Finance Management Assesment UEL

1
Executive Summary
This report compares the quantitative and qualitative data over 2 years
between 2 major retailers in UK which are Mark and Spencer and NEXT. It
assesses companies financial position, profit growth and other performance
variations by using varies financial ratios. M&S is currently listed on the
London Stick Exchange and appears in FTSE 100 index. Compared to year
16/17 in 17/18 group revenue has been increased by only + 0.7% while Profit
Before Tax has been reduced by 5.4%. Besides that total assets have also
been reduced by 9% while total liabilities have been reduced by 10.6%. M&S
financial ratios are well below industry averages yet they understand that they
need tom change fast and currently in transforming everything to restores
basics where they will be able to deliver sustainable, profitable growth to
investors, colleagues and to the community.
Nirosh Amadoruge Student ID – 1927488

2
Table of Contents
1. Introduction 4
2. Financial performance analysis of using financial ratios of M&S 5

and NEXT.
2.1. Liquidity Ratios 5
10
2.2. Profitability Ratios
17
2.3. Working Capital Ratios

23
2.4. Capital Structure Ratios

25
2.5. Stock market performance ratio

29
3. Conclusion

29
3.1. Limitations of Financial Ratios

30
3.2. Key Findings of Financial Ratio Analysis

31
3.3. Recommendations for Better Financial Performance


3
1. Introduction
1.1. Company Background of Mark & Spencer (M& S)
M&S has founded in 1884 in Leeds as a small stall where all products were
sold for a penny (Burt, 2002). Since its establishment M&S has become the
UK’s most thriving brand in clothing, home-ware and food. Michael Marks
and Thomas Spencer founded M&S and currently it is listed on the London
Stick Exchange and appears in FTSE 100 index. Regardless of fierce
financial conditions, M&S recorded huge achievement and is the most
favoured brand by purchasers. This has been accomplished by reliable
spotlight on item quality, value for cash and customer services (M&S, 2008).
As indicated by a report by Mintel, M&S represents 10.5% of absolute apparel
spending by shoppers and 43% of the complete purchasers, shop at M&S
outlets (Mintel, 2008). Amid late 90's and mid 2000's, M&S experienced falling
apart budgetary execution because of furious challenge; poor inventory
network the executives, substandard items and insufficient cost the board.
Currently M&S is in a transition period of closing down physical stores across
UK and moving to more online based retail stores. Compared to year 16/17 in
17/18 group revenue has been increased by only + 0.7% while Profit Before
Tax has been reduced by 5.4%. Besides that total assets have also been
reduced by 9% while total liabilities have been reduced by 10.6%.

4
1.2. Company Background of NEXT
NEXT is UK's second, most favoured apparel retailer, after M&S and has
differentiated itself from contenders by represent considerable authority in
designing outfits with a contemporary look, offering a decent value for money
to clients (Mintel, 2008). It began its retail business amid 1982; transcendently
having some expertise in ladies attire and adornments, it immediately
extended its diversity by providing clothes for men and kids. NEXT has lost
impressive piece of the overall industry since late 90's, because of poor cost
control and forceful evaluating procedure that limited shopper spending (Next,
2006). Consequently, it reported £635m profit for 2017, which decreased to
£592m in 2018 (Next, 2018).
2. Financial performance analysis of using financial ratios of M&S and
NEXT.
2.1. Liquidity Ratios
Liquidity ratios are estimations used to examine the capacity of an
organization to pay off its short-term debts. Forthcoming creditors and lenders
to decide whether to provide further credits, commonly utilize these ratios.
These ratios compare relatively liquid assets to the amount of current
liabilities stated in company’s most recent balance sheet. When the ratio is
high it shows the ability of the company to pay off its obligations or creditors in
a timely manner. There are 2 main ratios, which are Current Ratio, and Quick
Assets Ratio.

