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Financial statement of Marks and Spencer Assignment Sample

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Financial statement of Marks and Spencer Assignment

Introduction:

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This report is based on to identify the financial performance of of the company. Mark and Spencer is a UK based detail company which is dealing in the clothing industry. In this report the annual report of the company will take to identify the financial performance according to the ratio analysis. Many kind of ratios are helpful to evaluate the firm performance so that in this report profitability, liquidity, solvency, investment and cash flow movement related ratio will analyze. This report is helpful to the investors and other members to take decisions. on the basis of this report the investor can take decision to invest and managers can take decision to improve the organization.

Ratio analysis

Ratio analysis:

metric

2020

2019

2018

CIMA

Average

Profitability

 Benchmark

Overall ROCE

PBIT x100

%

3.06%

4.57%

2.12%

8%-11%

Cap Employed

Return on Assets

PBIT x100

%

2.50%

3.37%

1.68%

Total Assets

Asset Turnover

Revenue

x

1.0

1.2

1.2

Total Assets

Net profit

NP before int and tax

%

2.50%

2.87%

1.46%

3%-10%

margin

Revenues

Gross Profit

Gross profit x 100

%

2.50%

2.87%

1.46%

margin

Revenues

Liquidity

Working

current assets /

x:1

0.66

0.62

0.66

1-1.5

capital ratio

current liabilities

Acid test

ca's - inventories

x:1

0.35

0.32

0.25

0.75-1.25

ratio

current liabilities

Efficiency

Receivables

Trade receivables x365

days

10.68

9.40

8.61

55-85 days

collection days

sales

Payables

Trade payables x 365

days

52.52

51.58

47.68

45-60 days

payment days

cost of sales

Inventory

Cl.Inv. x 365

days

20.77

25.36

27.04

turnover

cost of sales

Long Term Financial Stability

Gearing

Fixed int cap x 100

%

56%

62%

63%

33%-47%

capital employed

Interest Cover

Operating Profit

x

-1.09

-1.20

-1.38

Interest

Other

Cash Cycle

Inventory period

21

25

27

Receivables

11

9

9

Payables

53

52

48

Operating cash cycle

days

21

17

12

2020

2019

2018

Revenue

10181.9

10377.3

10698.2

Share of result in associate - Ocado Retail Limited

-14.2

Cost of sales

9912.9

10079.2

10541.7

Operating profit

254.8

298.1

156.5

Finance income

46.9

34.8

24.1

Finance costs

-234.5

-248.7

-113.8

Profit before tax

67.2

84.2

66.8

Income tax expense

-39.8

-38.9

-37.7

Profit for the year

27.4

45.3

29.1

2020

2019

2018

Assets

Non-current assets

Intangible assets

399.1

499.9

599.2

Property, plant and equipment

5,494.20

5,662.30

6,189.60

Investment property

15.5

15.5

15.5

Investment in joint ventures and associates

760.4

4

7

Other financial assets 

9.7

9.9

9.9

Retirement benefit asset

1,915.00

931.5

970.7

Trade and other receivables

262.6

273

209.5

Derivative financial instruments 

112.4

19.8

27.1

8968.9

7415.9

8028.5

Current assets

Inventories

564.1

700.4

781

Other financial assets

11.7

141.8

13.7

Trade and other receivables

298

267.2

252.4

Derivative financial instruments

73.5

40.3

7.1

Current tax assets

19.3

Cash and cash equivalents

248.4

285.4

207.7

1215

1,435.10

1,261.90

Total Assets

10183.9

8851

9290.4

Liabilities

Current liabilities

Trade and other payables

1,426.40

1,424.40

1,377.10

Partnership liability to the Marks & Spencer UK Pension Scheme

71.9

71.9

71.9

Borrowings and other financial liabilities

316.6

694.4

283.7

Derivative financial instruments

13

7.3

73.8

Provisions

21.5

100.7

56.2

Current tax liabilities - 

26.2

50

1849.4

2,324.90

1,912.70

Non-current liabilities

Retirement benefit deficit

12.4

17.2

22.5

Trade and other payables

222.6

15.6

16.3

Partnership liability to the Marks & Spencer UK Pension Scheme

135.5

200.5

263.6

Borrowings and other financial liabilities

3,865.90

3,628.50

4,054.50

Derivative financial instruments

0.7

2.8

30.7

Provisions

56.5

72.7

91.8

Deferred tax liabilities

332.4

119.6

165.1

4626

4056.9

4644.5

Total liabilities

6475.4

6381.8

6557.2

Net assets

3708.5

2469.2

2733.2

Equity

Issued share capital

487.6

406.3

406.2

Share premium account

910.4

416.9

416.4

Capital redemption reserve

2,210.50

2,210.50

2,210.50

Hedging reserve

68.6

-14.6

-76

Cost of hedging reserve

5.7

11.7

10.7

Other reserve

-6,542.20

-6,542.20

-6,542.20

Foreign exchange reserve

-35.9

-43.9

-29.3

Retained earnings

6,597.80

