new draft chap 4 & 5

4.1 Introduction:

The purpose of the chapter is to analyze Marks & Spencer PLC and Tesco PLC by using the

CORE analysis of Moon and bates. This core analysis consists of context, overview, ratios and

evaluation. This chapter will also discuss the business and risk management strategy of the Marks

and Spencer PLC and Tesco PLC

CORE analysis has been used to analyze the Marks and Spencer. Following are the main

components of the CORE analysis used ion the strategic management accounting.

Context

Overview

Ratios

Evaluation

4.2.1 Stage 1: Context

This part of the analysis will discuss the internal and external profile of the Marks and Spencer.

Internal and external profile of the company will help us to understand the basic activities and its

market position in most comprehensive way (Leach, 2010).

4.2.1.1 External profile

Marks and Spencer is one of the top most British retailers. It has more than 450 retail stores and it

is employing more than 85000 employees. The core business of the company is in clothing, food

and home based products.

1 | P a g e

Figure 1.1 Marks & Spencer Group Board

According to the latest statistics the Marks and Spencer holds 9% market share of the British

clothing market and Next Corporation holds almost 7 % of the British retail sector. This figure

also shows that the market share of the Marks and Spencer is going gown with the passage of

time as it was 14% in the year 1997 and now it has been reduced to 9% in the year 2013.

This means that competition is getting very intense in the clothing market as retailer like Next

are following very aggressive and growing strategies for their business.

2 | P a g e

4.2.1.2 Internal Profile

After analyzing five years record of the Marks and Spencer we can say that revenue of the company

is continuously improving with every passing year. Its UK based revenue has increased from 8733

million pounds from the year 2011 to 9223 million pounds in the year 2014.It is almost 1% per year

growth in the revenue of the company. The international revenue of the company has increased

from 1007 million pounds in the year 2011 to 1088 million pounds in the year 2015.It is almost

1.60 % revenue growth per year which shows the growth potential of the company nationally and

internationally (Gibson, 2010).

4.2.2 Stage 2: Overview

Marks and Spencer has decided to close 9 shops in the UK .It raised a quite a threat in the country,

as it will make lots of people unemployment in the country. Marks and Spencer is trying to improve

its overall financial and administrative performance .To improves the administrative and financial

performance company has to satisfy all the stakeholders of the company. So Marks and spencer has

decided to pay out bonuses to the senior executives after almost two years and it will positively

affect the company performance. The biggest bonus will go to Steve Rowe and He will get a

£653,000 bonus for the year 2014-15.

The company has decided to launch a loyalty program for the customers with personalized offers

and benefits, rather than points. The new loyalty card will be highly successful among the shoppers

due to its personal treats.

After analyzing the balance sheet of the company we see that the long term debt of the company has

been decreased from £2291 million in the year 2013 to £1731 million in the year 2014.It shows that

3 | P a g e

company has lowered its debt to equity ratio in these two years which is a very good sign from the

company. It will decrease the financial risk and leverage of the company.

In year 2015 Mark and Spencer PLC has decided to make changes in the management as Steve

Rowie will take charge as the director of the company .Other than that company has opened 62 food

outlets in the current year which is a very good for the future growth plans of the company.

It has been noticed that inventory stock of the company has been increased from £682 million in the

year 2012 to £846 million in the year 2014.This shows that company has increased its inventory

stock in these three years and this also shows that company is growing its operations in the retail

market.

4.2.3 Stage 3: Ratios (Financial Analysis with Ratios)

In the ratios part of the Core analysis this report discuss about the financial performance of the

company with the help different types of financial tools. Financial analysis is very important for

the determination of the financial strength and the weaknesses of the Marks and Spencer. Financial

ratios are mostly used to determine the financial strength and weaknesses of the company in most

effective way. These ratios depict the financial performance of the given financial year in a

comprehensive way. These ratios help the major stakeholders of the company to gauge the

financial strength of the company in most effective way. These ratios also help the company

management to devise alternative strategies to prevent the weaknesses of the company in the

future. We have calculated gross profit ratio, net profit ratio, earning per share ratio, return on

assets ratio, return on equity ratio and current ratio for the Marks and Spencer.