5
2.1.1. Current Ratio
“The current ratio measures a company's ability to pay off its current liabilities
(payable within one year) with its current assets such as cash, accounts
receivable and inventories. The higher the ratio, the better the company's
liquidity position” (Kenton and Hayes, 2019).
Current Assets
Current Ratio = Current Laibilities
2.1.2. Quick Assets Ratio
“The quick ratio measures a company's ability to meet its short-term
obligations with its most liquid assets and therefore excludes inventories from
its current assets” (Kenton and Hayes, 2019).
Current Assets – Inventories

Quick Assets Ratio = Current Liabilities

6
2.1.3. Current Ratio of Mark & Spencer and NEXT
Figure 1 Current Ratio of M&S and NEXT
Figure 2 Bar Chart of Current Ratio M&S and NEXT
M&S Current Ratio (CR) has not changed though Next CR has been reduced
to 1.96 from 2.29. Yet compared to NEXT M&S CR is very low and this is due
to the loosing cash and cash equivalents, which lead to creating a gap in
current assets compared to 2017. Ideal CR should be minimum 2:1. Thus only
NEXT was able to achieved ideal CR value in 2017 though 2018 it is reduced

7
by 14.4%. Higher value of current ratio indicates more liquid of the firm’s
ability to pay its current debts in timely manner. In M&S CR value has been
stable for those 2 years yet it clearly shows its decline in both Current assets
and liabilities. This may be able to happen due to closure of physical stores
across UK.
Figure 3 Line Chart of Current ratio M&S and NEXT
2.1.4. Quick Assets Ratio of Mark & Spencer and NEXT
Figure 4 Line Chart of Current Ratio M&S and NEXT
In 2017 and 2018 M&S Quick Assets Ratio (QAR) has been further declined
by whooping 29.26% where NEXT’s QAR is declined by 13.8% yet they

8
managed to keep the QAR above 1. The ideal QAR is 1:1 and M&S was not
able to reach those ideal levels in both 2017 and 2018. There is no huge
difference in Inventories compared in both years of M&S yet data shows
current liabilities has gone down by 22.88% while Current assets also gone
down by 23.56%.
Figure 5 QAR Bar Chart of M&S and NEXT
Nirosh
Figure Amadoruge
6 QAR Line Chart of M&S and Student ID – 1927488
9
2.2. Profitability Ratios
Profitability ratios are a class of financial metrics that are used to assess a
business's ability to generate earnings relative to its revenue, operating costs,
balance sheet assets, and shareholders' equity over time, using data from a
specific point in time. Profitability ratios also show how well companies use
their existing assets to generate profit and value for shareholders. Higher ratio
results are often more favourable, but ratios provide much more information
when compared to results from other, similar companies, the company's own
historical performance, or the industry average.
Profitability Ratios are;
• Gross Profit Margin
• Operational Margin Ratio
• ROCE (Return on Capital Employed)
• ROI (Return on Investment)
2. 2. 1. Gross Profit Margin (GPM)
Gross profit margin is calculated by subtracting cost of goods sold
(COGS) from total revenue and dividing that number by total revenue. Direct
costs (COGS) do not include operating expenses, interest payments
and taxes, among other things.
Gross Profit Margin = (Revenue – Cost of Goods Sold) X 100
Revenue

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2. 2. 2. GPM of M&S and NEXT
Compared to 2017 M&S Gross Profit margin in 2018 has slightly decreased.
Even though revenue has slightly increased gross profit was decreased. So
this happens when the cost of sales is increased. Compared to M&S NEXT
has a consistent GP Margin.
Figure 7 GP Margin of M&S and NEXT

11
Figure 8 Line Chart of GP margin of M&S and NEXT
3. 2. 3. Operational Profit Margin (OPM)
The operating profit margin ratio indicates how much profit a company makes
after paying for variable costs of production such as wages, raw materials,
etc. It is also expressed as a percentage of sales and then shows
the efficiency of a company controlling the costs and expenses associated
with business operations.
Operational Profit Margin = Operating Profit x 100
Sales Revenue

12
2. 2. 4. OPM of M&S and NEXT
This is a profitability ratio used to calculate the percentage of profit a company
produces from its operations before interest and tax charges. It is calculated
by dividing operating profit by revenue. M&S OP margin has decreased from
2.38% to 1.46%. Though revenue has slight drop could see huge loss in
operating profit in 2018. In November 2016 M&S group has announced 5-year
strategic programme to transform UK store estate. This involved growing the
online share of sales yet attract some initial heavy expenses including the
impairment of assets, accelerated depreciation of buildings, fixtures etc.
Figure 9 OPM of M&S and NEXT

13
Figure 10 OPM of M&S and NEXT Line graph
2. 2. 5. Return on Capital Employed (ROCE)
ROCE Profit/ Capital Employed x 100