6,024.80

6,339.40

Equity attributable to owners of the parent

3,702.50

2,469.50

2,735.70

Non-controlling interests

6

-0.3

-2.5

Total equity

3,708.5

2,469.2

2,733.2

Profitability:

Profitability ratio is used to identify the earning capacity of the company and according to that ratio the actual performance of the profit will be determined. In the profitability ratio there are five kind of ratios are identified that is ROCE, return on asset, asset turnover, net profit margin and gross profit margin. As per the CIMA, an average benchmark is also set so that investor can understand the performance of the M&S Company. The return on asset of the company is 2.5 % in year 2020 and the highest ratios determine that is 3.37 % that mean company gives the return on their asset only 3.37% which is very low by the benchmark. As per the all analysis of profitability ratio it is identified that the all ratios are less than to the benchmark. The highest net profit margin is 2.87 % of M&S company in year 2019 and the gross profit margin is 2.87 % in also 2019. As per the analysis it is found out that the company performance was good in year 2019 (Drake & Fabozzi, 2012). The profitability ratio is less than the CIMA benchmark, liquidity ratio is also less than the benchmark that mean in the short term company performance is not good.

Liquidity:

Liquidity ratio is important to evaluate the current position of the company. According to the analysis of liquidity mark and Spencer company's liquidity position is not good as per the CIMA benchmark. In the liquidity ratio to ratios are identified that is current ratio and second is acid test ratio. The current ratio of M&S company is 0.66 times in a 2020 and in 2019 it was 0.62 that mean the ratio is increased but as per the requirement it is not good. According to the CIMA this is should be 1- 1.5 times. The acid test ratio is also less than the benchmark because in 2020 it was 0.35 which is the highest in recent 3 years. The acid test ratio should be flow between 0.75 to 1.25 (Ahrendsen & Katchova, 2012).

Management:

The management ratio is known as also the efficiency ratio because according to this ratio the company can determine the efficiency and performance of the company. In this ratio receivables collection period, payable payment period and inventory turnover ratio is determined. As per the analysis of annual report of M&S company the receivables collection period is approx 11 days in year 2020 and in 2019 it was 10 days and in year 2018 it was approximately 9 days which is good for the company (Ahrendsen & Katchova, 2012). The efficiency of the company is good because the payable payment period is also good because company can pay the liability in 45 to 60 days which is good and the inventory turnover ratio is also good as per the industry. In year 2020 the inventory turn over ratio is 21 days which is lowest in the 3 years and the highest inventory turnover ratio is 27 days. This is defines that the inventory of company sale in the given period (Ahrendsen & Katchova, 2012).

Solvency:

This ratio is used to evaluate the ability of company that the company are able to make payment of their debts and interest amount. In the solvency ratio, 2 ratio evaluates first is the ratio and another is interest cover ratio. The gearing ratio M&S company is so high and it is more than the CIMA benchmark. In 2020 the gearing ratio was 56% and the highest gearing ratio was 63% in year 2018 and the benchmark is 33 to 47%. They're getting they should defines the fixed liabilities of the company can bear by the capital employed. Interest cover ratio is identified 1.38 times in 2018 which is the highest interest coverage and the lowest coverage ratio is 1.09 times that is year 2020. The interest coverage ratio defines how much the interest amount on the operating profit.

Investment:

In the investment analysis the earning per share of the company and price earning and the dividend coverage of the company is identified. This ratio analysis defines that what is the investment plan and how much the company and so that investor can invest in the company. The EPS of M&S company is 23.7 p in year 2020 which is the highest EPS. As per the statement of company it is also find out that in ear 2019 the EPS was negative by 21.2 p. That performance of the company is not good in 2019 as per the EPS but in 2020 it was good but the company performance is not same in all years. The DPS of the company is decreased year by year. In year 2018 it was 18.7 p and in 2019 it remains 13.3 p but in year 2020 the DPS was 3.9 p (Kulikova et al., 2015).

