Financial Analysis of M&S and Sainsbury

ESSAY
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Table of Contents
INTRODUCTION................................................................................................................................3
Overview of the organizations.........................................................................................................3
Financial analysis.................................................................................................................................3
Sales performance............................................................................................................................3
Profitability......................................................................................................................................5
Free cash flow..................................................................................................................................6
Debt and investment........................................................................................................................7
Market share....................................................................................................................................9
Price to earnings ratio....................................................................................................................10
ANALYSIS, INTERPRETATION AND DISCUSSION OF STRATEGIC ISSUES........................10
PESTEL analysis...........................................................................................................................10
Modified Porter’s 5 forces/Porter’s 6 forces model.......................................................................12
M&S’s Balance scorecard..............................................................................................................13
Sainsbury’s BSC............................................................................................................................14
AN APPRAISAL OF THE LIMITATIONS.......................................................................................14
Limitation of financial modelling..................................................................................................14
Limitation of conventional modelling...........................................................................................14
RECOMMENDATIONS....................................................................................................................15
CONCLUSION..................................................................................................................................15
REFERENCES...................................................................................................................................17
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INTRODUCTION
With the changing market conditions and rising competitive age, establishments need to
make several strategies and business decisions for the performance improvement(Sheikhi., Ranjbar,
A. and Oraee., 2012). In order to reach success in the market, firms compare their own performance
over the years and with competitors as well. The aim of present project assignment is to analyse
M&S’s performance with its competitor, Sainsbury on the basis of KPIs. Moreover, strategic issues
will be identified through PESTEL, Porter’s 6 forces model and Balance Scorecard as well. On the
basis of the results, M&S will be recommended by various ways and strategies to maximize overall
performance and meet targets.
Overview of the organizations
Marks and Spencer (M&S) is British retailer firm listed on LSE and constituents of FTSE
100 Index. The company is specialised in clothing, home and food products founded in the year
1884 and currently, operates at multinational level such as UK, India, Turkey, Ireland, France ,
Greece and Finland, Hungry, Spain and many others.
Sainsbury is a public listed company constituents of FTSE 100 and traded on LSE. It has
been established 147 years ago in 1869 and currently established global market reputation all over
the world. It operates through three segments that are Sainsbury supermarket, Sainsbury’s Bank and
Sainsbury’s Argos as well. It merchandise operations through its supermarket, local convenience
stores, online operations, hypermarket and many others.
FINANCIAL ANALYSIS
Key performance indicators
In the modern corporate times, UK retail sector is growing rapidly, in which, all the British
retailers are focusing to deliver highest quality services to their customers so as to capture larger
market share and meet targets. Retailing firms are giving tough competition to each other so that
they can attract greater customer base and fulfil targets(Jiang., Kempinski. and Chappell., 2016). In
order to achieve success, companies are not only requiring comparing their own performance over
the years but also needing to examine their competitor’s performance. Key performance indicators
are an appropriate way that can be used by M&S to compare their own performance with that of
Sainsbury. It is typically used to measure the efficiency of business operations to gain larger return
and meet targets. Turnover, profitability measurement, financial risk, cash flow generating ability
and so on is considered as important KPIs for making comparative performance analysis, done
hereunder:
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Sales performance
Sales performance (In GBP million)
2013 2014 2015 2016
M&S 10027 10310 10311 10555
Sainsbury 23303 23949 23775 23506
YOY % growth
M&S 2.82% 0.01% 2.37%
Sainsbury 2.77% -0.73% -1.13%
M&S and Sainsbury deliver wide range of services to their consumers so as to generate maximum
turnover. Looking at the graph, it can be seen that although in 2016, M&S turnover got improved to
£10,555m, but still, sales performance has been increased at volatile rate because its YOY growth is
2.82%, 0.01% and 2.37%
respectively. It indicates that in
2014, total revenue has been
increased at higher rate, however,
2015 shows a little bit
improvement and in 2016, %
increase in turnover to 2.37% is
comparatively lower than that of
2014 to 2.82%. In recent year,
M&S’s clothing and home revenue
come down from £3988.4m to
£3961.3m (-0.68%) whereas food revenue increased from £5234.7m to £5509.5m (5.25%). As a
result, total revenue from UK rose up from £9223.1m to £9470.8m by 2.69%. However, in
international operations, its franchised revenue decreased from £341.3m to £329.7m (3.40%) whilst
owned revenue rose from £747m to 754.9m (1.06%).
On the other side, every year, its competitor Sainsbury generated higher turnover as reported
sales figure is almost more than twice to that of M&S. But still, trend shows adverse changes as in
2015 and 2016, Sainsbury’s turnover dropped down from £23,949m to £23,775m and £23,506m.
Therefore, in 2013, its turnover got improved by 2.77% whilst in next two years, it came down by -
0.73% and -1.13% indicating that Sainsbury’s sales performance has been decreased over the years.
Profitability
Both the British retailers carry out their operations and functions so as to generate maximum
return on their total generated revenues. Gross margin (GM) and net margin (NM) are considered as
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