Essay Sample: Financial Performance and Position of Marks and Spencer plc (M&S) in the UK Retail Industry

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Marks and Spencer’s clothing division, which represent 45.2% of UK business, enjoyed a mixed fortune in 2005/2006 accounting year. M&S had made improvements in Menswear range by re-launching the “Autograph” and improvements were made in Womenswear and Childrenwear. This has lead to rise in market share in volume terms to 9.9% from 9.7% last year. But the company’s market share in value terms has gone down from 10.5% last year to 10.2% this year. This showed the shrinking profit margins as of price deflation. Home division represents the 4.9% of UK business and offers great value, stylish furniture and home products.

The Food retailing division had shown progress and accounts for 49.9% of UK business and M&S have simply food have 3.2% market share (source TNS). In the accounting year 2005/2006, the total food sale grew by 7% to £3.6 bn and also enjoyed the 3.6% in crease in like for like sales (M& S financial accounts). M&S continued to improve their food and target the more greener, ethical and health conscious customers by offering them organic, free from preservatives and “fair trade” products.

Marks and Spencer continued with their retrenchment strategy in the international business by selling US supermarket chain, King Super Markets. The international business continued to flourish in 2005/2006, and generated a turnover of £522.7m, 14.7% higher than last year £455.8m. This division has also shown increase in operating profit of £65.5m, which was 9% higher than last year 60.4m.

Key performance measures from the Marks and Spencer Group financial record showed that Gross margin in 2006 has gone up from 34.7% in 2005 to 38.3%. The Net profit margin had gone up from 8.0 %( 2005) to 10.9 %( 2006) which showed the operating expenses has been managed efficiently. Profitability had gone up from 6.7% in 2005 to 9.6% in 2006 from the continuing operations (see appendix B).

Earnings per share of the company has gone up from 5.4p (2002) to 31.4p (2006) which showed continued improvements in the profits of M&S. Dividend per share was up from 12.1p in 2005 to 14.0p. Dividend cover had dropped from 2.9 times in 2005 to 2.2 times in 2006 that showed that company is reinvesting the profit attributable to shareholders. Return on Equity has gone up by 17.3%, from 35% in 2005 to 52.3% in 2006 that showed the higher return for equity holders. Overall investors are seemed to be getting the return as well as capital gain as of increased profitability and ultimate share price increase.

Company seemed to have a negative working capital as the current liabilities are exceeding the current assets, resulting in current ratio of 0.56 in 2006. The current ratio for 2005 was 0.66. Company’s cash and cash equivalents in 2006 has gone by 150m but borrowings has gone up from 478.8m in 2005 to 1,052.8m. The Acid test ratio for 2005 and 2006 was 0.39 and 0.38 respectively.

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