Cash flow movement:

Cash flow it is statement that defines the cash position of the company. It is identified the incoming and outgoing all the cash. Cash is the most important for every company because cash make fulfill the short term needs. In the cash flow statement 3 activities are involved that is operating second is financing and third one is investing. According to the cash flow statement the operating activities amount is decreased in year 2020 and it becomes 973.1 million. In 2019 it was 1244.7 million. The investing activities amount is negative that mean company invested in the market and increase the fixed assets and there infrastructure. In 2020 company invested 765.7 million. The financing activity amount is also negative that defines company make payments of their debt amount so that the cash become outflow (Jury, 2012).

Share price performance:

The share price is indicates the market position of the company that defines what was the company value in the market. In this report 3 years analysis as discussed so that it is find out that in year 2018 the company share price was 300 GBX, in year 2019 it becomes 242.07 GBX and in the year 2020 it remains 214.10 GBX. According to the share price performance it is identified that the company market position is not good because the share price of company decrease every year and the investor always look out the market price of the company. On the basis of share price M & S Company is not good for the investor.

Conclusion

In this report the ratio analysis and the financial performance of the company is discussed and it is find out that the company financial position is not good so much for the investor point of view. The profitability ratio is less than the CIMA benchmark, liquidity ratio is also less than the benchmark that mean in the short term company performance is not good. In the last the share price of the company also evaluate and find out that the market price of the company decreased which is not good for the investor.

Reference:

Ahrendsen, B.L. and Katchova, A.L., 2012. Financial ratio analysis using ARMS data (No. 1639-2016-135182).

Drake, P.P. and Fabozzi, F.J., 2012. Financial ratio analysis. Encyclopedia of Financial Models.

Jury, T., 2012. Cash flow analysis and forecasting: the definitive guide to understanding and using published cash flow data (Vol. 653). John Wiley & Sons.

Kulikova, L.I., Garyntsev, A.G. and Gafieva, G.M., 2015. The Balance sheet as information model. Procedia Economics and Finance Assignment24, pp.339-343.

Appendix:

1.

