You are a trouble-shooter and have been hired to advise the Board of Marks and Spencer plc. on how to improve their current financial performance. Prepare a report estimating the nature and scale of Marks and Spencer’s under performance, making suitably costed recommendations.

Home / You are a trouble-shooter and have been hired to advise the Board of Marks and Spencer plc. on how to improve their current financial performance. Prepare a report estimating the nature and scale of Marks and Spencer’s under performance, making suitably costed recommendations.

 

 

 

 

 

You are a trouble-shooter and have been hired to advise the Board of Marks and Spencer plc. on how to improve their current financial performance. Prepare a report estimating the nature and scale of Marks and Spencer’s under performance, making suitably costed recommendations.

[Author Name]

[Institute Name]


 

Contents

EXECUTIVE SUMMARY: 4

Chapter One: Introduction. 5

1.1. Background. 5

1.2. Aims and objectives. 6

1.3. Justification of Research. 7

Chapter Two: Literature Review.. 8

2.1. Introduction. 8

2.2. Formation of the Financial Theory of Enterprise. 8

2.3. Finance theories. 10

2.4. The Process of Accumulation of Knowledge. 12

2.4.1. The valuation principle. 12

2.4.2. Efficient Markets. 13

2.4.3. Portfolio theory. 14

2.4.4. Theory of Valuation of Financial Assets. 15

2.4.5. Theory of Options. 16

2.4.6. Value, the Financial Structure and Cost of Capital 16

2.4.7. Agency Theory. 18

2.5. Evolution of the framework. 18

2.6. Organizational Performance. 20

2.7. Organizational capacity. 21

2.8. Organizational motivation. 21

2.9. Retail Companies and Performance. 22

2.10. Factors Associated with Financial Performance. 25

2.11. CSR and financial performance. 26

2.12. Marks and Spencer Company. 28

2.12.1. Challenges faced by Marks and spencer. 28

2.12.2. OCCURANCE: 30

2.13. Problems faced by Marks and Spencer after 90’s: 31

2.14. Criticism faced by Marks and Spencer: 31

Chapter Three: Methodology. 32

3.1. Background to Methodology. 32

3.2. Background to Analysis. 32

3.3. Resources. 33

3.4. Data Evaluation. 33

Chapter Four: Result and Analysis. 35

4.1. FINANCIAL PERFORMANCE.. 35

Stage 1: Context 35

  1. External profile. 35
  2. Internal profile. 35

Stage 2: Overview.. 37

Stage 3: Ratio. 38

Stage 4: Evaluation. 38

  1. Growth. 38
  2. Profitability (including stock market indicators). 38

III. Financial strength/solvency. 39

4.2. SUSTAINABILITY REPORTING.. 40

4.3. Discussion. 41

  1. Entry Risk: 43
  2. Risks of Alternatives. 43

iii.      Supremacy of Buyers. 44

  1. Suppliers and their Control 44
  2. Cutthroat Challenges: 44
  3. Current Strategic condition: 44

vii.         Strength: 45

viii.        Monetary Functioning: 45

  1. Threats: 46
  2. Cost Disbursement 47
  3. Reinforcing UK Offer. 48

xii. Augmenting Global Trade. 48

xiii. Financing in M & S Direct 48

xiv. Cost Control and Plan A.. 49

Chapter Five Conclusion. 50

References and Bibliography. 52

Appendices. 62

 


 

EXECUTIVE SUMMARY:

 

This report delivers a brief analysis based on the financial performance of the well-known retailer shop of UK mark and spencer plc (M&S). With respect to its trading methods, this report also provides some new policies and methods states for the improvement of M&S enhancement and perfect growth in the marketing industry.  With respect to the current decline condition, M&S is said to be the most prominent and successful retailing company in UK. M&S recent financial ratio of 0.6 times in 2013 proposed that the company’s economic condition is low and have to be improve at an optimum level this will increase up to 1.0 times to 1.5 times.  Subsequently, M&S sustainability analysis is discussed in this report that how they can overcome these financial crises and maintain the perfect environment and condition of the company with respect to other retailer shops in UK. This report also gives the overview about the present trends and situation of the marks and spencer.

 

 

Chapter One: Introduction

1.1. Background

As stated by Thompson and Martin (2010) both business and financial performance are two significant aspects for the success of all profit oriented organisations. According to Epstein and Jermakowicz (2010) performance can be used to describe the fulfilment of certain tasks measured against predetermined standards. Financial performance describes the extent to which an organisation’s financial objectives have been met or achieved by using monetary terms to measure the policies and operations applied in meeting such objectives (Epstein and Jermakowicz, 2010).

