Report On Financial Analysis Of M&S And Sainsbury Plc

Added on -2020-02-12

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Financial management 1
Executive SummaryFinancial management is highly concerned with making optimum use of monetary resourcesthrough the means of continuous monitoring and control. This report is based on M&S and itscompetitor firm such as Sainsbury Plc. Both are the leading companies of UK retail sector thatoffers quality products or services to the customers at suitable price level. It can be summarized thatM&S has sound liquidity position in comparison to the competitor. Further, it can be presented thatprofitability position of M&S is good and generated good return over their sales made. It also hasbeen concluded that solvency position of both M&S and Sainsbury Plc is sound. It can be seen inthe report that by using bond valuation techniques investors can take suitable decision. Besides this,it can be inferred that company’s bonds value is highly influences from coupon rate. 2
Table of ContentsINTRODUCTION................................................................................................................................3(A) Ratio analysis.............................................................................................................................31. Comment on the liquidity position using current and quick ratio................................................32. Calculation of net profit margin, ROA and ROE.........................................................................43. Calculation of capital structure ratios...........................................................................................54. Comment on the long-term and short-term sources of finance....................................................5(B) Bond valuation, international bond rating agencies and reasons for maintaining a given targetrating.................................................................................................................................................7CONCLUSION....................................................................................................................................8REFERENCES.....................................................................................................................................9APPENDIX.........................................................................................................................................11Marks and Spencer’s ratio analysis.................................................................................................11Sainsbury’s ratio analysis................................................................................................................113
INTRODUCTIONIn the globally connected corporate world, companies started paying special attention onmanaging their funds. Certified Financial Manager (CFO) owes liability to procure necessarycapital for running their operations and administrate it in an effective manner to attain the set goals.Planning, organizing, monitoring and controlling the monetary activities i.e. procurement & fundutilization and its effective management is called financial management. Profitability and liquiditymanagement are the two core activities of finance manager. In addition, he also has to determinevarious fixed and fluctuating source of capital either long-term debt or equity capital or acombination of both to finance their long-term assets. The proposed project report emphasizes uponexamining the financial performance of Marks and Spencer Group Plc with its rivalry firm,Sainsbury Plc. Moreover, lastly, it will make bond valuation of both the companies. (A) Ratio analysisRatio analysis is the quantitative technique that is helpful for analysing the financialstatement using distinctive kind of ratios i.e. solvency, profitability, liquidity and efficiency ratios aswell.1. Comment on the liquidity position using current and quick ratio Liquidity ratios are helpful to determine firm’s ability to dispose off their short-term debtobligations & its margin of safety using current & quick ratio. Current ratio: It determines working capital (WC) in the business through the comparisonof current assets with the current liabilities. In latest year, 2016, M&S’s CR remains unchangedfrom 0.69:1 because of little bit changes in the CA and CL by 0.41% and -0.33%. Fewer increasesin cash by 4m, inventory by 2m, prepaid expense by 10m and decline in other assets by 9m resulteddecline in CA by 6m. However, CL dropped from 2,112m to 2,105m which brought no change inthe liquidity position. In contrast, Sainsbury’s CR gone up from 0.64 to 0.66 because of decline ininventory and cash to 968m and 1143m. It is below than M&S’s CR which indicates that M&S hassound liquidity position in comparison to the competitor (Lakshmi, Martin and Venkatesan, 2016).In comparison to industrial benchmark, 2:1, both the firm’s can be suggested to improve theirliquidity by increasing their resource availability & reduce short-term debt load. Moreover, it mustmonitor their accounts receivables to get prompt payments and negotiate with the vendors for thelonger credit terms which help in effective cash management. Quick ratio: It measures relationship between liquid assets with the current liabilities. InCY, 2016, M&S’s QR remains fixed to 0.31:1 whilst Sainsbury’s QR gone up from 0.49:1 to 0.52:1.High ratio of Sainsbury reflects that it has higher availability of liquid assets to dispose off their4

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