QUESTION NO 1

To Board of directors of Marks and Spencer’s PLC

Table of Content:
1. Introduction
2. Financial Ratio Analysis-profitability
3. Financial Ratio Analysis-liquidity
4. Financial Ratio Analysis-efficiency
5. Financial Ratio Analysis-gearing
6. Horizontal analysis
(a) Horizontal analysis of Income statement
(b) Horizontal analysis of Balance sheet
7. Vertical analysis
(a) Vertical analysis of Income statement
(b) Vertical analysis of Balance sheet
8. Source of Information
9. Conclusion and Recommendation
1. INTRODUCTION
To report the financial statements of marks and Spencer’s for the financial year utilising horizontal vertical
as well as ratio analysis consisting of profitability solvency gearing as well as with competitors for the same
period. The analysis mentioned in the tables represents how efficient Marks and Spencer’s and how would
the profitability ratios including profit before interest and tax net profit as well as asset turnover ratios and
liquidity ratios. Increase in trade payable period can increase the total working capital required by the firm
and which enables cash to be hold with the Marks and Spencer’s

2.financial ratios -profitability

Column1 FORMULAE 2018 2019 john lewis
PBIT*100/
Return on assets TotalAssets 5.80% 5.40% 3.63%

revenue*100
Asset turnover ratio /TotalAssets 106.85% 107.00% 163.44%
PBIT*100/
Capitalemployee
ROCE d 10.50% 10.01% 8.74%
Net profit margin PBIT/ revenue 5.60% 5.28% 2%

ANALYSIS: Liquidity ratios in the above table indicate that marks and Spencer’s have a very comfortable
financial position to pay of its debts. Marks and Spencer’s liquidity when compared with other competitors
and industry outperforms the competition. Maintaining high liquidity ratio indicates that marks and
Spencer’s is not investing that working capital if efficiently maintaining high liquidity ratio will lose
opportunity cost of interest for the excess amount with the company.
Since marks and Spencer’s have current ratio of 1.83 which ideally to be required is 1:1 maintaining high
current ratio which helps the company to pay for its current liabilities however holding many current assets
will lose interest

180.00%

160.00%

140.00%

120.00%

100.00%

80.00%

60.00%

40.00%

20.00%

0.00%

2018 2019 john lewis

When will look into the above graph we cansee that total asset turn ove r ratio of marks and spencer for
the past 2 years is less when compared to john lewis its competitor. However return on asset,ROCE,net
profit margin of marks and spencer is high when compared with John lewis

3.FINANCIAL RATIO ANALYSIS-LIQUIDITY

ratios FORMULA 2019 2018 john lewis
Current
Ratio CURRENT ASSETS/CURRENT LIABILITY 1.83 2.09 0.93
Acid Test
Ratio CURRENT ASSETS- INVENTORY/CURRENT LIABILITY 1.51 1.62 0.61
0.04
Cash Ratio CASH+CASH EQUIVALLENT/TOTAL LIABILITY 0.063 5 0.19

When will look into the table the financial ratios concerning liquidity of marks and Spencers pertaining to
the year 2019 is low when compared to 2018. ideally maintaining current ratio of 1 is to 1 is preferable
however maintaining more current ratio will lead to inefficient working capital management which results
in loss of opportunity cost upon the excess excess amount.
 FINANCIAL RATIO ANALYSIS-LIQUIDITY
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2019 2018 john lewis

How were the competitor John Davies has maintaining cash ratio of less than 1:1, John lewis is
lacking current assets to cover its current liabilities
When will look into the graph comparing previous years of 2018-2019 and with John lavish the
current ratio and acid test ratio of marks and Spencers is more and cash ratio of lewis is more

4.FINANCIAL RATIOS – EFFICIENCY

john
ratios formulae 2019 2018 lewis
recivables turnover
period 365/sales*Trade recivables 7.06 7.13 9.17
Payables turnover 81.4 77.1
period 365/cost of sales*trade payables 6 5 84.03
Inventory turnover 365/cost of 39.0 42.8
period sales*inventory(closing) 4 6 34.63

ANALYSIS: Marks and Spencer’s have managed to improve the receivables and payables thereby improving
their overall cash flow as shown in the table comprising of the financial ratios concerning efficiencies due
to reduction in receivable turnover period and increment in payable turnover period overall efficiency
ratios marks and Spencer’s has secured a favourable payment condition with the suppliers however they
should be aware of possible downside reflect in the increased table period.
 FINANCIAL RATIOS – EFFICIENCY
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