4 | P a g e

4.2.4. Profitability ratios

I. Net Profit Ratio

Marks and Spencer PLC

A proportion of profit measured as net return divided by sales. Overall net profit ratio is

extremely helpful when looking at organizations in comparative commercial industries. Higher

net revenue shows a more profitable organization that has better control over its expenses as

compared with its rivals.

This report analyses the net profit ratio of the company last three years report found that the net

profit ratio of the company is not showing any growth in last three years. So company has to

improve its sales revenue and also have to decrease its operating expenses in order to improve its

net profit in future years. The net profit ratio of the company were 8.01%, 6.62%, 5.62% and

5.63%in the years of 2011, 2012, 2013 and 2014

Tesco PLC

This report analyses the net profit ratio of the company last three years this report found that the

net profit of the company is not showing any growth in last three years. Its net profit ratio is going

down by every passing year. So company has to improve its sales revenue and also have to

decrease its operating expenses in order to improve its net profit in future years. The net profit

ratios of the company were 5.80 %, 5.94 %, 3.02 % and 3.55 % for the years 2011, 2012, 2013

and 2014 respectively. (H. Kent Baker, 2009).

5 | P a g e

2011 2012 2013 20140

1

2

3

4

5

6

7

8

9

M&STesco

Figure 2.1: Net Profit Ratio Performance

II. EBIT Margin


EBIT (Earnings before income tax) margin is a very important financial ratio to measure the

profit generating ability of the company. It shows that how well company is managing its

operational activities to generate the profit for the given financial year.

This report analyses the EBIT margin of the marks and spencer we notice that its EBIT margin is

going down in the last four years. The EBIT margin of the company was 8.59%, 7.51%, 7.54 and

6.74 % in the years 2011, 2012, 2013 and 2014.

6 | P a g e

Tesco PLC

It is noticed that EBIT margin of the TESCO PLC has shown a decrease in years 2012, 2011 and

2013 but it showed an improvement in the year 2014.The EBIT margin of the company was

6.25%, 6.17%, 3.38% and 4.14% in the years 2011, 2012, 2013 and 2014.This shows that

company has been working hard to control its expenses and also to improve its sales.

2011 2012 2013 20140

1

2

3

4

5

6

7

8

9

10

M&STesco

Figure 2.2: EBIT Performance

7 | P a g e

IV. Gross Profit Margin


Gross profit margin is one of the most important financial ratios in the financial analysis. It

provides information about the margin of the company in the given financial year.

In this report analyses the gross profit of the company in last three years, Report found

that company is showing a consistent performance in last three years which has depiction of good

financial performance of the company. The gross profit ratios were 38.24%, 37.80 %, 37.87 %

and 37.55% in the years 2014, 2013, 2012 and 2011 which shows a consistent performance or the

company.

Tesco Plc.

If we analyses the gross profit of the company in last three years, we see that company is not

showing a good performance in last three years as it is continuously decreasing in last three years.

The gross profit ratios were 8.30 %, 8.15 %, 6.31%, and 6.31 % in the years 2014, 2013, 2012

and 2011.This means that company has to improve performance of its sales and cost department

(Tracy, 2012).

8 | P a g e

2011 2012 2013 20140

5

10

15

20

25

30

35

40

45

M&STescoSeries3

Figure 2.3: Gross Profit Margin Performance

V. Return on Capital Employed


Return on capital employed is the ratio used to measure the profitability of the company to use its

capital employed to generate earnings. Most of companies’ desire high rate of the return on

capital employed as it shows that they are perfectly utilizing their assets in most effective way.

Low return on capital employed shows that company is not successful to use its assets in most

effective way. This paints a very bleak and bad picture of the reputation of the company in the

eyes of the shareholders and other major stakeholders. So this indicates say that this is the best

ratio to calculate the utilization of assets in a company. This report analyses the return on capital

employed ratio we see that it is decreasing with the passage of time. It was %, 10.07%, 8.38%,

7.15 and 7.21 % in the years 2011, 2012, 2013 and 2014 respectively.

9 | P a g e

Tesco Plc.

This section analyses the return on capital employed ratio is showing a steep decline in year by

year comparison of this ratio. It was 11.99%, 12.05%, 6.29% and 7.85% in the years 2011, 2012,

2013and 2014 respectively. This shows that company is not so successful in utilizing the capital

employed and its return is going down with every passing year.

