assume that investors are more efficient to gain power for the future (Borchardt et al. 2021). Therefore, the company has a potential rate to share a net income that will be a most common thing. It was also considered a lower rate than the Next Plc. It also has a fundamental measure to check the company’s profitability.

P/E ratio of M&S in 2021 is 141.6 on the other hand the P/E ratio Next Plc has been determined as 16. Among the M&S and their competitor Next Plc. Company’s the P/E ratio has been discussed.

Return on capital is mainly used to check the company’s profitability and their performance. Therefore, a company’s output like interest and tax and input like capital employment also give an effective solution. Here also efficiencies for both the company has been checked. For both the company’s current assets will be higher than the present. It also helps to satisfy their customers. Therefore, the company also gains a profit from it. “Return on equity ratio of M&S” in 2019 is 1.39. “Return on equity ratio of M&S” in 2020 is 0.74. “Return on equity ratio of M&S” in 2021 is -8.80. Therefore, in the year 2019, the company’s “Return on equity ratio” is high.

“Return on equity ratio” of Next Plc in 2019 is 1.07. ‘Return on equity ratio of Next Plc in 2020 is 1.38. “Return on equity ratio of Next Plc” in 2021 is 0.43. Therefore, in the year 2020, Next Plc. The company's “Return on Equity ratio” is high.

Among the M&S and their competitor Next Plc the company's Return on equity ratio has been discussed. In the year 2020 the Next Plc the company's performance is good.

“Price to book value ratio” of M&S in 2019 is 4.33. “Price to book value ratio” of M&S in 2020 is 4.83. ``Price to book value ratio” of M&S in 2021 is 3.05. Therefore, in the year 2020 the “Price to book value ratio” is high.

“Price to book value ratio” of Next Plc in 2019 is 31.12. “Price to book value ratio” of Next Plc in 2020 is 24.34. “Price to book value ratio” of Next Plc in 2021 is 15.05. Therefore, in the year 2019, the Next Plc the company's “Price to Book value ratio” is high.

Among the M&S and their competitor Next Plc the company’s Price to book value ratio has been discussed. In the year 2019 the Next Plc the company's performance is good.

Apart from the financial ratios and performance, the revenue of Next Plc is higher than the Mark & Spencer and profitable to invest in the long run. [Referred to Appendix 2]

Financial ratios in 2021	Mark & Spencer Plc	Next Plc
Current Ratio	0.69	1.21
P/E Ratio	141.6	16
EPS	1.50	456
Debt equity ratio	2.78	4.69
Return on equity	-8.80	0.43
Dividend payout ratio	260	24

3. Recommendations

In the year 2020, Mark & Spencer launched a program due to the viral epidemic which was named “Never the same again” in order to analyze the factors which influenced the buying behavior of the individuals and also to draw necessary actions on it. The hiring of a great management team by a company president has a direct impact on the organization's long-term viability. It is easier to train and develop holders about the operations of the business as well as ensure the firm's lengthy viability if key employees remain with the organization. It becomes a contractor rather than the company's owner. This causes problems for the company. This has a negative impact on a company's earnings and dividend ratios (Patra and Singh, 2021). In deciding to finance a company, potential purchasers want to see a straightforward growth rate, a business plan that includes the widening of the client base, generating growth, and markets. Prospective purchasers are interested in how this affects sales and the bottom line. Mr. and Mrs. Wonga should invest in the Mark & Spencer which looks more profitable as per the calculation above. Even though the liquidity of the organization is not as stable as Next Plc, some other areas such as profitability and gearing capability of M&S is highly beneficial than its competitor Next Plc. The P/E ratio of the company is 141.6 which is 1/3^rd of its share price and gives an attractive earning for each share. While on the other hand the share price of Next Plc is much costlier and according to its price, the earning provided by the company is not that much attractive to the potential investors. Also it has been analyzed that Next plc has higher leverage on it as compared to the Mark & Spencer and should not be recommended to invest.