Mark & Spencer (M&S) NEXT
Company £m £m
Years 2018 2017 2018 2017
PBIT 156.5 253.20 759.90 827.70
Capital

Employed 4624.8 4862.1 1,646.70 1,679.80

ROCE % 3.38 5.2 46.15 49.27
ROCE reflects ability to earn a return on all of the capital it employs. M&S
ROCE ahs decreased from 5.2% to 3.38% by 2018 while NEXT ROCE has
also decreased by 3% in 2018. M&S PBIT has declined by 39.31% and
mainly due to less revenue and increased cost of sales. M&S equity
decreased due to store closures and it also affects ROCE.

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Figure 11 ROCE
Declined equity has occurred due to declined cash and cash equivalents in
net assets while non current/ long term liabilities remain the same.
2. 2. 6. Return on Investment (ROI)
ROI Profit After tax/ Equity x 100

Company £m £m
Years 2018 2017 2018 2017
Profit after Tax 29.1 115.70 591.80 635.30

Equity 2954.2 3150.4 482.6 510.5

RI % 0.98 3.67 122.63 124.44
ROI of M&S has further declined in 2018 and NEXT ROI is looking very
attractive in both years. ROI is mainly decreased due to declined profit after
tax where it was affected by PBIT due to low operating profit.

15
Figure 12 ROI
Another factor is higher selling administrative expenses thus M&S is slowly
raising difficulties to gain profit with capital invested by shareholders. NEXT
will attract more and more shareholders due to its higher ROI, as investors will
find their investment return faster.

16
2. 3. Working Capital Ratios
Working capital ratio is used to measure liquidity of a company. Thus it
indicates the capability of a company to meet its current financial obligations
and it measures company it’s basic financial solvency. The working capital
ratio can be calculated by dividing current assets by current liabilities and 1.5
to 2 is interpreted as company is on solid financial ground in terms of liquidity.
WCM ratios are:
1. Inventory turnover days
2. Receivable collection days
3. Payable payment days
4. Cash conversion cycle
2.3.1. Inventory Turnover days
Inventory Turnover Days Ave; Inventory/ Cost of Sales x 365

Company £m £m
Years 2018 2017 2018 2017
486.5
Open Inventory 758.5 799.9 451.10 0
Close Inventory 781 758.5 490.1 451.1

Divided by 2 2 2 2
Ave Inventory 769.75 779.2 470.6 468.8
2710.
Cost of Sales 6650.9 6534.2 2699.3 7
Inventory Turnover Days 42.24 43.52 63.63 63.12

Inventory turn over days shows a how many times a company has sold and
replaced it’s inventory during a given period. This is usually compared to
industry averages and low turnover implies weak sales or over stocking while
high ratio implies strong sales or insufficient inventory.

17
Inventory Turnover Days = Average Inventory x 365
Cost of Sales
M&S took 43 days in 2017 and 42 days in 2018 in overall to sell out all
it’s inventory while NEXT shows 63 days in both years, which is higher than
M&S. M&S is selling more variety of products than NEXT which includes
clothing and home supplies hence those items require longer period to be
sold. NEXT turnover days are consistent and managing its inventory quiet
well.
Figure 13 Inventory Turn Over Days

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2.3.2. Receivable Collection days
Receivable Collection Days Average Receivable/ Revenue x 365

Company £m £m
Years 2018 2017 2018 2017
Op; Receivables 109.3 115.80 1,025.10 954.10
Clos; Receivables 113.9 109.3 1138.5 1025.1

Divided by 2 2 2 2
Ave; Receivables 111.6 112.5 1081.8 989.6
Revenue 10,698.20 10622 4055.5 4097.3
Receivable Days 3.81 3.86 97.36 88.16
Figure 14 Receivable Collection Days
This represents the time lag between a credit sale and receiving
payment from a customer. Shorter collection period is usually preferred as it
plays a vital role when it comes to liquidity. M&S shows very low receivable
turnover days showing the quality of trade receivables.