Business organisations, their strategies and structures, and the management of such strategies, has turned into a constantly complex practice as a consequence of the developing turbulence to change in the business world in recent years, and an propensity for multiproduct multinational entities to become ordinary, therefore inspiring the requirement for organisation to know their position– where they are, where they are heading to and how to manage any such changes as a result of the above (Thompson and Martin, 2010). Also, performance is very significant in terms of competition and gaining competitive advantage (Aziza and Fitts, 2008). According to Aziza and Fitts (2008) those organisations capable of managing performance, there are tremendous benefits that come along; but for those lacking the requisite capabilities to manage and drive their performance, their ability to compete will be limited. Therefore, there is a significant need for businesses to care a lot about performance in order to execute their strategies, as the execution of strategies and the results thereafter are the key benefits of performance management in all organisations (Aziza and Fitts, 2008).

Marks & Spencer plc. (M&S) is UK based retailer having 703 stores in the United Kingdom and more than 361 stores in more than 42 countries. Its product range can be grouped into two groups: general merchandise (clothing & home) and food. It is biggest clothing retailer in UK with pioneers in women’s wear, lingerie, and menswear. It is driving supplier of value food products in UK. The company is selling products through stores, online. Stock of the company is listed on the London Stock Exchange and is a part of the FTSE 100 Index.

According to Jacobs (2001) financial management can be defined as the art and science of managing money; and finance in its broader sense is concerned with the process, institution, markets and instruments involved with the transfer of money. This author is explaining that this is an area that requires knowledge, skills and experience and objectives include: profit maximization , sales, targeting a particular market share, social responsibility, increasing wealth and sustainability of the firm. Performance measurement can be divided into financial and non-financial measures.

For all profit-oriented organisations, in order to be successful, they must consider, seriously, both their financial as well as business performance (Thompson and Martin, 2010) – which can be used to describe the achievement of organisational objectives (Epstein and Jermakowicz, 2010). This report provides an analysis of the performance of Marks and Spencer PLC (M&S) over 2013.

1.2. Aims and objectives

The objective of research is to critically evaluate the financial performance in relationship with overall business performance of Marks and Spencer’s, for the last four years, But also to predict the possible future prospect of the organisation. This will be carried out according to the potential and ordinary shareholders point. Because all shareholders and investors want to assess the performance of organisation in past and want to know how the company will perform in future. Shareholders are always interested in the return of their investment. They want to know how the management can handle the organisation and assess the risks. The risks that M&S PLC currently facing and the future risk factors which may create hindrance in the success of the organisation.

This analysis will calculate the performance of an organisation on past events and will try to predict the future performance of M&S. There was a comparison between M&S’s PLC with Tesco over the last four year. This will help me to show whether M&S’s was performing well as compared to its rival organisation. These will highlights the key significant changes in comparison with its competitor over last 4 years.

All these questions require measures in such a way which could be understood by all the shareholders. Hence this leads to the method of ratio analysis through which company performance can be measured and understood by everyone concerned.

1.3. Justification of Research

Finding out how a retail company like Marks & Spencer (M&S) is able to sustain its business operations and make profit in the highly competitive retail industry of the United Kingdom (UK) is very important. The UK retail industry is one of the most competitive in the world, as Tesco PLC is believed to be one of the largest retailers in the world. So for a company like M&S, seen as almost three times the size Tesco, to really be able to compete and thrive, is one of my drives into investigating and did a thorough analysis and evaluation on how the company uses its business strategy, policies and techniques in order to sustain its operations.

 


 

Chapter Two: Literature Review

2.1. Introduction

Since the dawn of this century when the Financial Economics Company emerges as a discipline until today, the corporate finance have evolved in parallel with economic changes monkeys suffered and consistent with the need to respond to the increasingly complex problems which faces address Financial Company.

The scope of corporate finance has not always been the same. Its borders, as area of ​​knowledge, have followed a course expansive, conditioned by the passage of economic change and guided by changes in the roles and responsibilities financial management of the company. The original descriptive approach of business financing has gone to another that combines the rigorous analysis with the normative theory; a field focused on obtaining fund to another that includes asset management, allocation capital and the valuation of the company on the market; and an approach He is emphasizing the external analysis of the company to one that emphasizes in decision-making within it.

But the complexity of the economic and financial world of business and limited and imperfect knowledge of your changing reality possess, they require an effort of abstraction and a method of reasoning to facilitate his arrest. It is an abstraction and simplification through models that really are a way of organizing our limited knowledge and scientific reflection structure around the elements defining of our disciplinary matrix. Such models initially very simplified, they will be progressively modified and refined in an attempt to replicate as closely as possible the complexity the real world. And analysis by this procedure outlining financial decisions is the subject of the financial theory of a company.

