Financial Analysis and Investment Appraisal of Marks & Spencer Report

This report provides a comprehensive analysis of Marks & Spencer Group PLC's financial performance, focusing on the use of financial ratios to evaluate profitability, efficiency, liquidity, and financial gearing. The report examines the company's performance from 2015 to 2019, comparing it with Ocado's financial data. It delves into investment appraisal techniques, specifically net present value (NPV) and internal rate of return (IRR), to assess potential investment decisions, such as product development and acquisitions. The report also discusses the advantages and limitations of these methods, offering insights into the challenges and opportunities faced by Marks & Spencer, including the impact of economic crises, financial resource management, employee turnover, marketing expenditures, and technological advancements. The analysis aims to provide a clear understanding of financial decision-making processes within the retail sector.

FINANCE FOR DECISION MAKING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1 ............................................................................................................................................1
Evaluation of financial performance of ......................................................................................1
TASK 2............................................................................................................................................1
Brief
description regarding investment appraisal of ............................................................................1
TASK 3............................................................................................................................................1
Brief description regarding potential acquisition of ...................................................................1
CONCLUSION................................................................................................................................1
REFRENCES...................................................................................................................................1

INTRODUCTION
Finance is defined as the term which is used as a source of income. It is circulated as blood
of any business corporation. Without managing of Finance no organization can able to
maintain their position within a competitive business environment. To understand the
concept of decision making regarding finance, Marks and Spencer group PLC has been
taken. This organization is situated in London. It is one of the most famous brand in the
retail sector of the UK this report has been defined uses of financial ratio for analyzing
business performance of Mark and Spencer. This report also included use of investment
appraisal techniques which help in taking decision regarding best alternative. They are
decided for use capital budgeting net present value technique for take decision regarding
acquisition investment. It also contains a usefulness of potential acquisition as the company
decide to run business with Ocado. Growing company and provides best platform for super
market through using online business platform. This will help Mark & Spenser to spread
their market share within competitive business environment. The main purpose of choosing
this organization as it become This report also contain its limitation and challenges faced by
Mark and Spencer if they take decision regarding acquisition of entity which belong from
the same sector.
TASK1
Evaluation of financial performance of Marks & Spencer Group PLC
Business organization to understand profitability and capability formulate a financial
statement through which they can interpret the financial position of their company to external as
well as internal stakeholders. Marks & Spencer Group PLC is one of the most famous brand
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names. By calculating essential ratio, the manager can able to recognize financial performance.
A Ratio is a part of financial management, which helps in taking decisions and useful in
comparison from other organizations (Ashraf, Rizwan, and L’Huillier, 2016).
Profitability of Marks & Spencer
Particular 2015 2016 2017 2018 2019
Net profit 777.36 613.77 153.81 34.1 43.98
Revenue 16640.53 15921.87 13886.14 14193.3 13623.32
Net profit
ratio =
= 4.67 3.85 1.10 0.24 0.32
Profitability of Ocado
2015 2016 2017 2018 2019
Net revenue 1,103.6 1,267. 1,454.5 1,598.8 1765
profit 371.1 431.3 495 547.5 591.8
Net profit
ratio =
4.56 5.6 5.8 5.15 6.7
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Interpretation: This ration helps in defining revenue recognition and effect of profitability on
business organization. Marks & Spencer’s net profit value had been declineing since 2015. The
main reason of change aeries within ratio is due to changes of economic business policies as well
as organization apply investment policies which directly impact on generating high rate of cash
outflow. The impact of Brexit agreement also become the main reason of changes within the
ratio of organization.The vvalue of the net profit ration is calculated 4.67 % in 2015 and in 2016,
the rate of the net profit decreases, 3.85, and it declines even after years. This indicates that the
organization not able to turn-out high rate of ration and them even not able to maintain revenue
position in the market. This showcase that Ocado able to generate more profit as compare to
Marks & Spencer, even this is a major organization and have wider business area.
Efficiency
Particular 2015 2016 2017 2018 2019
Stock 519.32 486.76 416.51 409.15 423.38
COOGS 10208.73 9694.51 8542.19 8823.74 13410.12
19.65 19.91 20.53 21.57 31.70
Efficiency of Ocado
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Particular 2015 2016 2017 2018 2019
Stock 399 457 567 786 789
COOGS 45 67 78 78 89
17 15 12 23 11
Interpretation: This ration helps in understanding effectiveness an organization have to
fulfil their obligation. Stock turnover ratio interest their user day’s .take convert their stock into
cash and stock material required for completion of operating business cycle. Marks
& Spencer’s stock turnover r ratio period has been increaseddays. Ocado able to fulfil their
liability and stock convert easily and less time as compare to Marks & Spencer. It has been