19
2.3.3. Payable payment days
Payable Payment Days Average Payable/ Cost of Sales x 365

Company £m £m
Years 2018 2017 2018 2017
Op; Payables 1553.8 1,617.70 615.80 673.50
Clo; Payables 1405.9 1553.8 580.2 615.8

Divided by 2 2 2 2
Ave; Payables 1479.85 1585.75 598 644.65
Cost of Sales 6650.9 6534.2 2699.3 2710.7
Receivable Days 81.21 88.57 80.86 86.8
Payable payment days (PPD) are an essential financial ratio that financial
specialists take a gander at to check the operational efficiency of a company.
A higher PPD implies that the company is taking more time to pay its sellers
and providers than company with a littler PPD. Companies with high PPDs
have points of interest since they are more fluid than Companies with littler
PPDs and can utilize their money for momentary speculations. M&S PPD has
been reduced to 88 days in 2017 to 81 days in 2018.
Figure 15 Payable Payment Days

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2.3.4. Cash conversion Cycle (CCC)
Mark & Spencer

Cash Coonversion Cycle = (Inven: Days+ Recei: Days) - Payable Days

Payable
Year Inven: Days Recei: Days Days CCC
2017 43.52 3.86 88.57 (-41.19)
2018 42.24 3.81 81.21 (-35.16)

NEXT
Cash Coonversion Cycle = (Inven: Days+ Recei: Days) - Payable Days

Payable
Year Inven: Days Recei: Days Days CCC
2017 63.12 88.16 86.8 64.48
2018 63.63 97.36 80.86 80.13
The Cash Conversion Cycle (CCC) is a metric that demonstrates the measure
of time it takes a company to convert its inventory into cash. M&S has a
negative CCC, which means it generates revenue before pays off suppliers
and creditors.
Figure 16 Cash Conversion Cycle Days

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2.3.5. Asset Turnover ratio
Asset Turnover Revenue/Net Assets(Total Assets-Cur Liabilities)

Mark & Spencer (M&S)
Company £m NEXT £m
Years 2018 2017 2018 2017
Revenue 10,698.20 10622 4055.5 4097.3
Assets less Current Liabilities
Assets 7,550.20 8292.5 2561.5 2404.8
Current
Liabilities 1,826.00 2368 914.8 725
Net Asset 5724.2 5924.5 1646.7 1679.8
Asset Turnover 1.87 1.79 2.46 2.44

Asset Turnover ratio is an efficiency ratio which measures company’s ability to
generate sales from it assets by comparing net sales with average total
assets. M&S has a ratio of 1.87 in 2018 compared to its 2017 1.79 ratio it’s a
slight increment. M&S has lower ratio compared to NEXT and this due to the
nature of M&S business model and it’s net assets.
Figure 17 Asset Turnover Ratio

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2.4. Capital Structure Ratios
It is also known as leverage ratios, which measures the long-term stability
and structure of the firm. These ratios help to identify financing techniques
used by the business and focus on solvency position. Equity ratio, debt
ratio, debt to equity ratio, interest cover ratio is the main capital structure
ratios.
2.4.1. Debt to Equity
Debts to Equity Ratio Net Debt/ Equity x 100

Company £m £m
Years 2018 2017 2018 2017
Long term Liabilities 1670.6 1,711.70 1,164.10 1,169.30
(- Cash) 207.7 468.6 53.5 49.7
Net Debt 1,462.90 1243.1 1110.6 1119.6
Equity 2954.2 3150.4 482.6 510.5
Debts to Equity Ratio % 49.52 39.46 230.1 219.3
Figure 18 Debt to Equity

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M&S has increased debt to equity ratio by 25.45% compared to 2017. This is
mainly due to decreased cash and increased Net debt. Although NEXT has
much higher ratio than M&S it can be more risky for ordinary shareholders yet
quicker profitability.
2.4.2. Interest Cover Ratio
PBIT/
Interest Cover Interest
NEXT
Company Mark & Spencer (M&S) £m £m
Years 2018 2017 2018 2017
PBIT 156.5 253.20 759.90 827.70
Interest 113.8 113 35.1 37.8
Int; Cover Ratio 1.38 2.24 21.65 21.9
Figure 19 Interest Cover Ratio
M&S Interest Cover ratio has further gone down due to downfall of PBIT.
NEXT has a higher ratio and proves its financial position. Since M&S ratio is
below 1.5 it’s ability to meet interest expenses may be questionable. The ratio