2.2. Formation of the Financial Theory of Enterprise

The sustained financial theory, based on facts and behaviours and by studies and empirical verification, it has been progressively enriched. Given the plurality of approaches and points of view, it is necessary define the content of financial theory of the firm, explicit, from the perspective of complementarity, the various pillars they have contributed to clarification.

An analysis of the evolutionary process of financial theory of the firm shows the change of direction experienced that branching arises theory of capital markets to progressively go becoming more positive and institutionalist theory, within which the market is redefined to include trading in financial contracts signed between individuals and the company through the e- the same: financial agency theory. Financial theory has been expanding gradually with new models and techniques in an attempt to provide an adequate explanation to new conditions and new competitive model.

Financial theory of the former company to the fifties was riddled with logical inconsistencies and had a markedly prescriptive, that is, normatively oriented. The topics of increased attention in the field of finance were optimal investment policies, financing and dividends, but with little or no consideration of the nature the balance in the financial markets and the effect on those policies individual incentives. The undeveloped state of the theory financial also characterized the theory of financial markets until the turn of the Aryans fifty (Jensen and Smith, 1984). The changes during the fifty Aryans took place in the function financial company, brought the application of the principles and analytical methods microeconomics to solving problems finance. Thus develops a microeconomic theory construction Theoretical company that allows you to make relevant predictions on the functioning of markets and price formation ‘.

Allocation of scarce resources, marginal analysis, opportunity costs, elasticity or rate of return are some of the concepts that theory economic provides the world of business management (Cockerill and Pickering, 1985; p. 16). It was the beginning of a new stage in the financial evolution of thought, based on microeconomic theory individual choice would serve as a link between the theory of financial markets and financial theory of the firm. Since then, the link between microeconomic theory, financial theory and financial management of the company has been increasingly close, to the point that, today; many authors consider the theory Financial is the branch of microeconomics aimed analysis processes of resource allocation over time by individuals and enterprises.

In the regulatory framework of financial theory analysis processes allocation of resources over time refers to both decisions Financial Company as financial decisions individual investors. Companies, individual investors and markets financiers are the three components that it abstracts and simplifies reality. For the purposes of analysis it is assumed that individual investors behave rationally and that their fundamental problem is to distribute in time its initial budget between consumption and investment. The opportunities investment and budget or initial wealth of investors which are supposed dados- The only restrictions are acting on individual decisions. Existing mechanisms for the issuance and trading of securities are included under the term financial markets.

In this context, the role reserved for the financial management of the company is to act as an intermediary between company operations a portfolio of assets and capital markets that the securities or financial assets issued by the same negotiated (Haley and Schall, 1979). The necessary reset importance for the further development of financial theory has the model of financial assets and more recently the theory of option pricing.

The latest trends revolve around the contributions of the new institutional economy, in particular as regards the resolution conflicts of interest between the various stakeholders in the value of the company as well as the impact of information asymmetry there between and the impact on the serial theory individual financial decisions of the company. In the conceptual framework this new approach, the capital structure of the company includes as a set of financial contracts, and the participation of shareholders in the ownership of the company is, as the company itself, a legal fiction. Under this approach, the contractual relations they established between the bondholders and the internal and external stakeholders to the direction of the company are interpreted as agency relationships and separation of ownership and control as a manifestation of the problem principal-agent. The analysis of the factors that determine how contractual balance between management and contributors of funds to the Company lays the foundation for building a new theory ownership structure / capital of the company.

2.3. Finance theories

Several economists have enlightened the role of finance in the market with the support of various finance theories. The perception of finance theory consist of studying the several conducts by which companies and individuals raise money, along with how money is assigned to projects however since the risk factors related with them.

The perception of finance also comprises the study of money and other resources, dealing and summarizing project risks, regulation and supervision of assets, and the science of managing money. Simply it can be state that financing also means provision and distribution of reserves for a particular business module or project.

There are numerous finance theories that offer distinct methods to the finance hypotheses. Some of the major popular finance theories of the world are: Arbitrage Pricing Theory, Rational Choice Theory, Prospect Theory, Cumulative Prospect Theory, Monte Carlo Option Model, Binomial Options Pricing Model, Gordon Model, International Fisher Effect, Black Model, and Legal Origins Theory. The Arbitrage Pricing Theory, for example, addresses the general theory of asset pricing (Finance Theory, 2013)

According to Fama and Miller (1971) the finance theory is basically concerned with how the person or a particular corporation deal with assets through time. In certain, it search to enlighten how the answer to the problem challenged in assigning assets through time are simplified by the presence of capital markets that offer a revenues for distinct economic agents to exchange incomes to be available points in time and of firms, by their production-investment decision, provide a source for specific to alter current assets physically into resources to be offered in the future. . Financial performance measurement generally looks financial ratios (derived from their financial statements) such as liquidity ratios, activity ratios, profitability ratios, and debt ratios. Non-financial performance measurement is more subjective and may look at customer service, employee satisfaction, perceived growth in market share, perceived change in cash flow, and sales growth (Haber & Reichel, 2005).Generally, a company’s financial statements reflect a certain period of changes in financial position and operating results. As part of a strategic management accounting approach the analysis will provide M&S’s position relative to one of its competitors.  According to Guilding (1999, p. 583) there are currently five distinctive methods on the competitor-focused accounting assessment.