2019 2018 john lewis

The receivable turnover period for the 2019 is 7.06 when compared with the previous year it is
7.13. That is there is an improvement in the receivables and ID payable turnover ratio has increased which
result it in in more liquid assets with the company
When concerning liquidity ratios marks and Spencer’s are performing better than its competitors and in
industry

5.FINANCIAL RATIOS -GEARING RATIOS

ratios formula 2019 2018 john lewis
GEARING Total Debt/Total
RATIO debt+totalequity 0.19 0.23 0.11

ANALYSIS: Accompany with good gearing ratio will indicate sound and strength of company. When caring
ratio is low indicates financially conservative company and with low debt and financial soundness. When
debt component is low in financial statement the external interest cost will be reduced which results in
increment in earning per share to the shareholders

FINANCIAL RATIOS -GEARING RATIOS

0.25

0.2

0.15

0.1

0.05

0
GEARING RATIO Total Debt/Total debt+totalequity

2019 2018 john lewis

 The gearing ratio of Mark and Spencer’s for financial year 2019 is 0.19 which in 2018 IS 0.23
a reduction in gearing ratio indicates reduction in debt component it. Marks and Spencer’s has a very good
gearing ratio when compared with competitors and industrial average

6.vertical trend analysis

a.vertical analysis of income statement
Column Column
Column1 2019 2 2018 3 john levis Column5
amount % amount % amount %
10377. 10698.
Revenue 3 100 2 100 10316.7 100
Cost of sales -6547.2 63.09 -6650.9 62.17 -6931 67.18
Gross profit 3830.1 36.91 4047.3 37.83 3385.7 32.81
Selling and administrative expenses -3271.1 31.52 -3426.2 32.03 0 0
Other operating income 42 0.4 49.5 0.46 112.1 1.08
Operating profit before adjusting items 601 5.79 670.6 6.27 3497.8 33.9
Adjusting items -414.5 4 -486.3 4.54 -2.1 0.02
Operating profit 186.5 1.8 202.3 1.89 3495.7 33.88

ANALYSIS: From the vertical trend analysis of income statement we can observe that there is a decrease in
the revenue in the year 2019 as compared to 2015 to 18 which has also resulted in decrease in the gross
profit in the year 2019 when compared to 2015 to 18 in the year 2019 as we can observe the indirect
expenses are low as compared to the years 2018 but the operating profit in the current year 2019 has
reduced when compared to previous four years that is 2015 to 2018

b.vertical analysis of balancesheet

Column1 Column2 Column3 Column4 Column5 Column6 Column7

2019 % 2018 % john levis %
ASSETS
current assets
Inventories 700.4 7.18 781 7.73 657.6 10.41
Trade and other receivables 322.5 3.3 308.4 3.05 259.3 4.1
Cash and cash equivalents 285.4 2.93 207.7 2.05 716.8 11.35
Other current assets 2730.6 28 2571.4 25.44 295.3 4.67
non current assets 5714.6 58.6 6238.4 61.72 4383.1 69.43
total assets 9753.5 10106.9 6312.1
LIABILITIES
current liabilities 2204.3 22.6 1826 18.06 2055.9 32.57
Non-current liabilities 2295.1 23.53 2770.9 27.41 1636.2 25.92
equity 5254.1 53.87 5510 54.51 2620 41.5

ANALYSIS: We have seen that inventories has been reduced from current year to last year trade
receivables has been increased as a result cash and cash equivalent were also increased when compared to
the previous year financial statements the marks and Spencer’s whole less inventory cash and trade
receivables when compared to other competitors in the industry

7.horrizontal trend analysis

a.horrizontal trend analysis of income statement
differenc
Column1 2019 2018 e percent(%) john lewis
10377. 10698.
Revenue 3 2 -320.9 3 10316.7
Cost of sales -6547.2 -6650.9 103.7 1.56 -6931
Gross profit 3830.1 4047.3 -217.2 5.36 3385.7
Selling and administrative expenses -3271.1 -3426.2 155.1 4.52 0
Other operating income 42 49.5 -7.5 15.15 112.1
Operating profit before adjusting items 601 670.6 -69.6 10.37 3497.8
Adjusting items -414.5 -486.3 71.8 14.76 -2.1
Operating profit 186.5 202.3 -15.8 7.81 3495.7