2011 2012 2013 20140

2

4

6

8

10

12

14

M&STesco

Figures: 2.4: ROCE Performance

VI. Return on total assets:


Return on assets is a very important for the marks and spencer. It shows that how well company is

using its resources to generate revenue for the company. Investors give special importance to this

ratio as it gives an overview of the management’s ability to utilize its resources in most effective

manner. The standard return on assets ratio totally depends upon the industries as different

industries have different return on assets ratios. Return on assets is basically calculated in

10 | P a g e

percentages as it is measure of the profitability of the company. A low return on assets as

compared to the industry average shows that company failed to use the assets in most efficient

way (Tracy, 2012).Return on assets gives a thought on the matter of how effective administration

is at utilizing its resources for creating profit. Calculate by dividing an organizations’ yearly

income by its total resources. This report analyses the return on assets ratio of the company,

Report found that the return on assets ratio has been decreased in last three years. This means that

company is losing on efficient utilization of the assets to generate returns for the company and

shareholders. The return on assets of the company was 7.83%, 6.68, 5.58% and 5.58 % in years

2011, 2012, 2013 and 2014 respectively.

Tesco PLC

This report analyses the return on assets ratio of the company, and found that the return on assets

ratio has been decreased in last three years. The returns on assets of the company were 4.50%,

7.49%, 7.55%, 3.91 and 4.50% in the years 2011, 2012, 2013 and 2014 respectively. This means

that company has failed to utilize the assets and company is also facing problems of over capacity

for last few years.

11 | P a g e

2011 2012 2013 20140

1

2

3

4

5

6

7

8

9

M&STesco

Figure 2.5: Return on Total Assets Performance

12 | P a g e

VII. Return on Equity:


Return on equity is the measure of net income earned by the company as compared to the

shareholder equity of the company in the given financial year. This ratio helps the company

investors to measure the actual value of their investments in the company.

This report analyses the return on equity measures of the company for the three years, this report

found that Marks and Spencer is showing a positive performance for the last three years. This also

means that company is providing a consistent rate of return for the shareholders and investors for

the last three years. The return on equity was 14.74 %, 12.25%, 11.12% and 11.17% in the years

2011, 2012, 2013 and 2014 respectively. This also shows that company is efficiently and

effectively using the shareholders’ funds for generating good rate of return for the company (Lee,

2007).

Tesco PLC

This report analyses the return on equity measures of the company for the three years, and found

that Tesco PLC is showing a negative performance for the last four years. This also means that

company has failed provide considerable rate of return to its shareholders and investors in these

years. The return on equity was 21.38%, 21.58%, 11.78% and 15.35% in the year 2011, 2012,

2013 and 2014 respectively. This also shows that company has failed to use the shareholders’

funds for generating positive returns for the major shareholders of the company. (Lee, 2007).

13 | P a g e

2011 2012 2013 20140

5

10

15

20

25

M&STesco

Figure 2.6: ROE Performance

4.2.5. Efficiency ratios

I. Inventory Turnover Ratio

Marks and Spencerc PLC

Inventory turnover ratio is one of the most important ratios used by the retail companies. In this

ratio normal stock may be utilized rather than the ending stock level. A low turnover suggests the

company has excessive stock but it failed to convert this stock into revenue. A high turnover

suggests that company is very successful in converting its assets into sales revenue.

This report analyses the inventory turnover ratio of the company and this report found that its

current ratio is consistently going down with every passing year. The inventory turnover ratio of

the company was 14.21%, 14.57%, 13.07% and 12.19 % in the years 2011, 2012, 2013 and 2014

respectively. This is a good sign for the company as this shows that its ability to convert its assets

into sales is improving with the passage of time (Bull, 2007).

14 | P a g e

Tesco PLC

This report analyses the inventory turnover ratio of the company and this section found that its

current ratio is consistently going down with every passing year. The inventory turnover ratio of

the company was 19.27%, 17.94%, 17.31% and 17.11% for the years 2014, 2013, 2012 and 2011

respectively. The high inventory turnover ratio shows that company has a very good working

capital management strategy and more cash is hold in the stock. So company has to improve its

working capital management strategy. (Bull, 2007).