Within ten years in UK, the number of retails stores and outlet get doubled and 4 major superstores has established serving their customers a best service these are Tesco, Tesco, Asda and Marks and Spencer constituting 70% of trading business in UK (Tullberg, 2005). In the past, most assessment models focused on projects supported by organizations that either funded or made loans to developing countries or institutions in these countries for the development of the certain organization. The welfares were not project-oriented. In general, the framework reflected a change in focus from how well the organization did its programming work, to how it evolved in their particular institutional environment.. There was a huge amount of written material and a wide variety of ideas and concepts regarding the fields of management, organizational assessment and change.

2.4. The Process of Accumulation of Knowledge

The seven large blocks that form the foundation of the financial economy of the company are:

2.4.1. The valuation principle

Based on the analysis it is provided by the theory of choice between consumption and investment. In this regard, it is noted as any investment decision depends on the interest rate, which is presented as a choice objective criteria set by the market. The interest rate is thus a rate balance between productive investment and allocation of cash resources and also the rate of exchange between future and present monetary values.

To determine to what extent an investment project contributes to wealth creation in the company, it must assess all costs and benefits, existing and potential, which would and combine them into a measure of the value of the project. The evaluation of an investment project depends not only on profitability and risk parameters, but also requires the consideration of other factors such as the relationship between finance and investment, liquidity and risk as well as their contribution to diversification, growth or overall company strategy.

This logic leads to set as criteria for return on investments to the net present value and internal rate of return, built around an actual value to maximize criteria that apply to investment in securities. They are also designed, originally, in the perfect environment and efficient markets. This reasoning to extract a principle of financial evaluation: the current value of an asset is it a company, project investment, share or bond, is equal to the present value of the expected cash flows from the possession of the asset.

However, operators faced a risk or uncertainty cannot make decisions about the distribution of consumption over time, the balance between production and monetary investments, and the valuation of assets without estimating the risk and have a theory resource allocation in uncertain future.

The statistics tools provide risk measures in terms of variability or volatility of profitability: the expectation, variance or standard deviation or coefficient of variation. These instruments and measures describe the risk and its effects; but they do not allow, in the absence of objective criteria, formulated decision rules. The utility theory attempts to overcome this drawback in assuming that the elections of the operator are based on usefulness, linked in part to inter temporal consumption preferences and on the other hand, the risk of decisions and supported consumption adopted. The utility results in a function expressing an attitude toward risk preference or indifference. In this case, the decision in random environment is based on the criterion of maximizing the expected utility instead of the expected profitability This theory is completed with contributions of time preference-state theory, which It posits the existence of multiple potential states each of which can associate an asset, existing on the market, and which has the property of offering a specific performance or no state as such occurs or not. Decisions are made, then, depending on the probabilities of occurrence of each possible state.

2.4.2. Efficient Markets

It is said that a market is efficient if the prices formed thereon, correctly reflect unbiased, completely and at all times all available information.

The efficient market hypothesis has its genesis in the theory of random walk. In a competitive market, the price of a good or service is such that supply equals aggregate demand. This price represents a consensus of the members of the true market value of the good or service based on all available information. If the exchange adjustment to new information is instantaneous, successive price changes are independent and random.

In an efficient market, observed of the securities at any time Prices are based on an accurate assessment of all information available at that time. Such includes, instantaneously, the consequences of past events and reflects expectations about future events. Thus, the price of a financial instrument is, at all times, a good estimate of their intrinsic value.

It is impossible to predict future variations of this price, since all known or anticipated events are already integrated in current prices.

When capital markets are efficient, then the market value of the company reflects the present value of expected cash flows of the company, including those deriving from future investment opportunities. Therefore, the efficient market hypothesis has several implications for business finance. First, there is ambiguity about the objective of the business function: it must maximize the present value of market. Secondly, decisions that increase profits but do not affect cash flows represent a wasted effort. Third, if the new securities are issued at prices market5, then the problem of the dilution of the benefits of the former owners is removed. Fourth, the performance of titles appears as a meaningful measure of performance of the company….

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