ANALYSIS: Revenue has been decreased when compared with the previous year about 3%, at the same
time cost of sales also decreased about 1.56 %, which has an impact on gross profit due to less revenue.
Gross profit also reduced by almost 5.6% and selling and administration expenses also low when compared
previous year

b.horrizontal trend analalysis of balance sheet

2019 2018 change % john lewis

ASSETS
current assets
Inventories 700.4 781 -80.6 10.32 657.6
Trade and other receivables 322.5 308.4 14.1 4.37 259.3
Cash and cash equivalents 285.4 207.7 77.7 27.22 716.8
Other current assets 2730.6 2571.4 159.2 5.83 295.3
non current assets 5714.6 6238.4 -523.8 8.39 4383.1
LIABILITIES
current liabilities 2204.3 1826 378.3 17.16 2055.9
Non-current liabilities 2295.1 2770.9 -475.8 17.17 1636.2
equity 5254.1 5510 -255.9 -0.047 2620

ANALYSIS: When will look into the horizontal range of balance sheet there is a decrease in inventory of
10% and trade and other receivables have been increased by 4% which has an impact on cash and cash
equivalents which there is an excess 27.2 2% of cash and cash equivalent when compared with the
previous year 2018. When compared with competitor Tesco inventories and cash and cash equivalents
maintained by marks and Spencer’s are more however trade and other receivables are high in Tesco that
indicates there is high credit revenue to the Tesco, where is marks and Spencer’s have more cash revenue.
Current liabilities of marks and Spencer’s have increased at the same time noncurrent liabilities have
decreased by 17% for the current year

8. Source of Information
Statement of income

Balance sheet:
9. Conclusion and recommendations
By observing all the financial ratios concerning liquidity profitability efficiency and gearing ratio marks and
Spencer’s have performing well in in sharing ratio and efficiency ratios thereby reducing the debt
component, and improving receivables and payables and inventory turnover period which results in good
working capital management and effective utilisation of current assets
Whereas the revenue of marks and Spencer’s for the financial year 2019 has reduced when compared to
the previous financial years the return on capital employed, gross profit and net profit margin has been
reduced.
Marks & Spencer has reported a fresh slump in clothing sales as poor levels of availability in its stores
were compounded by an out-of-date supply chain. The chief executive, Steve Rowe, blamed the 5.5%
decline in like-for-like clothing sales on buying errors that meant popular sizes sold out too quickly.

Marks and Spencer’s has maintaining a good liquidity however maintaining more current assets will lose
opportunity cost of interest,
Since there is low sale then previous year, marks and Spencer’s should adapt to the new technology and
customer preferences and Trend. Investment in research and development expenditure will result in in
increased profits and reduced cost of sales and other expenditure thereby increasing profits.

Question no 2:
a)

1) Calculation of contribution per package A

Particulars Package – A
Sales 420
-Variable cost
TV 250
Stand +30
Speaker
Total variable cost 280

Contributions = (Sales – Total variable cost) = 420 – 280 = 140

Calculation of contribution per package B

Particulars Package – B
Sales 480
- Variable cost
TV 250
Stand 30
Speaker 50
Total variable cost 330
Contribution (Sales – Total variable cost) 150

ii) Break-Even Point

a) Only Package A is sold

Particulars in units in Amount

BEP Fixed cost/contribution fixed cost/ P.V ratio
= 82,000/140 82,000/33.33333%
= 585 2, 46,000
P/v ratio = contribution/ sales = 140/420 = 33.333333%
 b) Only Package B is sold

Particulars in units in Amount

BEP Fixed cost/ Contribution Fixed cost/ P/v ratio

=82,000/150 82,000/31.25%

=546 = 2, 62,400

P/V ratio = contribution/ sales = 150/480 = 31.25%

Iii) Margin of safety = Total sales –Break even sales

(Or)
Margin of safety =Profit/pave Ratio
Margin of safety (units) =Profit/Contribution
Margin of safety (units) =5,600/146
=38 units
Margin of safety =Profit/pave Ratio
Margin of safety = 5,600/32%
= 17,500

iv) Particulars
Total sales
[240*420+360*480]
(Less):-Variable cost
[67,200 + 1, 18,800]
Contribution
(Less):-Fixed cost
Profit
P/V Ratio = Contribution/Sales
= 87,600/2, 73,600
=32%
C) Break Even point (Units) = Fixed cost/Contribution per unit
(Or)
Break Even point =Fixed cost/p|v Ratio
Contribution per unit for package –A = 140
Contribution per unit for package –B =150
Sales mix for package –A = 600*3/5 =240
Sales mix for package –B =600*3/5 = 360
Weighted Average Contribution Units
= 140*240/600 + 150*360/600
= 56+90 = 146
Break –Even point (units) = 82,000/146
= 561 units
Break – Even point =82,000/32%
= 2, 56,250
v) Sales = Fixed cost + profit/p|v Ratio
Sales = 82,000+15,000/32%
Sales = 3, 03,125
vi) A) As we know that fixed cost does not change with change in output, sales and contribution margin of
package B is more when compared to package –A, Hence package –B is best package to sell.
b) Yes it is realistic as package B consists of TV, Stand and speakers
c) The profitability of business can be impact by
I) increasing selling price per unit
ii) Reducing variable cost.
Question – 2(b)
i) At beginning of the period
Cash out flows

