Investment Analysis and Financial Performance: Marks & Spencer

This report provides a comprehensive financial analysis of a proposed investment plan for Marks & Spencer, addressing the impact of the COVID-19 pandemic on the company's performance. The report begins by defining the motivation for the investment, highlighting the decline in clothing sales and the need for strategic initiatives. It then conducts an investment appraisal, utilizing both quantitative methods like payback period, net present value (NPV), and internal rate of return (IRR), and qualitative tools such as PESTLE and SWOT analyses. The quantitative analysis reveals a payback period of 4 years and a positive NPV, indicating a potentially profitable investment. Furthermore, the report critically discusses the risks associated with the investment, including market competition and economic factors, and assesses their potential impact on the company's financial performance, with an IRR of 30.26%. The conclusion emphasizes the importance of the investment for future growth and expansion. The report provides a detailed analysis of the investment opportunity, offering valuable insights into Marks & Spencer's financial strategy and the potential returns of the investment.

Accounting and Finance
for Decision Making

Contents
EXECUTIVE SUMMARY.............................................................................................................3
MAIN BODY...................................................................................................................................4
1.Define the motivation of the proposed investment...................................................................4
2.Conduct investment appraisal using both quantitative and qualitative information.................4
3.Critically discuss the risk and return and its potential impact on its financial performance. . .8
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................10

EXECUTIVE SUMMARY
The report is prepared keeping in mind the influence and changes that took place in the
business of Marks & Spencer due to the effects of Covid-19. The company take in the respective
report is Marks & Spencer. It is a British multinational retailing brand which particularizes in
selling clothings, beauty products, home creations and food products. It presently retails in
almost 950 + outlets across the entire United Kingdom in which almost 600 outlets are
specifically designated to sell the food products. The company is listed on the London Stock
Exchange and also is a part of the FTSE 250 Index. The purpose of this report is based on
providing the organisation of marks and spencer with a suitable business expansion plan. This
investment plan is a requisite due to the economic and financial drain that the company faced due
to the pandemic.
The report aims to analyse and recommend the company to invest in some suitable and
beneficial investment plan which can assist the company in future growth and development
decisions with the help of the analysis and results provided in this report.

MAIN BODY
1.Define the motivation of the proposed investment.
The issue being faced by Marks & Spencer, in past few years faced a mass decline in its
clothing sales as the revenues fell off which were being generated previous to the pandemic.
Although the food sales were good in their revenue generation, the fall in revenues due to the
sales in clothing department was a sign of worry for the company. Due to the pandemic and its
effects on company's revenue and profits, Marks & spencer has decided to cut down on a number
close to 7000 the jobs due to the corona virus pandemic (Al Balushi, Locke and Boulanouar,
2018). In 2021, M&S also declared its decision of shutting down around 25-30 shops in a period
of coming 10 years due to their decision of a turnaround plan. It is very essential for the
company to think and select upon the suitable plans and options to revamp the business with a
positive outlook and a success mindset as the difficulties and various issues due to pandemic
have created a burden on the company to cover for its losses and also to outperform so that to
grow and expand the business in its coming years. The problem caused relating to the effects that
the pandemic and on the revenues and sales numbers of the company caused the profit numbers
to reduce extensively. This pushed company way back in terms of it planning for future growth
opportunities and development plans. The casual drivers of this problem situation are pandemic
related restrictions, lockdowns, financial strictness and lack of demand due to the customers
saving their monetary resources for the necessary products and services in the pandemic.
2.Conduct investment appraisal using both quantitative and qualitative information.
Investment appraisal is the process to evaluate and ascertain the probability of the investment
which is to be done whether will it be favourable for the business or not in terms of its returns
(Harrast, 2020).
The investment amount that the company plans to invest in the business is £150000.
Payback Period Analysis: Initial investment / Cash inflow
Year Annual Cash Inflow Annual Cash
Outflow
Annual Net Cash
flows
Cumulative
Cash Inflows
0 0 150000 -150000 0
1 200000 700000 -500000 -500000

