Financial Management : Marks & Spencer
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Added on 2021-02-20
Financial Management : Marks & Spencer
Added on 2021-02-20
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Financial Management
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Assessment.......................................................................................................................................1TASK 1............................................................................................................................................1a. Explaining purpose and the relevance of the selected ratios in respect of the stakeholders...1b. Ratio analysis of Marks and Spencer Group Plc for the year 2018 and 2019........................2c. Highlighting the performance of the company by showing the concern areas for thestakeholders.................................................................................................................................4d. Critically evaluating the use of the financial ratios in context of interpreting andperformance measurement .........................................................................................................5TASK 2............................................................................................................................................6Critically evaluating the agency theory and its use in various business situation under whichthe conflict is been reported........................................................................................................6CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................10
INTRODUCTIONFinancial management referred as significant activity or the practice of planning,controlling, organising and monitoring the financial resources for achieving the organizationalgoals effectively and efficiently. The present study is based on Marks and Spencer, a Britishglobal retailer, deals in clothing, food and the home products. Furthermore, the study throws adeep insights towards the financial analysis of the Marks and Spencer financial results throughratio analysis. Moreover, it describes the agency theory and the problems relating to it that hasbeen faced by the company. AssessmentTASK 1a. Explaining purpose and the relevance of the selected ratios in respect of the stakeholdersRatio analysis refers to the quantitative method that is been used for gaining the insighttowards the towards the liquidity, profitability and the operational efficiency by making thecomparison of the figures that are contained in the financial statements of Marks and Spencer(Karadag, 2015). This helps the internal and the external stakeholders in assessing the trend ofthe company's performance and the position over the time which in turn helps them in makingsuitable decisions through comparing the results of M&S with its competitors. Under this study,liquidity, profitability and the gearing ratios has been selected in order to measure theperformance of an enterprise. Liquidity ratios- It means the ratios that are used for measuring the capability of theorganization in paying off its current obligations. It includes the current ratio and acid test orquick ratio. These ratios makes comparison in between various combination of the liquid assetswith that of the current liabilities. It has been stated that greater the ratio, better is the liquidityposition of the company in meeting its short term liabilities effectively. Liquidity ratios helps thestakeholders like the suppliers and the creditors in knowing the liquidity position of Marks andSpencer in terms the use of its current assets against its short term liability so as to assess theability of the firm in meeting its liability on time (Ward and Forker, 2017). It also helps thestakeholder in determining the efficient use of the working capital is been made or not within theorganization. It enables the rating agencies for making the analysis of the solvency position sothat it could provide the ratings accordingly. 1
Profitability ratios- It refers to the financial metric that is used for assessing the ability ofthe firm in generating the earnings in relation to its revenues, assets, shareholders equity and theoperating cost for a particular accounting period. It includes operating profits, net profit margin,return on assets and the return on capital employed. The major purpose of profitability ratio is toprovide for the results to the users regarding the earnings and the profits that are gained by theorganization against its sales, assets and the capital (Choi and et.al., 2018). All the stakeholdersare very much concerned about the profitability or the performance of an entity because of theinvestments made by them with expectation to gain maximum profit margins. Investors and theshareholders are the major stakeholders that are has the keen interest in finding out that thecompany is performing good or not and in making the decisions regarding further investment,withdrawal or decreasing the holding. Gearing ratios- It refers to the financial ratio that is been utilized for measuringproportion of the borrowed funds towards the equity of the company. This ratio reflects financialrisk through which the business is been affected as the excess of the debts could result to thefinancial difficulties. It involves the debt-equity and the interest coverage ratios. Greater gearingratio indicates the high proportion of the debt to the equity, whereas the lower gearing ratio statesthe lower proportion of the debt against the equity. The purpose of gearing ratio is to assess thecapital structure of the organization and in providing the results to the users regarding the long-term stability of the Marks and Spencer business (Uechi and et.al., 2015). This information assistthe stakeholders in evaluating failure risk associated with the business and in analysing that thecompany is capable in paying off its borrowings on time. It also helps the users in finding out theinterest burden on the firm and in assessing that it has the ability to cover its finance cost or not.Lenders and the creditors are the main stakeholders that has the interest in the results that areascertained from the gearing ratios. b. Ratio analysis of Marks and Spencer Group Plc for the year 2018 and 2019Particulars2018 (in £million)2019 (in £million )Liquidity ratio Current RatioCurrent Assets1317.91490.4Current Liabilities18262228.42
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