The Role of Accounting and Finance in Marks & Spencer's Success

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Financial Decision Making
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Table of Contents
Introduction....................................................................................................................................3
Task 1..............................................................................................................................................4
Task 2..............................................................................................................................................9
A......................................................................................................................................................9
B.....................................................................................................................................................13
Conclusion....................................................................................................................................14
References.....................................................................................................................................15
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Introduction
Finance is the backbone of every organization. To efficiently run an organization, proper
segregation of capital is required. This is achieved through detailed structure of accounting and
finance. The manager has to take care of various segments that are part of the operational as well
as administrative process. He has to make key decisions regarding the manufacturing and
distribution of products and services.
The functions of finance are best used for analyzing the in-depth functionalities of the firm.
Through the help of accounting and financial tools, the managers can compare, analyze and
predict the performance of the company. It enables them to take appropriate measures to improve
the current situation, this aids them in achieving their targets.This report will discuss about the
roles that accounting and finance plays in Marks & Spencer.
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Task 1
Role of Accounting and Finance in Marks & Spencer
Accounting and Finance performs a crucial role in the management of a business. These two
have different approach and functionalities in the business. The role of accounting is concerned
with collecting, recording and summarizing of financial transactions and transforming it into
reports (Hellmann, 2016). It keeps a track of each and every transaction that took place in the
company in one fiscal year. The information derived from the accounting reports are provided to
the stakeholders so that they can comprehend the performance of the company.
The characteristics of finance are slightly different from that of accounting. The scope of finance
is spread towards analyzing the fiscal reports like Income Statement, Cash Flow Statement and
Balance Sheet and then frames policies on the basis of these reports for further actions related to
investments, capital structure, and Supply chain management and so on.
Features of Accounting and Finance
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Image: Features of Accounting and Finance, 2019
Source: By Author, 2019
 Obeying the Law Following the practices of accounting provides advantage to the firm.
It lets the organization deal all the law and compliance. If the managers follow the accounting
standards step by step, then there will be no unnecessary trouble in terms of laws. Poor
accounting and managing will lead the company to downfall.
 Creating Budgets and Financial RecordsThe most important feature of the business is
to monitor the flow of money into the business. It is important for the managers to control the
expenses that are being indulged in the firm (Allen, et.al., 2016). This can create problems in the
future. To monitor the spending, the managers frame budgets and allocate capital on the basis of
the contribution in the total product.
 Analyzing Financial PerformanceIn order to improve the performance of the firm,
analysis of every step of business is required. The managers should study the past performance
and compare it with the present performance to find the best results. Reviewing of the financial
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records will get the managers an insight of the spending on various segments. It would be easier
to calculate the expenses and then steps can be taken to reduce them. With the right kind of
information, the manager can take informed decisions.
 Developing Business StrategyThe key feature or characteristic of financial activities is
that the manager should be able to make strategies is order to achieve its desired goals in
stipulated period of time (Schnackenberg and Tomlinson, 2016). The aim of every organization
is to make profit, but policies and strategies are the paths that lead them to achieve the desired
objective. The strategies are formed to achieve the short and long term goals.
Marks and Spencer is a well-known retail company in the UK. It is one of the largest operating
firms with more than 1300 stores worldwide. The firm offers services in apparels, beauty and
home products. To launch and manage such huge business, the firm needs a lot of capital. We
will discuss the role of accounts and finance in the firm.
As the firm deals with international business, the finance team has to manage a lot of things.It is
also known that the firm provides sponsorship to its finance recruits to complete qualifications
like CIMA or ACCA. This is beneficial for the employees as well as the organization. With such
huge spread of intercontinental business, the role of finance functions are extremely vital. The
role of finance has constantly evolved in the last few years. Along with the development of latest
technology and software, decision making has become very accurate. The role of finance in the
firm is further described as below:
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Role of Finance
Image: Role of Finance in Organization, 2019
Source: By Author, 2019
 Strategic PlanningThe most vital function of the financial activity is strategic planning. A big
firm like Marks & Spencer has to deal with various issues that arise in the day-to-day activities.
Strategic planning leads to a proper roadmap that would guide the firm in achieving its goals.
Marks and spencer has various outlets and every action is taken care of by proper planning.
 BudgetingThis is a very integral part of the organization. It aids the firm in categorizing and
allocating its capital as per the requirements of the operations. To manage the financial and
operational activities, proper allocation of capital in respective department heads is important
(Makarenko and Plastun, 2017). This is achieved through budgeting. There are different types of
budgets that aids the firm in monitoring and controlling the costs incurred in the functions.
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RoleStrategicPlanningBudgetingFundingDesicionMakingCashFlowManagementAssetManagement

 FundingCapital is the first most priority of the organization. It is required to carry on the day-to-
day operations as well as achieving the short and long term goals of the firm. Marks & Spencer
has outlets in all over the world and they are planning to open stores in every part of the world.
To manage all these arrangements, they cannot rely on their revenue, therefore to increase their
capital, they collaborate with stakeholders who will invest in their business and will get specified
percent of share in the profit (Kornberger, et.al., 2017). This is achieved through funding.