24
measures how many times over a company could pay its outstanding debts
using its earnings.
2.5. Stock market performance ratio
Stock market performance ratios are vital as they use to explore how
investors can assess a company by analysing its past execution and its
wellbeing—that is, its capacity to continue performance as time goes on.
In a perfect world, we would require just to analyse a company's stock
market performance to perceive how well it was doing.
2.5.1. Earning Per Share (EPS)
EPS Earnings Per Share (EPS)

Mark & Spencer
Company (M&S) NEXT
Years 2018 2017 2018 2017

EPS in Pence (p) 1.6 7.20 416.70 441.30
Figure 20 EPS

25
An earnings per share (EPS) is the portion of company’s allocated profit to
each share of common stock. Higher the value investors will pay more for firm
expecting higher profits. M&S EPS has reduced heavily and this is due to
higher selling and administrative expenses. NEXT shows a higher EPS yet it’s
price went down slightly compared to M&S.
2.5.2. PE Ratio
P/E Ratio Market Price Per Share/Earnings Per Share (EPS)

Mark & Spencer
Company (M&S) NEXT
Years 2018 2017 2018 2017
Market Price PS
(p) 270.2 337 4759 4320
EPS in Pence (p) 1.6 7.20 416.70 441.30
P/E Ratio 168.88 46.81 11.42 9.79
Figure 21 PE Ratio

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In 2018 M&S PE ratio has increased by 400% compared to 2017. This
indicates that investors paid 168.88p for very penny earned by the company.
The higher PE ratio of M&S reflects that investors paid more money for the
company that earned less. NEXT will be the company to invest as its
attractive low PE ratios in 2017 and 2018 respectively 9.79p and 11.42p with
an aim of faster return. Higher PE ratio of M&S means that investors are
anticipating higher growth in the future.
2.5.3. Share Price Fluctuations in a Graph
Figure 22 Share price Fluctuation
In the graph X- Axis presents the period and Y- Axis shows the Share price.
According to the graph in 2014 M&S gained a higher share price and from
2014 to 2015 has a huge downfall in the price. In 2016, 2017 and 2018
average share prices are 333.30p, 295.10p and 270.30p respectively. Once
reason for this decline is the heavy selling of shares by hedge funds, which
are sold short.

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Summary of Financial Ratio Analysis
Change in
Mark & Spencer %
Company & Year M&S 2018 M&S 2017
Revenue 10,698.20 10622
(+ 0.71%)
Cost of Sales -6650.9 -6534.2 (+1.78%)
Gross Profit 4047.3 4,087.80 (- 0.00%)
Selling & Admin Expenses -3426.2 -3460.4 (- 0.98%)
Other operating Income 49.5 63.2 (- 21.67%)
Underlying Operating Profit 670.6 690.6 (- 2.89%)
Non Underlying Items -514.1 -437.4 (+ 17.53%)
Operating Profit 156.5 253.20 (- 38.19%)
Summary of Financial Ratio Analysis

Mark & Spencer
Company (M&S) NEXT
Years 2018 2017 2018 2017
Current Ratio 0.72 0.72 1.96 2.29
Quick Assets Ratio 0.29 0.41 1.43 1.66
GP Margin 37.83 38.48 33.44 33.84
OP Margin 1.46 2.38 18.73 20.2
ROCE % 3.38 5.2 46.15 49.27
RI % 0.98 3.67 122.63 124.44
Inventory Turnover
Days 42.24 43.52 63.63 63.12
Receivable Days 3.81 3.86 97.36 88.16
Asset Turnover 1.87 1.79 2.46 2.44
Receivable Days 81.21 88.57 80.86 86.8
Debts to Equity Ratio % 49.52 39.46 230.1 219.3
Int; Cover Ratio 1.38 2.24 21.65 21.9
EPS in Pence (p) 1.6 7.20 416.70 441.30
P/E Ratio 168.88 46.81 11.42 9.79

28
3. Conclusion
3.1. Limitations of Financial Ratios
Historical Data- the majority of the data utilised in ratio analysis is
derived from historical results. This does not imply that similar
outcomes will convey forward into what's to come. Be that as it may,
you can utilise ratio analysis on pro forma data and contrast it with
recorded outcomes for consistency.
Historical versus Current Cost- the data on the income statement is
expressed in current expenses (or near it), though a few components
of the accounting report might be expressed at verifiable cost (which
could shift considerably from current expenses). This dissimilarity can
result in bizarre proportion results.
Inflation - On the off chance that the rate of inflation has changed in
any of the periods under audit, this can imply that the numbers are not
similar across periods. For instance, if the inflation rate were 100% in
one year, deals would seem to have multiplied over the preceding year,
when in actuality deals did not change by any means.
Apart from above mentioned points operational changes, company
strategies, business conditions and accounting policies can also make
limitations in financial ratios.

