Detailed Financial Analysis Report on John Lewis Partnership PLC

This report provides a financial analysis of John Lewis Partnership PLC, evaluating its performance and sustainability. The report begins with an introduction to financial analysis, followed by a company overview, which details John Lewis's history and business operations. It then examines the economic context, including the impact of consumer spending shifts and the COVID-19 pandemic. The core of the report involves the calculation and analysis of key financial ratios, including gross profit ratio, operating profit ratio, current ratio, acid test ratio, and non-current asset turnover ratio, using data from 2021 and 2022. The analysis provides insights into the company's efficiency, profitability, and liquidity. Finally, the report concludes with recommendations, suggesting areas where Marks and Spencer can improve its performance based on the analysis of John Lewis's financials. The report references relevant academic sources to support the analysis and findings.

Analysis Report

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Company overview.....................................................................................................................3
Economic context to the report...................................................................................................3
Ratio Calculations and Analysis.................................................................................................4
CONCLUSION ..............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The process of evaluating businesses, ventures and other financial transactions to gain an
idea about their performance and sustainability is called as financial analysis. When a company
needs to invest, the analysts evaluate the company's profitability, liquidity and solvency (Campos
and et.al., 2019). In this report, consolidated income statement and balance sheet of the year
2021-22, will be analysed specifically to calculate financial ratios to perform an analysis on John
Lewis Partnership PLC so that Marks and Spencer can have an upper-hand over their
competitors. After analysing the financials of John Lewis, recommendations on how Marks and
Spencer can enhance its performance will be given.
MAIN BODY
Company overview
John Lewis, was born in Shepton Mallet in Somerset in 1836, he then came to London in
1856 and worked as salesman for Peter Robinson, an Oxford Street draper. He then declined the
offer of partnership and rented his own area in Oxford street. Lewis devoted himself completely
to the business, he invested the money in residential and retail properties, he gradually moved
into different departments of merchandise. John Lewis Partnership PLC is a British company
which operates a number of retail activities. This company is owned by a trust on behalf of its
employees also known as Partners. It has around 80000 employees or partners. JLP is the third
largest UK non traded company by sales. The company suffered a loss of 517 million during the
Covid 19 pandemic. The company owns around 35 stores in Britain. It strives to be the cheapest
vendor with high quality and exclusive products.
Economic context to the report
There has been a shift in consumer spending due to economic fluctuations. Rise in
inflation and taxes has impacted the performance and profitability of the company. During Covid
19 the company was forced to shut down stores which led to a major fall in sales. Nowadays,
around 60% of the sales has been shifted online which grew from 40% before the pandemic hit.
The company blamed falling customers on Brexit. As the situation is improving, JLP should
focus on making new policies and strategies to attract more customers through innovative
promotional activities. As the macro environment is stable, consumer spending increases, it will
lead to increase in sales and thereby profits of the company (Gillooly, Perry and Martins, 2019).

Ratio Calculations and Analysis
Gross Profit Ratio
Ratio Formula Year
2021
Year
2022
Gross Profit Ratio
Gross Profit x 100
Net Sales
3363.2 / 10771.8 * 100
= 31.22 %
3478.1 / 10837.5 * 100
= 32.09 %
Analysis: This ratio indicates the amount of profit a company makes after paying the cost of
goods sold. It measures the efficiency of the company using the factors of production. The higher
the profit margin, better the efficiency of the company. John Lewis Partnership has a high gross
profit margin which also increased by a fraction from 2021 to 2022. There has been a reduction
in cost of sales even when the revenue has increased which is a positive point for the company's
efficiency. The company is making reasonable profits from its sales till the time the overheads
are in control.
Operating Profit Ratio
Ratio Formula Year
2021
Year
2022
Operating Profit Ratio
Operating Profit x 100
Net Sales
-359.6 / 10771.8 * 100
= -3.33%
118.3 / 10837.5 * 100
= 1.09%
Analysis: It indicates the amount of profit a company earns after the variable costs like wages. It
shows how well the company controls the costs related to operations. It is an indicator of the
strength of the management of the company. JLP suffered a loss in 2021 which can be because of
the pandemic which caused deviations from the plans and paying of more variable expenses than
it was required. But due to the changes in policies and taking care of the deviations, John Lewis
bounced back and earned profit in the following year (Malekhosseini and et.al., 2021).

Current Ratio
Ratio Formula Year
2021
Year
2022
Current Ratio
Current Assets
Current Liabilities
2368.9 / 1992.8
= 1.2:1
2423.4 / 2174.5
= 1.1:1
Analysis: The current ratio calculates the firms ability to pay off its short term creditors with
short term assets. The ideal current ratio is 2:1 which means for every 1 liability company has 2
assets. JLP is way below the ideal ratio but still it has sufficient assets to pay off the liabilities. It
can be seen that the ratio has fallen in 2022, the liabilities have increased and there is no
significant increase in assets. It will have to strategise and make new policies to not fall more.
The company will have to increase the number of assets and decrease the liabilities to reach the
ideal situation.
Acid Test Ratio
Ratio Formula Year
2021
Year
2022
Acid Test Ratio
Current Assets - Inventory
Current Liabilities
2368.9 – 643.9 / 1992.8
= 0.9:1
2423.4 – 655.7 / 2174.5
= 0.8:1
Analysis: This ratio compares the most short term assets and the most short term liabilities to
know if a company has enough cash to pay its liabilities. The ideal ratio has to be greater than
one. John Lewis has a low quick ratio which is because its a retail business and these are heavily
invested in inventory. The liquidity of the company is in danger as the liabilities are greater than
the assets (Makker and et.al., 2019).

Non-Current Asset Turnover
Ratio Formula Year
2021
Year
2022
Non-Current Asset Turnover
Net Sales
Total Net Book Value
of non-Current Assets
10771.8 / 5116.5
= 2.10 times
10837.5 / 5361.9
= 2.02 times
Analysis: It is an efficiency ratio which measures a company's ability to generate sales from the
assets. Higher ratio is favourable which shows that the company is using its assets efficiently.
JLP has a good ratio which suggests that every asset is producing twice the sales. The company
is using its assets efficiently and there are no such management problems. The investors must be
happy with how well the company is using its assets and making the most of it.
CONCLUSION
In the above report, the company John Lewis Partnership has been evaluated and
analysed to so that the management of Marks and Spencer can make policies accordingly and
know about its competitor. The financial ratios JLP have been calculated from income statement
and Balance sheet to get a greater understanding of the position of the business. Looking at the
performance, it can be said that Marks and Spencer should focus on its sales and greater
productivity. It needs to take care of the liquidity position it holds and follow the ideal ratio to
make investors happy and satisfied. The company should increase its sales and work on more
promotional activities.

REFERENCES
Books and Journals
Campos, C.E.M and et.al., 2019. Report on the To. Sca. Lat.-1.0 Summer School, total scattering
analysis for nanoscience in Latin America. Powder Diffraction. 34(2). pp.203-207.
Gillooly, A.R., Perry, J. and Martins, P.N., 2019. First report of siRNA uptake (for RNA
interference) during ex vivo hypothermic and normothermic liver machine perfusion.
Malekhosseini, S.A and et.al., 2021. A report of 85 cases of COVID-19 and abdominal
transplantation from a single center: what are the associated factors with death among
organ transplantation patients. Transplantation. 105(1). pp.90-99.
Makker, V and et.al., 2019. Lenvatinib plus pembrolizumab in patients with advanced
endometrial cancer: an interim analysis of a multicentre, open-label, single-arm, phase 2
trial. The Lancet Oncology. 20(5). pp.711-718.