2011 2012 2013 20140

5

10

15

20

25

M&STesco

Figure 2.7: Inventory Turnover Performance

15 | P a g e

II. Asset turnover ratio


It has been analyzed that the asset turnover ratio of the Marks and Spencer is going down with

every passing year. The Asset turnover ratio for the company was 1.26, 1.27, 1.27 and 1.28 in the

years 2011, 2012, 2013 and 2014.

Tesco PLC

It has been analyzed that the asset turnover ratio of the TESCO PLC is decreasing with every

passing year. The Asset turnover ratio for the company was 2.07, 2.03, 2.08, and 2.21 in the years

2011, 2012, 2013 and 2014

(Jagadish R. Raiyani, 2011)

2011 2012 2013 20140

0.5

1

1.5

2

2.5

M&STesco

Figure 2.8: Asset Turnover Performance

16 | P a g e

III. Asset cover ratio


Asset cover ratio provides information about the company’s ability to satisfy the long term debt

obligations after fulfilling all the liabilities in the given financial year. It is observed that the asset

cover ratio of Marks and Spencer was 5.18, 4.99, 4.42 and 6 in the years 2011, 2012, 2013 and

2014 respectively. This shows that company’s ability to satisfy the long term debt obligations is

improving year after year.

Tesco PLC

It is observed that the asset cover ratio of Tesco PLC was 4.87, 5.12, 4.98 and 5.39 in the years

2011, 2012, 2013 and 2014 respectively. This shows that company’s ability to satisfy the long

term debt obligations is not improving year after year.

2011 2012 2013 20140

1

2

3

4

5

6

7

M&STescoSeries3

Figure 2.9: Asset cover performance

17 | P a g e

4.2.6. Liquidity Ratios

I. Current Ratio


The current ratio is mostly used to calculate the capacity of the company’s capacity to payback its

short term obligations in most effective way possible. Actually it is the capacity of the

organization's to pay back its current liabilities with its current assets (money, inventory,

receivables). The higher the current ratio the more proficient the organization is of paying its

commitments. Because it means that company has considerable amount of cash and cash

equivalents to pay off its debts. The current ratio gives a feeling of the effectiveness of an

organization's working cycle or its capacity to transform its assets into money. Organizations that

experience difficulty to recover their receivables or have long stock turnover can keep running

into liquidity issues in light of the fact that they are not able to fulfill their commitments

This report analyses the current ratio of the Marks and spencer and we found that its current ratio

is consistently going down with every passing year. The current ratio of the company was 1.92,

2.00, 1.70 and 1.63 in the years 2011, 2012, 2013 and 2014 respectively. This is not a good sign

for the company has its ability to payout its short term obligations.

Tesco PLC

This report analyses the current ratio of the Tesco PLC we can easily see that its current ratio is

showing a negative slide for the last four years. The current ratio of the company was 0.65, 0.68,

0.69 and 0.61 in the years 2011, 2012, 2013 and 2014 respectively. This means that company is

continuously losing its capacity to payout its short term obligations in last few years. This is not

good thing for multinational retail company like Tesco PLC.

18 | P a g e

2011 2012 2013 20140

0.5

1

1.5

2

2.5

M&STescoSeries3

Figure: 2.10: Current Ratio Performance

II. Interest cover Ratio

Marks and Spencer

Interest cover ratio is a very useful and beneficial measure to calculate the ability of the company

to payback its interest costs .Companies always desire to maintain a very high interest cover ratio

as it shows their financial strength to cover their finance costs.

This report analyses the interest coverage ratio of the Marks and Spencer found that its ability to

payout the interest expense is gradually improving with the passing of every year. It was 6.55,

5.81, 3.59 and 5.79 in the years 2011, 2012, 2013 and 2014 respectively.

19 | P a g e

Tesco Plc.

Interest cover Ratio

This report analyzed the interest cover ratio of the company and found that its interest cover ratio

is consistently going down with every passing year. The interest cover ratio of the company was

8.32, 7.89, 4.37, and 5.01 for the years 2011, 2012, 2013 and 2014 respectively. The interest cover

ratio was improved in the year 2014 after showing poor performance in the years 2011, 2012 and

2013.

(ProQuest, 2007).