Profit growth does have a determinant of dividend dispersion even though dividend payments portray a portion of the firm's net income. Profit growth is a significant determinant of financial distribution functions and a firm's capacity to afford dividend income. Organizations with the greatest financial power and influence frequently pay a pittance in dividends. Firms with a strong rate of growth and massive investment possibilities, on either hand, will require a huge organizational program to support these activities; thus, they tend to pay a lowered and even no dividend. The employing of an incredible supervisory group by an organization president straightforwardly affects the associations drawn out practicality. It is simpler to prepare and foster holders about the tasks of the business as well as guarantee the company's extended suitability assuming that key workers stay with the association. It turns into a worker for hire rather than the organization's proprietor. This brings on some issues for the organization. This adversely affects an organization's income and profit proportions. The ability to charge dividends is influenced by investment prospects. M&S competes in the market with a slew of companies that produce and sell nearly identical goods. However, social, technological, and economic factors all have an impact on the M&S business in different ways. Therefore, stakeholders’ engagements are also necessary to maintain a daily basis activities. From that way, companies will get funds to produce more quality products (Upadhyay et al. 2021). The company also gets more customers from the online market. That is also another way to make more profit. It also helps to maintain stability in the market. There are also various types of factors that also generate impact on both of the companies. Therefore, both companies need to focus on their future growth. These ways the Next plc is much more effective than Mark & Spencer Company.

Conclusion

After developing a performance analysis of both the companies, Next plc has different types of variables to make an investment. Mr. and Ms. Wonga can easily choose Next plc to invest in. Next plc’s financial position is also better than M&S. It is way better in terms of efficiency, liquidity, profitability and leverage. Therefore, M&S is also finding ways to reconstruct their efficiency level. According to the chief executive of the company, the reconstruction process has been started to gain more profit. It also helps the company to gain the profit margin. That has been less than 1 percent. This is also included with the five year strategic plan that helps to generate revenue. It included pensions, logistics, IT structure and payments. The main aim is to develop transformation at the store. Therefore, customer engagement will also increase. There are some problems in the funding and liquidity in the M&S Company that can generate some consequences to maintain stability in the market. According to that a well-developed ratio analysis also has been conducted.

Therefore, Next plc has more profitability and liquidity in the business. That also generates some potential problems that can face the company for the long term. Gearing ratio is also high, which helps the company to take excessive borrowings to expand their store. It also can be considered that increasing assets will be good for the company to grow in the future. Therefore, the company also invests in different types of opportunities. It also helps to give a better performance in financial ways like liquidity ratio gearing ratio. Therefore, it also shows a great potential to grow in the market. The company also uses their funds to make profit. Their non-financial assets also help to attract more customers. All things are reflected in the ratio analysis.

Reference list

Resources

Alali, E., Alhammadi, N., Almarar, M.S., Almheiri, S., Almarar, F., Almarar, M., Alremaithi, L.K. and Nobanee, H., 2021. Financial Analysis and Performance Evaluation of Moderna. Available at SSRN 3896199.

Borchardt, M.A., Stokdyk, J.P., Kieke Jr, B.A., Muldoon, M.A., Spencer, S.K., Firnstahl, A.D., Bonness, D.E., Hunt, R.J. and Burch, T.R., 2021. Sources and risk factors for nitrate and microbial contamination of private household wells in the fractured dolomite aquifer of northeastern Wisconsin. Environmental health perspectives, 129(6), p.067004.

Eisenberg, P., 2019. Financial Analysis of Primark Stores Ltd. with regard to a Stock Exchange Floatation (IPO). International Journal of Management, 7(1), pp.91-112.

El?Haj, M., Rayson, P., Walker, M., Young, S. and Simaki, V., 2019. In search of meaning: Lessons, resources and next steps for computational analysis of financial discourse. Journal of Business Finance & Accounting, 46(3-4), pp.265-306.

Gibby, A.L., Pettit, L., Hill, E.J., Yorgason, J. and Holmes, E.K., 2021. Implicit and explicit childhood financial socialization: Protective factors for marital financial disagreements. Journal of Family and Economic Issues, 42(2), pp.225-236.

Islam, S., Nahar, T.N., Begum, J., Khatun, M. and Hossain, M.I., 2018. Marketing and Financial Analysis of Milk Production-A Value Chain Perspective. Asian Development Policy Review, 6(1), pp.32-40.

Judge, F., McAuliffe, F.D., Sperstad, I.B., Chester, R., Flannery, B., Lynch, K. and Murphy, J., 2019. A lifecycle financial analysis model for offshore wind farms. Renewable and Sustainable Energy Reviews, 103, pp.370-383.

Keay, A. and Iqbal, T., 2019. The impact of enlightened shareholder value. Journal of Business Law, (4), pp.304-327.

Leite, B.T.D.S., 2020. Marks & spencer out of fashion the case of an outdated brick and mortar (Doctoral dissertation).

Liang, X., 2018. Integrated economic and financial analysis of China’s sponge city program for water-resilient urban development. Sustainability, 10(3), p.669.