Vertical analysis of P&L

2020

2019

2018

Revenue

100%

100%

100%

Share of result in associate - Ocado Retail Limited

-0.14%

0.00%

0.00%

Cost of sales

97.36%

97.13%

98.54%

Operating profit

2.50%

2.87%

1.46%

Finance income

0.46%

0.34%

0.23%

Finance costs

-2.30%

-2.40%

-1.06%

Profit before tax

0.66%

0.81%

0.62%

Income tax expense

-0.39%

-0.37%

-0.35%

Profit for the year

0.27%

0.44%

0.27%

Vertical analysis of balance sheet

2020

2019

2018

Assets

Non-current assets

Intangible assets

3.9%

5.6%

6.4%

Property, plant and equipment

53.9%

64.0%

66.6%

Investment property

0.2%

0.2%

0.2%

Investment in joint ventures and associates

7.5%

0.0%

0.1%

Other financial assets 

0.1%

0.1%

0.1%

Retirement benefit asset

18.8%

10.5%

10.4%

Trade and other receivables

2.6%

3.1%

2.3%

Derivative financial instruments 

1.1%

0.2%

0.3%

88.1%

83.8%

86.4%

Current assets

Inventories

5.5%

7.9%

8.4%

Other financial assets

0.1%

1.6%

0.1%

Trade and other receivables

2.9%

3.0%

2.7%

Derivative financial instruments

0.7%

0.5%

0.1%

Current tax assets

0.2%

0.0%

0.0%

Cash and cash equivalents

2.4%

3.2%

2.2%

11.9%

16.2%

13.6%

Total Assets

100%

100.0%

100.0%

Liabilities

Current liabilities

Trade and other payables

14.01%

16.1%

14.8%

Partnership liability to the Marks & Spencer UK Pension Scheme

0.71%

0.8%

0.8%

Borrowings and other financial liabilities

3.11%

7.8%

3.1%

Derivative financial instruments

0.13%

0.1%

0.8%

Provisions

0.21%

1.1%

0.6%

Current tax liabilities - 

0.00%

0.3%

0.5%

18.16%

26.3%

20.6%

Non-current liabilities

0.00%

0.0%

0.0%

Retirement benefit deficit

0.12%

0.2%

0.2%

Trade and other payables

2.19%

0.2%

0.2%

Partnership liability to the Marks & Spencer UK Pension Scheme

1.33%

2.3%

2.8%

Borrowings and other financial liabilities

37.96%

41.0%

43.6%

Derivative financial instruments

0.01%

0.0%

0.3%

Provisions

0.55%

0.8%

1.0%

Deferred tax liabilities

3.26%

1.4%

1.8%

45.42%

45.8%

50.0%

Total liabilities

63.58%

72.1%

70.6%

Net assets

36.42%

27.9%

29.4%

Equity

Issued share capital

4.79%

4.6%

4.4%

Share premium account

8.94%

4.7%

4.5%

Capital redemption reserve

21.71%

25.0%

23.8%

Hedging reserve

0.67%

-0.2%

-0.8%

Cost of hedging reserve

0.06%

0.1%

0.1%

Other reserve

-64.24%

-73.9%

-70.4%

Foreign exchange reserve

-0.35%

-0.5%

-0.3%

Retained earnings

64.79%

68.1%

68.2%

Equity attributable to owners of the parent

36.36%

27.9%

29.4%

Non-controlling interests

0.06%

0.0%

0.0%

Total equity

36.42%

27.9%

29.4%

3.

Horizontal analysis

2020

2019

2018

Revenue

-4.83%

-3.00%

100%

Share of result in associate - Ocado Retail Limited

100%

Cost of sales

-5.96%

-4.39%

100%

Operating profit

62.81%

90.48%

100%

Finance income

94.61%

44.40%

100%

Finance costs

106.06%

118.54%

100%

Profit before tax

0.60%

26.05%

100%

Income tax expense

5.57%

3.18%

100%

Profit for the year

-5.84%

55.67%

100%

Horizontal analysis:

2020

2019

2018

Assets

Non-current assets

Intangible assets

-33.39%

-16.57%

100%

Property, plant and equipment

-11.23%

-8.52%

100%

Investment property

0.00%

0.00%

100%

Investment in joint ventures and associates

10762.86%

-42.86%

100%

Other financial assets 

-2.02%

0.00%

100%

Retirement benefit asset

97.28%

-4.04%

100%

Trade and other receivables

25.35%

30.31%

100%

Derivative financial instruments 

314.76%

-26.94%

100%

11.71%

-7.63%

100%

Current assets

Inventories

-27.77%

-10.32%

100%

Other financial assets

-14.60%

935.04%

100%

Trade and other receivables

18.07%

5.86%

100%

Derivative financial instruments

935.21%

467.61%

100%

Current tax assets

#DIV/0!

#DIV/0!

100%

Cash and cash equivalents

19.60%

37.41%

100%

-3.72%

13.73%

100%

Total Assets

9.62%

-4.73%

100%

Liabilities

Current liabilities

Trade and other payables

3.58%

3.43%

100%

Partnership liability to the Marks & Spencer UK Pension Scheme

0.00%

0.00%

100%

Borrowings and other financial liabilities

11.60%

144.77%

100%

Derivative financial instruments

-82.38%

-90.11%

100%

Provisions

-61.74%

79.18%

100%

Current tax liabilities - 

-100.00%

-47.60%

100%

-3.31%

21.55%

100%

Non-current liabilities

Retirement benefit deficit

-44.89%

-23.56%

100%

Trade and other payables

1265.64%

-4.29%

100%

Partnership liability to the Marks & Spencer UK Pension Scheme

-48.60%

-23.94%

100%

Borrowings and other financial liabilities

-4.65%

-10.51%

100%

Derivative financial instruments

-97.72%

-90.88%

100%

Provisions

-38.45%

-20.81%

100%

Deferred tax liabilities

101.33%

-27.56%

100%

-0.40%

-12.65%

100%

Total liabilities

-1.25%

-2.67%

100%

Net assets

35.68%

-9.66%

100%

Equity

Issued share capital

20.04%

0.02%

100%

Share premium account

118.64%

0.12%

100%

Capital redemption reserve

0.00%

0.00%

100%

Hedging reserve

-190.26%

-80.79%

100%

Cost of hedging reserve

-46.73%

9.35%

100%

Other reserve

0.00%

0.00%

100%

Foreign exchange reserve

22.53%

49.83%

100%

Retained earnings

4.08%

-4.96%

100%

Equity attributable to owners of the parent

35.34%

-9.73%

100%

Non-controlling interests

-340.00%

-88.00%

100%

Total equity

35.68%

-9.66%

100%

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