29
3.2. Key Findings of Financial Ratio Analysis
When the 2018 financial ratios of M&S are compared with 2017 ratios Quick
Assets Ratio (QAR), OP margin, ROCE and RI has significantly declined.
QAR is declined due to less cash or cash equivalent in current assets, which
also have an impact on ROI. Since 2016 M&S group commenced 5-year
strategic programme to transform UK store estate which involved growing the
online share of sales yet attract some initial heavy expenses including the
impairment of assets, accelerated depreciation of buildings, fixtures etc. That
affected M&S operating profit resulting lower OP margin. Gross margin,
Operating margin, ROCE, ROI, Current Ratio, QAR, Interest cover ratio all are
well below industry averages. While PE ratio and Debt to equity ratios are
way over industry averages. M&S Assets Turn Over ratio is 1.87 while it’s
above industry averages. M&S has lower ratio compared to NEXT and this
due to the nature of M&S business model and it’s net assets. Generally M&S
has less revenue and increased cost of sales, which started affecting most of
financial ratios negatively. Therefore M&S has deteriorated profit, which is
derived from the decreased ROI and ROCE.

30
3.3. Recommendations for Better Financial Performance
1. Liquidity Ratios: Paying off liabilities as quickly as possible while
cutting back short term over head expenses. Rather using short-
term financing its better using long term financing to acquire
inventory or finance projects. And quickest way to improve the
ratios is transferring funds to higher interest rate accounts and
transfer back to readily accessible accounts when needed.
2. Profitability Ratios: By building brand a value through compelling
showcasing so as to persuade clients to pay more for items, even
while procurement costs remain the equivalent, can be a fruitful
approach. The advancement of a progressively proficient deals
process and a higher-quality deals power can enable companies to
expand by and large deals effectiveness. Companies hoping to
increment operating margins should concentrate on discovering
approaches to either spend less cash by lessening working costs,
or acquire more cash by expanding deals. Owning equipment as
opposed to renting or leasing, removing superfluous costs.
3. Working Capital Ratios: Incentivize receivables for instance
provides incentives to customers who pay on time while meeting
debt obligations on time. Beyond that M&S can seek for vendors
and suppliers who provide discounts thus saving finance costs.
Managing inventory and utilizing tax benefits will help to improve
working capital ratios.

31
4. Capital Structure Ratios: Among the techniques that can be utilised
are expanding profitability, better administration of stock, and
rebuilding obligation. The most intelligent stage a company can take
to pay off its debts to-capital proportion is that of expanding deals
incomes and ideally benefits. Raising costs, expanding deals, or
lessening costs can accomplish this. The additional money
produced would then be able to be utilised to settle existing debt.
The organisation can sell its assets and after that rent them back.
This will actuate an income that can be utilised to satisfy a few debt
obligations.
5. Investor’s Return: Reduce overhead costs for instance shutting
down stores will help M&S to gain higher profits leading to
increased ROI for their shareholders in coming years while increase
sales and revenues without increasing your costs, or only increase
your costs enough to still provide a net gain in profits, you’ve
improved your return. Selling unprofitable assets, paying off debts
to reduce liabilities and improved inventory management will help to
improve ROI and ROCE.