2011 2012 2013 20140

1

2

3

4

5

6

7

8

9

M&STescoSeries3

Figure: 2.11: Interest Cover Ratio Performance

20 | P a g e

4.2.7. Capital Structure Ratios

I. Gearing ratio

Marks and Spencer plc.

Debt to equity ratio or gearing ratio is one of the most popular and effective ratios to compare the

debt obligations with the equity capital of the company. It is also a very good measure of the

leverage of the company in most successful way.

According to the financial experts companies with high leverage are very vulnerable to the

unpredictable business cycles as they have to finance their debt obligations and liabilities. This

makes them very vulnerable to the downturns and recession cycles. This report analyzed the debt

to equity ratio of the company has showed an improvement till the year 2014 which is a very

good sign for the company. This report shows that debt to equity ratio was 57.84%, 53.35%,

68.40% and 64.46% in the years 2011, 2012, 2013 and 2014.

Tesco Plc.

This report analyzed the debt to equity ratio of the company has showed a considerable

improvement in last four years. The debt to equity ratio was 91.93%, 91.93%, 86.66% and

108.61% in the years 2011, 2012, 2013 and 2014.This shows that company has been successful at

decreasing its ratio of debt as compared to the equity in last four years or so.

21 | P a g e

2011 2012 2013 20140

20

40

60

80

100

120

M&STesco

Figure: 2.12: Gearing Ratio Performance

22 | P a g e

4.3. Stage 4 Evaluation

4.3.1. Profitability

After analyzing the profitability ratios of both companies it can be concluded that TESCO PLC

and Marks and Spencer have not managed to increase their profitability in last four years. This is

a very poor sign for the company as it reduced the ability of the company to increase its market

share.

4.3.2. Liquidity

After analyzed liquidity Ratios it was noticed that the performances of Marks and Spencer and

Tesco were not satisfactory level .They showed a poor performance in the Liquidity Ratios. They

have to improve their working capital management strategy for their future.

4.3.3. Efficiency

After analyzing the Efficiency ratios of Marks and Spencer and Tesco it was noticed that the

performances of the TESCO PLC and Marks and Spencer are not improving with every passing

year. This performance shows that both companies have failed to utilize their assets in effective

way during these last four years.

4.3.4. Capital Structure

After analyzing the Capital structure of TESCO and Marks and Spencer it was noticed that the

performances of the TESCO PLC and Marks and Spencer are satisfactory. This performance

shows that both companies have effectively minimized their reliance on debt during these last

four years.

23 | P a g e

4.4.1. Business Strategy of Marks and Spencer

Marks & Spencer have centered their business by growing through offering new products in UK market .Currently it is planning to offer diverse products and services. This organization is operating in a market that is developing slowly and market share of the M & S is consistently contracting. It is trying hard to compete in international market by gaining customer loyalty and customer confidence. Marks & Spencer rivals in the development stage attempting to pick up piece of the pie, it is important to put resources into request to recover its piece of the pie and strength.

Marks and Spencer has very detailed growth plans and it is planning to open 62 retail stores next year and also planning to grow into Asian market. Marks and Spencer is planning to expand its market through focusing on styling, designing and innovation in the products of the company. This will be possible by diminishing the products and services costs lower than competitors and spend high sums on sales and marketing. Utilizing the hybrid strategy and clock model is the best choice for Marks & Spencer to accomplish competitive advantage against the competitors.

4.4.2 Business Strategy of Tesco PLC

TESCO is one of the largest retailers of the UK.it is operating more than 568 stores around the country. Tesco is committed to creating shareholder value through an innovative customer focused strategy implemented by our people.

The business strategy of the Tesco PLC is based on the following three important points

The continued investment in the UK based business ventures. This improves the growth ability of the Tesco PLC in the local retail market of the company.

To establish multichannel leadership in all of the business sectors.

To pursue disciplined and focused growth in the international and national growth in the retail sector.