2 300000 200000 100000 -400000
3 400000 0 400000 0
4 600000 0 600000 600000
5 500000 100000 500000 1100000
Payback period = Number of years before full recovery+ (Unrecovered Amount / Cash Flow in
recovery year)
= 4 years + 0/600000
= 4 years
Analysis
from the calculations made above, it can be analysed that the business will be in the position to
recover for the amount that was invested in the business in the period of 4 years. This definitely
proposes that the operations and the investment made will be fruitful for the business (Martinez
and Himick, D., 2022).
Calculation of Net Present Value
Years Net Cash
Inflows Discounting @ 8% PV of Cash Inflows
1 -500000 0.926 −463000
2 100000 0.857 85700
3 400000 0.794 317600
4 600000 0.735 441000
5 500000 0.681 340500
Net Present Value £721800
Analysis
The Net Present Value of the project shows a amount of £721800 which will be earned by the
business in the time period of 5 years. The present value defines that the investment will be
beneficial and the amount that the business will achieve will be positive and profitable.

Calculation of Internal Rate of Return
Discounting Factor @8%
Years Net Cash
Inflows Discounting @ 8% PV of Cash Inflows
1 -500000 0.926 −463000
2 100000 0.857 85700
3 400000 0.794 317600
4 600000 0.735 441000
5 500000 0.681 340500
Total cash inflow 721800
Discounting Factor @15%
Calculation of Internal Rate of Return
Years Net Cash
Inflows Discounting @ 15% PV of Cash Inflows
1 -500000 0.87 −435000
2 100000 0.756 75600
3 400000 0.658 263200
4 600000 0.572 343200
5 500000 0.497 248500
Total cash inflow 495500
IRR = Lower rate + Lower Rate NPV/ (Lower Rate NPV – Higher Rate NPV) * Diff. in Rates
= 8% + 721800 / (721800 - 495500 ) * 7%
= 8% + 721800/ 226300 * 7%
= 8% + 3.18 * 7%
= 8% + 22.26%
= 30.26%
Analysis
The yearly return of the company from this respective investment made will be 30.26% every
year for the period. This shows that the business will be in the position to achieve profitable

returns from the investment project and the amount that the company invested will provide future
benefits to the company.
PESTLE Analysis Of Marks & Spencer
Political Factor: The political factor affecting Marks & Spencer for the investment to be
made is of Free trade. As the investment made by the company will be efficiently profitable only
if the business can access the free trade and global markets to expand and work in its full
potential.
Economic Factor: The economic factor affecting the investment made by the company
is the discounting competitors of the organisation. The new competitors could steal the
customers of the company on the price basis as the discounts and less prices could influence an
shift the mindset of the customers to buy from the cheaper sources (Nguyen, Gallery and
Newton, 2019).
Technological Factors: Technological factors affecting the investment will be the factor
of Online shopping. As for retail stores, it is very important for the companies to have their
identity on an online platform to attract all the shoppers who can not visit the store physically.
This will be a boon to the investment as it will help company in generating more revenue as
compared to only store sales.
Legal factor: The legal factors which will affect the investment will be the legal
formalities which will be associated to the investments that the company is making. It is
necessary for the company to be sure that there are not legal issues which could present a
problem for the organisation in any future scenario harming company's image, goodwill and the
profits which ate being generated from the investment made.
Environmental Factor: The environmental factors which can have an impact on the
investment are the factors relating to the use of sustainable products in their business. As the
society today has become more conscious of all the factors specially he environmental. Hence it
is necessary that the company should make sure that the investment made and the products or
output being generated form that investment should be sustainable a it will create a sound
positions for the success in the market.
SWOT Analysis Of Marks & Spencer

