An Analysis Based on Marks and Spencer Annual Reports - Essay Example

FINANCIAL MANGEMENT An Analysis based on Marks and Spencer Annual Reports Introduction Marks and Spencer is one of the UK's leading retailers with more than 800 stores different, of which around 620 stores situate in UK. Marks and Spencer is the largest retailer offering innovative, high quality, outstanding value clothing and home products all over the world. It has recently started expanding the business in to other ranges like home wares and furniture. Marks and Spencer has achieved a great success in the last three years and now it is in the progress focusing on core business and aiming at becoming more customer oriented and flexible business offering wide selection of quality goods. Performance Analysis of Marks and Spencer Financial Performance The overall performance of Marks and Spencer was extremely pleasing to the stakeholders. The annual report emphasizes that it has been a good year for Marks and Spencer while market has become stronger, because profits were up; its plan remained firmly on track; and it ended in 2007/08 as a stronger and more competitive business than for many years (Your M&S-2008). The total revenue has been increased by 5.1 % with highly strong performance in its domestic trade. But the total revenue was accounted to be increasing by 10.1 % in 2007 with high performance in both its home and international business. Both Gross Margin of 38.9% and Net Margin of 12.2% show better performance than its last year's financial state. During 2007 profitability has been increased to 11.2% from 9.6% and 7.4% of 2006 and 2005 profitability records respectively. It shows the success achieved by Marks and Spencer in its business operation both in domestic and international trade. Group operating profit has also been constantly increasing for last few years. Group operating profit of its UK retail business has been accounted to be '972.9m in 2008 with a slight increase from the figure of '956.5 m in 2007. Group operating profit of its international trade has been accounted to be '116.4m in 2008 with an increase of '28.9 m from 2007's figure of '87.5m. Operating profit on property disposals was '27 million but it was 1.9 million during 2007. Cash outflow has been reported to be '917.5 million in 2008 but cash inflow during 2007 was very strong as it generated a net cash flow of ' 231.1 million in 2007. In 2007, Cash inflow from continuing operating activities had been increased by '259 million. Cash inflow from continuing operation in 2008 has been decreased by '206.6 million that has reflected a higher working capital outflow. In 2007, there was reduction in cash outflow on leasehold repayments as compared to 2006 and hence it resulted to an increase in the working capital which was accounted to be '114.1 million. Non Financial Performance Marks and Spencer's stores in UK are highly sophisticated and are established in such a way that it can offer most convenient shopping to the customers. According to the latest survey' Over 21 million people visit Marks and Spencer's stores each week' is highly important in a fluctuating market where competition among groceries and other large scale retailers are fierce (Your M&S- 2008) Amenities including vehicles parking and restaurants are available at its most stores. Around 300 Marks and Spencer stores in UK are equipped with entrance cameras that can record the number of people who visit the stores. It is helpful to establish the ratios between the visits numbers and sales. The annual report details its strategies that it is changed and technologies are upgraded in order to capture customer footfall more accurately. Marks and Spencer has introduced thermal image cameras in its stores that are more sensitive in picking up flow of individuals and separating groups of people as they walk into the stores (Your M&S-2008). The annual reports also indicate that Mystery Shopping strategy is another way used by Marks and Spencer in order to evaluate the service qualities and convenient shopping possibilities. Each of the stores will be anonymously visited once a month by the experts. Marks and Spencer has created a broad approach towards customer orientation programs. 'Marks and Spencer's new manifesto campaign goes a step further by introducing powerful messages on provenance and healthy eating. (Your M&S-2008). Risk Management Tools Structured brain storming method Different methods for identifying and assessing the risks can be used by a business as it always needs to select most suitable method based on the context of the risk identification and level of risk management planning. The structured brain storming approach has been developed in Marks and Spencer in order to identify and assess the risk. It thus allows a range of personal knowledge and experience to be observed to identify the risks. At Marks and Spencer, there is a board responsible for assessing risks and systems of internal control. According to the annual report, this particular board is liable to monitor the effectiveness in providing shareholders with a return that is consistent with a responsible assessment and mitigation of risks. The role of executive management is to implement the policies of board on risk and control and to provide assurance on compliance