32
Working -1 For Capital Employed

Capital
Employed Equity + Long term Liabilities
Mark & Spencer (M&S)
Company £m NEXT £m
Years 2018 2017 2018 2017
Equity 2954.2 3150.4 482.6 510.5
Long Term
Liabilities 1670.6 1711.7 1,164.10 1,169.30
Capital
Employed 4624.8 4862.1 1,646.70 1,679.80


33
Reference
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About Liquidity Ratios. [online] Investopedia. Available at:
https://www.investopedia.com/terms/l/liquidityratios.asp [Accessed 9
Mar. 2019].
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https://www.investopedia.com/terms/r/returnoninvestment.asp
[Accessed 17 Mar. 2019].
3. Corporate Finance Institute. (2019). Profitability Ratios - Calculate

Margin, Profits, Return on Equity (ROE). [online] Available at:
https://corporatefinanceinstitute.com/resources/knowledge/finance/profi
tability-ratios/ [Accessed 17 Mar. 2019].
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Financials | Reuters.com. [online] U.S. Available at:
https://www.reuters.com/finance/stocks/financial-highlights/MKS.L
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https://corporate.marksandspencer.com/documents/reports-results-
and-publications/annual-report-2017.pdf [Accessed 17 Mar. 2019].
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https://corporate.marksandspencer.com/annual-report-
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https://www.nextplc.co.uk/~/media/Files/N/Next-PLC-
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https://www.nextplc.co.uk/~/media/Files/N/Next-PLC-
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https://corporate.marksandspencer.com/annualreport [Accessed 17
Mar. 2019].

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1

assesses companies financial position, profit growth and other performance

variations by using varies financial ratios. M&S is currently listed on the

need tom change fast and currently in transforming everything to restores

basics where they will be able to deliver sustainable, profitable growth to

investors, colleagues and to the community.

Nirosh Amadoruge Student ID – 1927488

2. Financial performance analysis of using financial ratios of M&S 5

Nirosh Amadoruge Student ID – 1927488

1.1. Company Background of Mark & Spencer (M& S)

Stick Exchange and appears in FTSE 100 index. Regardless of fierce

financial conditions, M&S recorded huge achievement and is the most

favoured brand by purchasers. This has been accomplished by reliable

As indicated by a report by Mintel, M&S represents 10.5% of absolute apparel

spending by shoppers and 43% of the complete purchasers, shop at M&S

apart budgetary execution because of furious challenge; poor inventory

Currently M&S is in a transition period of closing down physical stores across

reduced by 9% while total liabilities have been reduced by 10.6%.

Nirosh Amadoruge Student ID – 1927488

1.2. Company Background of NEXT

differentiated itself from contenders by represent considerable authority in

having some expertise in ladies attire and adornments, it immediately

2006). Consequently, it reported £635m profit for 2017, which decreased to

£592m in 2018 (Next, 2018).

2. Financial performance analysis of using financial ratios of M&S and

2.1. Liquidity Ratios

Liquidity ratios are estimations used to examine the capacity of an

to decide whether to provide further credits, commonly utilize these ratios.

These ratios compare relatively liquid assets to the amount of current

Nirosh Amadoruge Student ID – 1927488

2.1.1. Current Ratio

liquidity position” (Kenton and Hayes, 2019).

2.1.2. Quick Assets Ratio

“The quick ratio measures a company's ability to meet its short-term

its current assets” (Kenton and Hayes, 2019).

Current Assets – Inventories

Nirosh Amadoruge Student ID – 1927488

2.1.3. Current Ratio of Mark & Spencer and NEXT

Figure 1 Current Ratio of M&S and NEXT

Figure 2 Bar Chart of Current Ratio M&S and NEXT

Nirosh Amadoruge Student ID – 1927488

Figure 3 Line Chart of Current ratio M&S and NEXT

2.1.4. Quick Assets Ratio of Mark & Spencer and NEXT

Figure 4 Line Chart of Current Ratio M&S and NEXT

by whooping 29.26% where NEXT’s QAR is declined by 13.8% yet they

Nirosh Amadoruge Student ID – 1927488

difference in Inventories compared in both years of M&S yet data shows

Figure 5 QAR Bar Chart of M&S and NEXT

2.2. Profitability Ratios

business's ability to generate earnings relative to its revenue, operating costs,

historical performance, or the industry average.

Profitability Ratios are;

• Gross Profit Margin

• Operational Margin Ratio

• ROCE (Return on Capital Employed)

• ROI (Return on Investment)

2. 2. 1. Gross Profit Margin (GPM)

Gross profit margin is calculated by subtracting cost of goods sold

costs (COGS) do not include operating expenses, interest payments

and taxes, among other things.

Gross Profit Margin = (Revenue – Cost of Goods Sold) X 100

Nirosh Amadoruge Student ID – 1927488

2. 2. 2. GPM of M&S and NEXT