Strength: The investment amount decided by the company is of £150000. This is being attained
by the company in the next 4s years of its working. This shows that the investment made by the
company is very fruitful and beneficial to the organisation in terms of its ROI. The IRR stands at
3.26% which is also a strong head for the investment (Sherkhani, Safari Gerayli and Valiyan,
2021).
Weaknesses: The cumulative cash inflows of the investment are in negative numbers which
shows for the initial two years the company did not realised any amount of cash inflow. This
shows that the investment made has been weak for the initial two years its time period. It is a
weakness for the company as it would find it difficult to gain anything from the investment for
the first two years.
Opportunities: The opportunities for the company can be realised in its food line of the business
as it is the most popular side of Marks & Spencer when compared to all the other spheres that the
business deals in. the business can think upon and investment a larger financial fund in
expanding its food products sphere better than compared to all other lines of the business.
Threats: The threats for the company can be regarding the startups who have picked up in great
revenue numbers and the upcoming retails stores that are being established in all those areas
where Marks & spencer have their store. As it would work against stealing a share of their
customers which may shift their likings and purchases towards the other stores.
3.Critically discuss the risk and return and its potential impact on its financial performance.
The risk associated with this investment lies in the factors which can affect the
profitability and return from the investment which the company aims to achieve.
The cost of the investment made by the company amounts to £150000 which has been analyzed
and calculated to be earned by the business in the time of 4 years from the year in which the
investment will be made. The payback period hence for the plan is the initial 4 years with the
starting two years generating negative revenue (Wang, 2021). The NPV for the investment plan
is £721800 which the company will earn in the next 5 years of the investment made. The IRR
has been calculated by the business at two different rates of 8% and 15% in which it has been
seen that the Internal rate of return for the entire investment project is 30.26%. It shows that the
investment being made by the business is a fruitful and profitable investment as the analysis of
the qualitative and quantitative information. The potential impact of this investment lies upon the
factor that the business shows a growth and profitable pattern for the years to come. In the

investment being made, the rate of risk is effectively lower than the investment that the business
will be making in the coming years (Wang, 2021).

CONCLUSION
From the above report, it can be concluded that Covid-19 did made a huge negative
impact on the whole financial system and undertakings. The company in the report, marks &
spencer saw a huge financial decline in its profits and revenue numbers. It was further concluded
that the company requires to make an efficient and profitable investment for better growth and
expansion opportunities to increase the company worth for te future years. The calculations
am,de in the report concluded that the investment decided upon is profitable and beneficial to the
company.

REFERENCES
Books and Journals:
Al Balushi, Y., Locke, S. and Boulanouar, Z., 2018. Islamic financial decision-making among
SMEs in the Sultanate of Oman: An adaption of the theory of planned behaviour. Journal
of Behavioral and Experimental Finance, 20, pp.30-38.
Harrast, S.A., 2020. Robotic process automation in accounting systems. Journal of Corporate
Accounting & Finance, 31(4), pp.209-213.
Martinez, D. and Himick, D., 2022. Accounting in (direct) action: Prefiguring emancipation in
accounting research. Critical Perspectives on Accounting, p.102476.
Nguyen, L., Gallery, G. and Newton, C., 2019. The joint influence of financial risk perception
and risk tolerance on individual investment decision‐making. Accounting & Finance, 59,
pp.747-771.
Sherkhani, A., Safari Gerayli, M. and Valiyan, H., 2021. CEO Power and Thick Decision based
on Sophistication Theory. Management Accounting, 14(49), pp.149-166.
Wang, G., 2021, September. Establishment of Fusion Model of Financial Accounting and
Management Accounting Based on Cloud Computing Technology. In 2021 4th
International Conference on Information Systems and Computer Aided Education (pp.
428-432).
Wang, L., 2021, December. Intelligent analysis of accounting information processing under the
background of big data. In 2021 2nd International Conference on Big Data Economy and
Information Management (BDEIM) (pp. 461-464). IEEE.