 Decision MakingThe most crucial step of the finance functions in Decision Making. The growth
of the company is based on key decisions. In order to improve the performance, take actions
regarding expansion and taking opportunities like merger and acquisition, the manager should
consider all the facts and figures required and take strong decisions. This helps in boosting and
enhancing the performance of the company.
 Cash Flow ManagementAs stated earlier, capital is the most integral part of the firm operations.
Similarly, the managers at Marks & Spencer have to make sure that there is constant flow of
capital in the system (Jaijairam, 2017). Capital is required in manufacturing, transporting,
infrastructure and other important aspects of the business. A structured cash flow management
enables the firm to take strategic decisions regarding expansion, opening of new store, merging
and so on. All of this is achieved concluded a detailed and specified cash flow statement. It also
builds in information about all the investments that will take place in the firm.
 Asset ManagementAnother very important aspect of financial function in Marks & Spencer is
Asset Management. The firm owns assets worth of large amount. These assets are purchased for
long-term periods. These assets are responsible for increasing the overall value of the firm. The
assets can be categorized as machinery, infrastructure and so on. These assets help the firm in
increasing their productivity which is further responsible for increasing the revenue.
Role of Accounts in Marks & Spencer
The functions of accounting lead the firm in tracking the daily business transactions. The
accounting records of every outlet of Marks and Spencer is done individually. Every branch
manager sends their monthly report to the designated head office of the city. The managers at the
head office then compile the data and prepare a final report. There are various segments of
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accounting that are responsible for managing the financial operations with ease. The key role and
responsibilities of the accounts department are mentioned as below:
 Accounts PayableThe relationship between the firm and its vendors is covered under accounts
payable. As Marks & Spencer deal with manufacturing, they purchase raw materials from
different vendors. The timely management of payment of these vendors comes under the
segment of Accounts Payable.
 Accounts ReceivableAnother important aspect of accounting is accounts receivable. This
includes the tracking of receivables including outstanding invoices. Collection of outstanding
balance on time is very important for the firm to maintain a balance in its profits (Robson, et.al.,
2017). If the firm will have higher outstanding amounts, it will lead to losses.
 PayrollThis is a critical function of accounting in the firm. Every employee working in the
organization is liable of getting paid respectively on time. The firm has to deal with topics like
tax, while providing salaries to the employees. Marks & Spencer has a very efficient method of
distributing salaries to its employees.
 Financial StatementsThe main reason for proper recording of data in accounts is to prepare
financial reports in the end of fiscal year. This provides a clear image of the performance of the
company and gives insight about the areas that needs special attention. With the occurrence of
latest software, financial reports generated are much accurate and reliable. Marks & Spencer
have a much updated version of accounting software that they use in their every outlet for
managing the transactions transparently and accurately.
 Financial ControlThere are certain financial controls that help the firm to safeguard itself from
any type of theft or frauds. Financial control like reconciliation, following the GAAP standards
of accounting principles helps the firm in achieving compliance (O'Dwyer and Unerman, 2016).
In Marks & Spencer, the role of controller is to ensure that all the activities are being properly
done in every outlet.
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Task 2
A.
Financial Ratios of Alpha Ltd.
(i) Return on Capital Employed
Return on Capital Employed or ROCE is a profitability ratio that reflects the efficiency of the
company in generating profits. This ratio describes how a firm generates revenue from the
capital that is employed. It is termed as a long-term profitability ratio as it reflects how
effectively the assets are performing while considering the long term financing (Liang, et.al.,
2017).
Return on Capital Employed Net Operating Profit/ (Total Assets - Current
Liabilities)
Year Return on Capital Employed
2017 0.69
2018 -3.5
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Under this,
2017 Net Operating Profit = £ 300
Total Assets = £ 757.50
Current Liabilities = £ 322.50
2018 Net Operating Profit = £ 262.50
Total Assets = £ 1035
Current Liabilities = £ 1110
(ii) Net profit Margin
Net profit margin is the reflection of how much profit is generated as percentage of revenue. This
ratio is mostly expressed in form of percentage, but it can also be presented in the form of
decimal. Net profit Margin is the ratio of the overall revenue that is earned by the firm.
Net Profit Margin Net Profit/ Total Revenue*100
Year Net Profit Margin
2017 12.5
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2018 8.75
Under this,
2017 Net Profit = £ 300
Total Revenue = £ 2400
2018 Net Profit = £ 262.50
Total Revenue = £ 3000
(iii) Current Ratio
It is the most commonly used liquidity ratio that is used by the company’s to determine the
firm’s ability to pay its short term obligations by liquidating its assets. Current ratio is an
indication to the investors that the company can pay off its debts using its current assets
(Morales-Díaz and Zamora-Ramírez, 2018). This would eventually reduce the company’s short-
term liabilities. This ratio is calculated by comparing the firm’s current assets to its current
liabilities.
Current Ratio Current Assets/ Current Liabilities
Year Current Ratio
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