Marks and Spencer Essay Example | Topics and Well Written Essays - 1500 words

Marks and Spencer - Essay Example Additionally, they employ over 78,000 people all over the world (Marks and Spencer, 2012a). Financial Analysis of M&S: Despite global recession the company has managed to increase its revenues from its UK and international operations. An important point to make here is that M&S is a UK based brand with 50% of its stores being in UK. Its revenue generation is mostly derived from UK operations which accounts for 90% of the total revenue of the company. Profitability: The company has shown steady increase in the revenues in the last three years. In 2011 the revenue increased by 2%, followed by the same in 2012. However, the operating profits in the last two years have not increased in the same line. In 2011, the operating profit was ?836.9m which fell to ?746.5m, resulting in operating profit margin of 9.53% in 2011 and 8.84% in 2012. This clearly shows that company’s cost control is weak and the cost of goods sold has not increased in the same line as revenues. The reason for su ch instability in profits for 2012 is the expansion and improvement plan the company is implementing till 2013 which will result in increased sales and satisfied consumers in the future. Because of the very reasons the company has experienced increased cost of sale, interest expense, administrative and selling expenses. Similarly, the company’s net profit margin has also decreased from 8.13% in 2011 to 7.54% in 2012. The company’s return on capital employed (ROCE) has been increasing at a slow pace from being 17.24% in 2010, 19.0% in 2011 which declined to 18.8% in 2012. The reason for declining ROCE can be linked to decline PAT of the company accompanied by an increase in the total assets. (Marks and Spencer. 2012a) Liquidity: The company’s gearing ratio has decreased in last three years. In 2010, the company had a gearing ratio of 108.6% which was a lot, in year 2011, the company reduced it long term liabilities and the ratio fell to 76.91% which further was d ecreased to 74.54% in 2012. The reason of falling gearing ratio is the decrease in the total liabilities of the company, which is beneficial as it will reduce in lower interest payments. However, company’s liquidity/cash flow position might get affected in order to pay off liabilities. The company’s interest cover has remained steady over the past 3 years. Despite decreasing profits, the company is able to maintain an interest cover of average 6 times. This is because the company has shown good planning here regarding the payments of interest and has reduced the liabilities accordingly with the fall in profits. The company’s current and quick ratios have decreased over three years. The company had a current ratio of 0.8 times in 2010 which has decreased to 0.73 times in 2012. This shows the instability in the liquidity position of the company. The biggest reason of the fall in the current assets of the company is the decrease in the cash in hand and bank which h as fallen to ?196.1m in 2012 and was ?470.2m in 2011, though the other current asset of the company, i.e., the stock has increased. Additionally, the company’s current liabilities have also increased tremendously which was ?2955.5m in 2011 and increased to ?3126.8m in 2012. These factors have contributed to the company’s low current and quick ratios. It seems that company’s management aimed to payoff its long term liabilities to save the interest payments and improve the profitability. This has caused a