4.5.1 Risk Management Strategies of Marks and Spencer

The Board has general responsibility for guaranteeing that risk is successfully overseen over the Group and, for the benefit of the Board, the Audit Committee surveys the adequacy of the Group Risk Process. Every business range is in charge of recognizing, evaluating and dealing with the risks in their individual territory. Risks are identified and surveyed by all business territories half-yearly and are measured against a defined set of criteria, considering probability of event and potential effect to the Group. The Group Risk capacity encourages a risk identification and evaluation exercise with the Executive Board individuals. This data is joined with a combined perspective of the business zone risks. To guarantee its risk procedure drives consistent change over the business, the Executive Board screens the continuous status and advancement of key activity arranges against every risk quarterly. Risk remains a key thought in all key decision making by the Board, joining level headed discussion on risk longing.

24 | P a g e

4.5.1 Risk Management strategies of Tesco Plc.

A key test for any business is to recognize the important risks it confronts and to create and screen proper controls. A fruitful risk administration procedure parities risks and compensates and depends on solid judgment of their probability and effect. Following are the main points of the risk management strategy of the TESCO PLC.

Important business and strategic issues of the company are regularly reviewed by the board and executive committee of the company. The review plan of the company spans minimum two days and includes all the important members of the board.

•The business level risk management plan of the company is very clear and focused. It is based on three priorities namely a strong UK business, multichannel leadership and disciplined international growth

Financial strategy risks and performance is frequently analyzed by the important members of the board • Financial risks are based on improving the capital discipline and great emphasis on growth and returns.

The external economic outlook is improved through monitoring external economic risks.

Country developments are continuously monitored through local CEOs

The IT strategy of the company makes sure that all the systems are updated and investments in the IT department are aligned with the innovations taken place in the technology sector. The continued investments in the IT helps company to take care of the technology related risks.

The Bank has formed good working relationships with the Prudential Regulation Authority and Financial Conduct Authority

Forward rate agreements, interest rate swaps, caps and floors may be used to achieve the desired mix of fixed and floating rate debt

Our policy is to fix interest rates for the year on a minimum of 40% of actual and projected debt interest costs of the Group excluding Tesco Bank

25 | P a g e

Chapter 5

5.1 Conclusions

After analyzing the company financial statements we have found different types of issues in the company, We have drawn following conclusions from the study of the financial statements of the company of last four years.After analyzing the profitability ratios of both companies it can be concluded that TESCO PLC and Marks and Spencer have not managed to increase their profitability in last four years. While international sales rose 1.2% on a constant currency basis underlying operating profit was flat as the retailer confronted a range of challenges such as continued tough trading in the Republic of Ireland and political instability and conflict in markets such as the Ukraine. It has been analyzed that efficiency ratios of the Marks and Spencer have shown a steep decline in last four years. This is not a good sign as it shows the decreasing ability of the company to utilize the assets of the company to generate revenue. These assets include the cash based and fixed assets of the company. The retailer said it was pleased with consumer response to Simply Food openings in Hong Kong, Paris and Prague and that a new lingerie and beauty format had gone down well. However, M&S’s international business clearly remains a work in progress. The retailer expects the issues which adversely affected it in the first half to persist in the second. The Marks and spencer is also facing the problem of poor branding as it is making difficult for the company to keep pace with the other competitors present in the international and national market. Company has to improve its branding in the market. This poor branding is hurting the revenue and profit of the company.

After analyzing the Liquidity Ratios it was noticed that the performances of the TESCO PLC and Marks and Spencer were not satisfactory .They showed a bad performance in the Liquidity Ratios. They have to improve their working capital management strategy for their future. After analyzing the Efficiency ratios of TESCO and Marks and Spencer it was noticed that the performances of the TESCO PLC and Marks and Spencer are not improving with every passing year. This performance shows that both companies have failed to utilize their assets in effective way during these last four year

According to a study conducted by Kantar world panel, Marks & Spencer is losing share of the overall clothing industry quicker than any of its close competitors. This is the quickest decline in last few years among ten closest rivals of the company. Experts at Bernstein trimmed their figures for the year to the end of March as they said M&S's offer of the business sector had slipped to 11.18% in the six months to 16 February from 11.36% a year prior. It missed out on women’s wear, menswear and kids wear, as per information from research firm Kantar World panel. Bringing about more prominent concern, the chain's ubiquity with its center 25-55 age bunch and more than 55s slid, despite the fact that it showed some growth among 12-to 34-year-olds.marks and spencer can easily improve its market share by offering more discounts in the sales price and to bring more variety in its products at the retail counters. After analyzing the Capital structure of TESCO and Marks and Spencer it was noticed that the performances of the TESCO PLC and

26 | P a g e

Marks and Spencer are satisfactory. This performance shows that both companies have effectively minimized their reliance on debt during these last four years.

