MBB7008M Finance For Decision Making Assignment Sample

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Introduction to Finance For Decision Making Assignment

Ratio analysis refers to a quantitative method for determining the firm’s liquidity, efficiency, profitability and solvency position by analysing financial statements. It is a crucial aspect that aids in providing in-depth information regarding an organisation’s functioning, based on which strategic decisions can be made. Marks and Spencer (M&S) is a British multinational organisation established in 1884 in Leeds, England. The firm offers a large variety of goods including clothes, home products, beauty items and food products, while employing over 72,316 workers globally. Tesco is another major multinational organisation offering diversified products such as clothing, electronics, toys, petrol, financial services and telecommunication. With an annual revenue of £65.762 billion in 2023 and a market share of 27.35%, Tesco employs more than 330,000 workers. The current report aims to conduct ratio analysis and compare the financial positions of Tesco and M&S over the years, highlighting how analytical skills enhanced through Online Assignment Help in UK can support academic and financial evaluation tasks.

Financial information of M&S

From the above graph, it has been identified that M&S profits are increasing over the years which indicate the long-term stability of the business entity. In year 2020 and 2021, there is a reduction in profit due to Covid pandemic however in the current times company is able to earn adequate amount of profits. It has identified that there is increasing trend in the M&S revenues which denotes firm’s long term growth potential.

2. Two-Year Financial Performance Comparison

2.1 Liquidity position

Current Assets: From the above table, it has been identified that there is increase in current asset ratio of M&S which indicates the firm’s ability in paying off all short term liabilities. However, company is unable to attain ideal ratio which is not a positive indicator for the creditors (Financial statement of M&S, 2023). Further, while comparing with Tesco, M&S is having higher liquidity position which denotes firm’s efficiency in gaining the lender’s trust which further helps in gaining the competitive edge. To overcome the issue, both M&S and Tesco should focus on selling out the entire unproductive fixed asset and delay all the fixed asset investment (Zhou, 2024). Along with this, all the short term loans should be paid out which helps in reducing the level of current liabilities. Further, company should focus on early account receivables which help in managing enough cash balance within the firm which result into higher current assets.

Quick assets ratio: Tesco is having higher quick asset ratio than M&S which indicates the effective inventory management system of entity which helps in avoiding the excessive investment towards stocks (Financial statement of Tesco, 2024). Further, M&S should introduce adequate inventory management system which helps in avoiding the unnecessary investment in stocks that assists in higher liquidity position.

2.2 Profitability position

GP and NP: Moreover, M&S is having higher GP and NP ratio which denotes the firm’s efficiency in attracting the customers and contributes in maintaining their loyalty. It also denotes that Tesco is incapable in optimally utilizing its capital for generating profit whereas M&S is having effective policies for utilizing the capital. On the basis of above table, it has been determined that there is no change in the profitability position of M&S over the years which indicate incapability of the firm in increasing the profits. It has been identified that there is an increasing sales but firm is unable to manage its cost due to which profitability ratios become constant (Draper and Akin, 2024). For increasing profits, M&S should invest towards marketing strategies which helps in creating awareness among the larger target market that result into incline in the overall sales.

Return on capital employed: Further, company is effectively using its capital for generating profits which result into highest ROCE. Further, through adequate marketing strategy M&S will be able to attain economies of scale which result into increasing overall net profit of business entity.

2.3 Solvency position

From the above table, it has been interpreted that M&S is having higher amount of debt as compared to equity which is a positive indicator for the shareholders. However, Tesco is having low debt to equity ratio which denotes that firm is depending more on equity as compared to the debt (AKIN and DRAPER, 2024). This indicates that Tesco is having lower risk than M&S as firm is highly depending on equity which in turn denotes less financial obligation. On the other hand, M&S capital structure is optimum which support in reducing the expenses and thereby leads higher shareholder’s satisfaction. Interest on debt is tax deductible item which helps organization in providing higher return to the shareholders. This also helps M&S in retaining ownership and supports in controlling the overall operation & decision of the organization (Wang and Wang, 2023). However, excessive debt in the capital structure results into increasing financial risk which will impact the overall financial position of the company.

2.4 efficiency position

Stock turnover ratio: After analysing the above table, it has been depicted that inventory turnover ratio of M&S is increasing which indicate the firm’s efficiency in attracting customer. This also denotes that firm is having adequate marketing strategy which support in increasing turnover ratio (Charles and Uford, 2023). However, Tesco is having higher ITR that shows customers are more satisfied with firm’s product leading to higher sales.

Total assets turnover ratio: it has been determined that M&S is adequately utilizing its assets for generating the revenues. For increasing the ratio, M&S should concentrate on leasing assets than buying, improving inventory management and enhancing overall efficiency (Lokanan, 2021). However, effective utilization of funds will attract investors more towards M&S as compare to Tesco which aids in fulfilling funds requirement of M&S.

Receivables or debtors turnover ratio: Additionally, it has been identified that M&S is able to quickly collect its fund from debtor that help in managing overall cash flow of the company. On the other hand, Tesco takes the higher number of days to recover the funds from debtors which create issue in paying out the entire obligation effectively.

Creditors turnover ratio: Moreover, M&S is paying very quickly to its creditors which denote that firm is not effectively utilizing the allotted time period. However, Tesco is paying its creditors after a long time period which helps in generating adequate return in the allotted time period. In this context, M&S should focus on using funds for productive purpose before payment which further helps in gaining the additional benefits.