Particulars Amount
Land 2,000,000
Building 3,950,000
Fitting 915,000
= 6,865,000
Cash inflows for first 3 years:

Particulars 1 2 3
Total sales 14,300,000 14,586,000 14,877,720
14,300,000+2% 14,586,000+2%
Total cash inflows 14,300,000 14,586,000 14,877,720

Cash outflows for first 3 years

 Particulars 1 2 3
Alpha 3,950,000 4,029,000 4,109,580
3,950,000+2% 4,029,000+2%
Beta 2,83,000 2,886,600 2,944,330
2,830,000+2% 2,886,660+2%
Staff 5,90,000 601,800 613,830
590,000+2% 601,800+2%
Light 838,000 854,760 854,760
8,338,000+2% 871,855+2%
Over heads 3,212,000 3,276,240 3,341,700
3,212,000+2% 3,776,240+2%
Total cash outflows 11,420,000 11,648,400 11,881,300

Net Present Value = cash Inflows – cash outflows

Net cash flows for first 3 years

Particulars 1 2 3
Ne cash flows 2,880,000 2,937,600 2,996,300
P.V.F@12% 0.892 0.797 o.74
Discounted cash flow 2,571,429 2,341,837 2,130,744

Total Net cash flow = 2,571,429 + 2,341,837 + 2,130,744

= 7,046,010.
Cash outflow at the beginning of the year: 7,046,010 – 6,865,000 = 181,010
ii) Calculation of Payback period:

Year Cash flow Cumulative cash flow

1 2,880,000 2,880,000
2 2,937,600 5,817,600
3 2,996,352 8,813,952

Payback period = 2 + difference in cash flow/cash flow for succeeding year

= 2 + 6,865,000-5,817,600/2,996,352
= 2.35 years

3) Comparability issues reasons:

Annual report is one of the significant documents present in the investor’s. A detailed reading on the
documents delivers insights for the business to know about the performance and to know how healthy in
the financial purpose. The three important components in the comparability issues are income statement,
balance sheet and cash flow statement. Almost all the financial ratio is used for determining the
organisation strength and can be calculated using highlights and share report price to know which offers a
best value.
Most of the companies are not spending their amount in the comparability issues.companies can cut the
distribution using annual reports and it is required for every company to publish in the online and it is
mandatory to rea the documents.
Comparability examples:
For preparation of the financial report, statements of all the previous year along it the present years are
required to know about the graph of the financial statements growth.
20x2 financial statements are compared with the 20x1 financial statements in telsa for knowing the
position improvements and performance characteristics.
Analysis of content:
Content analysis means a method that study various format of text, audio, pictures & video. Scientists are
using content analysis for examining different patterns in the communications in the systematic and
replaceable manner. The major advantages for using the content analysis are for analysing the phenomena
for collecting various answers and to stimulate the social experience. The content analysis has many
variations between different academic disciplines. This includes the artifacts, text observation that is
provided with assigned labels. A systematic labelling is used as content for set of text; researchers are
analysing different patterns of content analysis using various qualitative methods, statistical for analysing
the content meanings in the text content. Computers are used in these analysis for automation of labelling
for the documents.
Examples of Analysis of content:
Content analysis is used to summarize the different content with different content aspects.
Content analysis means to analyse the different texts that are in written words is quantitative method.
Content analysis is not a book review or TV program.
Collecting the quantitative data using stimulating method and qualitative analysis using texts and written
formats.
Conclusion:
The analysis from three companies like Dunkin’s, Panera bread and starbuck’s coorportain. The content
analysis is calculated from the above three companies in which panera bread becomes the best
performance. Now, Starbuck’s organisation is becoming the famous due to the market share improvement
and for its potential growth. Content analysis is used for deciding the best performance and efficient
product from the available.
References:
1. https://www.merriam-webster.com/dictionary/content%20analysis
2. http://www.theaccountant-online.com/comments/comment-the-importance-of-accounting-comparability-
6020287
3. https://www.vintagevalueinvesting.com/perform-horizontal-vertical-analysis-income-statements/