5.2 Recommendations

The financial growth and overall business growth of the Marks and Spencer is going down for the last few years. We have recommended following solutions for the company to improve its financial performance. Marks and Spencer has really suffered from its sweatshop scandal in recent years. It has miserably failed to fulfill the labor standards of the India. Marks and Spencer has to improve its management in the international market as it is really damaging its overall reputation and financial growth. This was major scandal of the last year and it was a major setback for the company. Marks and Spencer has to improve its ethical standards to get a very good feedback from the company.

The sales and profit growth of the company really suffered after the online sales delivery debacle last year at Christmas. Its delivery center at Leicestershire faced problems in its online delivery. This problem really created problems for the company as orders were delayed for more than 10 days in some instances. Online delivery system can be improved through introducing online tracking system, improving communication between seller and buyer and also through employing qualified online selling professionals.

Company can improve its efficiency ratios by improving its working capital management strategies. It has to avoid keeping assets idle as this increases costs of the company. Working capital management of the company can be improved through improving cash management and debt recovery system of the company. Cash flow budgeting is the most important tool to control and manage the cash based resources of the company in most effective way possible.

The decline in the liquidity ratios of the Marks and Spencer shows that the ability of the company to pay off its short term obligations is going down .This also means that company has to improve its inventory and stock management strategies. Company can improve its liquidity ratios by eliminating the excessive stock in the slow moving categories. Inventory management can be improved through implementing different software solutions such as Saas cloud applications. Company should always try to maintain real time inventory management systems and always try to analyze that real time inventory data. Company can also improve its stock management through managing individual supply and demand plans of the products and inventory.

Marks and Spencer needs to improve its market share to compete with its fierce and closest rivals. Company can improve its market share by entering into booming and emerging markets like China and India. These markets have very good potential as these both countries are growing at very healthy rates. These both markets have very good consumer base and extremely good growing potential. According to the latest data china and India are fourth largest and eleventh largest consumer markets in the world.

Marks and spencer really needs to change its distribution and retail network within the United Kingdom. According to the latest data released by the company it has 815 shops in the UK from which 347 shops are selling clothes .This is a very large number as compared to its competitors

27 | P a g e

like John Lewis, Debenhams and Next. John Lewis, Debenhams and Next have clothing stores of 43,160 and 500 respectively & S has to decrease its retail clothing shops in the country so that it can decrease its operational costs and improve overall profit. It will improve the profit by decreasing operational and administrative costs of the company in a most effective way.

Marks and Spencer can solve its international market issues through strict financial management and market expansion in emerging market such as India and China. Strict financial management will help the company to keep its finance costs in control in upcoming years. Strict financial management includes employing qualified financial management staff, implementing sound financial management strategies and also improving the auditing system of the company. Good financial management strategies include keeping a complete record of the creditors/debtors, keeping complete cash flow record on daily basis, keep up-to-date accounting records, and get funding from most appropriate sources and also by tacking the financial problems at the right time and place.

Marks and Spencer can improve its capital structure through decreasing reliance on the debt as sometimes it is bad for the company in the long run. As company has to pay continuous interest costs in the long run. In the year 2014, Tesco Plc. faced one of the biggest accounting scandals of the British retailer history. In a statements Tesco management disclosed that company management overstated profit of more than 250 £ million for the years 2013-14.This scandal sent shockwaves in the minds of the shareholders as the share prices of their stocks fell very badly. This accounting scandal is a very good lesson for the retail companies like Marks and Spencer, as this shows that how lack of financial and internal control can badly damage the reputation of the company. This scandal also decreased the market price of the shares of the company in last few years.

The financial growth of the TESCO Plc. is showing a steep fall in last few years as different types of scandals. The financial growth of the company was 3.4 % in the year 2011 and after three years its growth fell to -3.7 %. This shows that how can an accounting scandal affect the financial growth of the company in a very negative way. Marks and Spencer can learn lessons from this accounting scandal which will improve its financial management.

28 | P a g e

new draft chap 4 & 5

Documents