3. Investment Analysis

Earnings per share: It has been identified that EPS of M&S is increasing over the years which denotes the firm’s efficiency in providing adequate return to the shareholders. However, Tesco is providing lower EPS as company is having higher amount of equity as compared to the debt which result into lower shareholder’s return.

MBB7008M Finance For Decision Making Assignment Sample

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Return on assets: The above table depicts that both the organization is having very low ROA which indicates inefficiency in effectively utilising the firm’s assets for generating the revenue. In this context, organization should focus on expanding customer base and increasing price of goods for the higher profits (Benrqya and Jabbouri, 2021).

Dividend payout ratio: It has been identified that M&S is paying very less percentage of the firm’s earning towards the shareholder which in turn recognized as a negative indicator for the investors.

Return on equity: The above table depicts that M&S is able to effectively utilize its shareholder’s funds for generating the revenue. It is positive indicator for the investors as firm’s policies are adequate which helps in generating the higher income from the investor’s funds. However, Tesco is having lower ROE in 2023 but organization has capability to increase its return. Investors are likely to be attracted by M&S as it is offering higher return than Tesco.

From the future looking analysis, it could be stated that M&D is able to provide adequate return to shareholder which will help in managing overall satisfaction. However, due to low ROE and EPS, Tesco will not be able to provide adequate return to shareholder which will create issue in managing overall stability. Moreover, it has determined that there is constant decrease in the Tesco’s share prices as firm has been indulge in the unethical practices which reduces is demand in market.

4. Critical Analysis Of Ratio:

A) Usefulness:

This is the most effective method which helps in simplifying the complex figures and supports in establishing effective relationship between various elements. Ratio analysis also helps in effectively comparing data of two years which aids in gaining better insight of the firm’s position (Yhip et al, 2020). Ratio analysis also supports in depicting the firm’s actual position which helps in formulating adequate strategic framework effectually and supports in taking the informed decision.

B) Limitations

Ratio analysis is based on historical data which creates issue in identifying the current position of business entity (Li, 2023). This method does not undertake inflation rate which result into providing inaccurate comparison between the two consecutive periods. This limitation will result in taking inaccurate interpretation of firm’s position which could result in taking inaccurate decision.

C) Reservation:

For gaining an effective outcome, non-financial performance and factors of organization should also be considered which helps in determining the firm’s position prominently. However, this analysis ignores employee engagement, innovation, customer satisfaction and social responsibilities which does not provide adequate outcome.

From the above analysis, it could be stated that M&S is having higher liquidity, solvency and profitability position than Tesco which ultimately leads competitive edge. However, M&S needs to focus on improving efficiency ratio which will help in enhancing overall position than Tesco.

Conclusion

By summing up the report, it has been identified that M&S is having effective profitability, liquidity and solvency position which helps in maintaining the long term stability. However, organization should lay emphasis over enhancing the marketing strategy and improves inventory management system which helps in enhancing the overall performance. Further, firm is providing an adequate EPS and have high ROE which will attract the potential investors.

References

Books and Journals

• AKIN, I. and DRAPER, E., 2024. EVALUATING THE IMPACT OF DEPRECIATION ON THE PROFITABILITY: UK FASHION COMPANIES. Akademik Hassasiyetler, 11(24).
• Benrqya, Y. and Jabbouri, I., 2021. Performance evaluation of European grocery retailers: a financial statement analysis. International Journal of Logistics Economics and Globalisation, 9(1), pp.24-39.
• Charles, I.I. and Uford, I.C., 2023. Comparative analysis and evaluation of business and financial performance of Amazon. Com: A three-year period critical review of exceptional success. European Journal of Business, Economics and Accountancy, 11(2), pp.69-92.
• Draper, E. and Akin, I., 2024. Evaluating the impact of depreciation on the profitability: UK fashion companies. Akademik Hassasiyetler, 11(24), pp.624-644.
• Li, S., 2023. Analysis of Tesco's Financial Status Quo——Based on Financial Ratio Analysis. Advances in Economics, Management and Political Sciences, 30, pp.103-109.
• Lokanan, M., 2021. Applying four quantitative prediction techniques to detect fraud in financial statements. Journal of Forensic and Investigative Accounting, 13(2), pp.362-383.
• Wang, X. and Wang, X., 2023, June. Research on the Impact of Hadoop Application on Financial Performance. In Proceedings of the 3rd International Conference on Big Data Economy and Information Management, BDEIM 2022, December 2-3, 2022, Zhengzhou, China.
• Yhip, T.M., Alagheband, B.M., Yhip, T.M. and Alagheband, B.M., 2020. Financial Statement Analysis. The Practice of Lending: A Guide to Credit Analysis and Credit Risk, pp.47-94.
• Zhou, Z., 2024. Analysis of Representative Stocks in the UK Supermarket Industry. Highlights in Business, Economics and Management, 24, pp.1100-1104.

Online

• Description of M&S. 2023. Online. Available through: < https://corporate.marksandspencer.com/about-us/our-businesses#:~:text=M%26S%20is%20a%20leading%20British,to%20millions%20of%20customers%20globally.>
• Description of Tesco. 2024 Online. Available through: < https://www.tescoplc.com/about>
• Financial statement of M&S. 2023. Online. Available through: < https://corporate.marksandspencer.com/investors/our-performance-updates/2024-annual-report>
• Financial statement of Tesco. 2024. Online. Available through: < https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2024>