This company is successful!’ Discuss this statement using a company of your choice and the annual accounts to support your assumptions. Marks and Spencer is a British retailer, which is one of the most widely recognised chain stores in the UK and is the largest clothing retailer. They are also a multi-billion pound food retailer. It has several stores outside of the UK. It also has a third line of business selling homewares such as bedlinen. Marks and Spencer history started in 1884. It originially was a chain of “Penny Bazaars” and was founded by a Russion immigrant called Michael Marks. From then on Marks and Spencer got more and more famous. It made its reputation in the 20th century on a policy of only selling British-made goods.
Marks and Spencers is a good example for a successful company as their sales show increases from the year 2001 to 2002. To prove the above statement, I have calculated the following ratios below. To decide wether a company is successful or not one needs to compare different financial years of the company, this is done by calculating certai9n ratios to show if the company was successful.
Included in these ratios are the Return on Capital Employed, Gross Profit Margin, Net Profit Margin, Gross Profit on Cost, Asset Turnover, Stock Turnover and many more. All these ratios are divided into different group such as Profitibility, Rate of Return, Liquidity, Asset usage, Stock, debt and credit, Gearing and Investor. Below I have calculated a few of these ratios needed.
The Debtors turnover ratio figure is used to identify the speed at which the company collects the amounts owing from its customers. The higher the turnover rate is then the better.
http://www.bized.co.uk/compfact/ratios/sdc5.htm The results indicate that Marks and Spencer have a relatively low debtor’s turnover of 3.07 times in 2001. This figure unfortunately increases to 3.11 times in 2002. Specific Expenses (%) Expenses (e.g. wages) x100 = % Sales 2001 480.9 = 0.06% 8075.7 2002 629.1 = 0.08% 8135.4 This ratio can be used to highlight the % of sales taken to pay a particular expense. This % should ideally be as low as possible. In 2001 they had a specific expense % of 0.06%, this rose to 0.08% in the next year.
Gearing Gearing Ratio Long-term Loans x100 = % Capital Employed 2001 1534.6 x100 = 33.5% 4581.4 2002 2009.9 x100 = 65.23% 3081.3 The gearing ratio shows the % of capital employed that is covered by long term loans. An example of a long-term loan would be a mortgage. This ratio is very important for the business and for their banks as the bank needs to consider whether it is worth giving them another loan. http://www.bized.co.uk/compfact/ratios/gearing1.htm Marks and Spencer have a ratio of 33.5% and 65.23% in the years 2001 and 2002. This is a very dramatic increase. Marks and Spencer calculations, if the business is successful was very promising up to now but the figure above gives a reason to be concerned.
The results of Marks and Spencer’s stock turnover ratios for the year 2001 and 2002 all look very good but you would expect that Marks and Spencer would have a better stock turnover than shown above. This is due to Marks and Spencer stocking a lot of perishable goods (e.g. food). Any company who stocks perishable goods would be expected to have a higher stock turnover due to the limited shelf life of the goods. One would expect that Marks and Spencer would have a higher stock turnover as it is selling these types of goods. On the other hand Marks and Spencer is famous for selling clothes and other things like bed linen.To put it in a nutshell Marks and Spencer is a successful company but could still do better by for example not overstocking on perishable goods.