with these policies' (Your M&S-2008). Marks and Spencer has been assessing and identifying risks associated with different business situations every six months with the help of boards who review group risk profiles. This is done by a continuous process for identifying and managing difficulties faced by the group. Thus, managers from each business area should identify the risks to their concerned plans, evaluate the risks using likely hood and impact. Role of No-Executive Directors A non-executive director is a member of the board of directors but he does not form part of the executive management team. He is not considered to be an employee of the company. The non- executive directors of a Multinational company cannot get involved in the day to day running activities of the business. Non executive directors use their expertise and skills to offer advice and instructions to the company and they perform a role to monitor executive management. Same time, an executive director performs operational and strategic business functions like managing personnel, looking after assets of the business, hiring process and entering in to contracts. Executive directors are usually appointed by the company and are paid a salary. Executive director is protected by employment law and are taxed as well. A non executive director may sometime be appointed to perform specialist role on a part time basis or for some specific activities based on their expertise. For example, a marketing specialist director may be appointed as a non executive to perform marketing operations like brand expansion, performing advertising campaign and bringing up sales promotions techniques. In these cases, a non executive director can improve the effectiveness at relatively less cost and can provide valuable business relations in regard to brand expansion, advertising and sales promotion. But, it is criticized that in such times they wont be much committed to the operations of the firm as a an executive director should be. Christopher Pass is of the opinion that non executives are seen as 'guardians' of the corporate good and act as 'buffers' between the executive directors and the company's outside shareholders, i.e. they monitor executive actions and question executive decisions and are required to ensure that the company is acting in a 'responsible' way and in the best interests of the shareholders and other stakeholders. (Christopher Pass- 2002) In Marks and Spencer, executive directors have central duty to act in good faith and in a way most likely to promote the success of the business. For performing this prime duty, they should give extreme concerns over consequences of any decisions in the long run, employees interests and need to foster business relationship. The non executive directors of Marks and Spencer play a vital role to protect share holders' interests. They are appointed to bring an external dimension to the board. They have duty in regard to analysis of financial reviews and analyzing investment possibilities in the business. Recommendations From the financial analysis of Marks and Spencer it can be seen that investors can expect a fair return from the investment in the company as there was constant increase in the rate of dividends available to the share holders. 'Sales were increased by 5.1% to over 9.0%bn with a robust performance in the UK boosted by almost 5% of new space, and another strong year for international, where sales were up 16.8%. The annual report shows a greater possibility to the shareholders to expect a fair return on their investments' (Your M&S -2008). There was 7.9% increase in earnings per share from last year. Capital expenditure was accounted to be '1.1 bn. The aggregate amount of '914 m was returned to share holders. Marks and Spencer provides facilities of direct bank transfer of each month's dividends to the concerned bank accounts of the shareholders with the help of electronic communication. Dividends will be transferred in Sterling or foreign currencies so that foreign investors can get benefit of direct and easy transfers and they can reinvest the same according to the convenience. References BRUCE R JEWELL (2000), An Integrated Approach to Business Studies, 4th edition, Pearson Educational Limited, China CHRISTOPHER PASS (2002), Working Paper Series, Corporate Governance and The Role of Non-Executive Directors in Large UK Companies: An Empirical Study, Retrieved 02/11/2008 from http://www.brad.ac.uk/acad/management/external/pdf/workingpapers/Booklet_02-25.pdf DAVE HALL, ROB JONES, (2004) Business Studies, Third Edition, Cause Way Press Ltd, China EUROMONITOR INTERNATIONAL (2008) Quality counts in the UK Consumer Foodservice Market, Retrieved 01/11/2008 from http://www.euromonitor.com/Quality_counts_in_the_UK_Consumer_Foodservice_market YOUR M&S (2008), Accountability and Audit, Retrieved 02/11/08 from http://annualreport.marksandspencer.com/governance/accountability.html YOUR M&S (2008), The Board, Retrieved 02/11/08 from http://annualreport.marksandspencer.com/governance/board.html YOUR M&S (2008), Key Performance Indicators, Retrieved 02/11/08 from http://annualreport.marksandspencer.com/about/kpis.html YOUR M&S (2008), Building Our Brand, Retrieved 02/11/08 from http://annualreport.marksandspencer.com/building/building_the_brand.html Read More