increases due to use of effective management policies regarding with cash management.
Organization ;s revenue rate has been increases.
Liquidity
Particular 2015 2016 2017 2018 2019
Current
assets
2348.07 2204.39 2252.87 1748.45 1956.59
Current 3407.7 3174.9 3095.68 2422.55 2925.44
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liabilities
0.68 0.69 0.72 0.721 0.66
Liquidity of Ocado
Particular 2015 2016 2017 2018 2019
Current
assets
2345 2456 2678 2884 2956
Current
liabilities
234 250 345 234 345
0.23 0.34 0.56 0.67 0.56
Interpretation: By calculating liquid ratio, a manager can easily analysis, liquidity
position of their organization. Which represent financial capital an organization have to fulfil
their debt liabilities as well as fund they have in the form of cash. Marks & Spencer organization
have sufficient assets in 2015, they have 0.68 values of the current ratio. Which describe that as
compare to current liabilities even thus they have a sufficient balance of current assets. This
balance has been increasing, since 2015 which depicts that they even the organization’s
profitably rate has been declinene, they have sufficient balance and cash source to fulfil all
complete financial obligations. Ocado’s liquidity ratings are comparatively higher. Which means
they have sufficient cash assets.
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Financial gearing of Marks & Spencer
Equity ratio:
Particular 2015 2016 2017 2018 2019
Total equity 5162.22 5194.06 4118.51 3919.37 3519.48
Total assets 13226.86 12785.89 10840.79 10016.85 9452.42
0.39 0.49 0.37 0.39 0.37
Financial gearing of Ocado
Particular 2015 2016 2017 2018 2019
Total equity 3456 3550 4230 4550 4650
Total assets 12345 13456 123456 14567 14789
0.41 0.45 0.56 0.45 0.56
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Interpretation: Business organization uses financial gearing ratio through which
they can evaluate and measure financial leverage performance. It defines the value of equity
and debt area and their relationship of which relates to the organization. Marks & Spencer
value of the equity ratio represent the relationship between asset and equity have
organization. The rate of this ratio had not been incurred measure financial challenges as it
is really hard for organizations to determine relationships between equity and asset. But in
case of Ocado its performance is better. 2015, organization able to grantee .39 from its
equities and it increase in 2016, from 0.49, after that ratio of equity define, but it increases in
2018 and then in 2019, the value of equity measure of. 39. All these define changes financial
condition of the business (Yadav and Kapoor, 2018). As compared to its rival business
industries Marks & Spencer able to make an effective business position market. Even
though they face decline rate of performance. Following are the reason of decline perform of
Marks & Spencer.
Economic crises: Since 2015 UK suffer from a high rate of financial crises well as
economic crises. After Brexit agreement, most of European countries made strict rules regarding
trading thus it becomes really hard for it to run a business in an effective manner.
Mismanagement of financial resource: This is also a relevant factor of declining rate of
profits, organization does not formulate strategies for managing their cash flows thus
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it becomes the reason of declining sales rate. Marks & Spencer focus on spreading their market,
thus their management department not plan regarding managing their financial resources.
Employee turnover: With effect of Brexit agreement most of employee belongs from
European countries, thus rate of employee turnover these days will be higher. Due to lack of
skilled employee organization not able to maintain their financial performance.
Increment in marketing expenditure: Marks & Spencer to cover up market share focus
on researching and developing procedure, thus cost of marketing resource and development goes
high which become may result of decline business performance.
Use of technologies: By the uses of advance technologies and revolution of digital
marketing since 5 yeas, Marks & Spencer focus on providing training of their workforce so they
able to use or adopt the technique. This also becomes a reason of declining of financial
performance.
TASK 2
Brief description regarding investment appraisal of Marks & Spencer Group PLC
Investment appraisal: This consider as an essential technique of financial management,
which also knew capital budgeting. Investment appraisal is used to determine the profitability
rate of investment. In other words, by using the tools of the capital budgeting, management
department understands the rate of capital generating profits of project alternatives.
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This is helpful in taking a decision which is related to investment. These tools of financial
management help in providing qualitative as well as qualitative benefits (Mubashir, and Bin
Tariq, 2017).
By applying investment appraisal technique management department able to find out cash
flow value and problems arises during implementation of these investment alternatives. As well
as understand complications arise during use this investment apparel method. Business
organization by using tools of capital budgeting understand risk, return elements of applying and
investing theses alternatives. There will be various methods of analyzing investment appraisal.
Net present value and internal rate of return is one of them most popular and useful method
which help in providing accurate information regarding the organization.
Net present value Finance manager use this method to determine the rate of profitability
by analyzing variation arise between present value and initial investment. By using this method,
organization able to recognize and chose those business alternatives which give a higher rate of
present value as compared to their initial investment.
Particulars Amount Discount factor at 12%
Outflow 5000000 1 5000000
Inflows 725730 0.893 648076.89
Inflows 638830 0.797 509147.51
Inflows 1150000 0.711 817650
Inflows 900000 0.635 571500
Inflows 1067000 0.567 604989
Inflows 850000 0.506 430100
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