MBMBST713 Analysing Financial Performance 2021-22 Sample

MBM BST 713 Analysing Financial Performance 2021-22

You are required to produce a 2,000 word individual report containing:

• an analysis of the financial performance and position of Marks and Spencer. Your analysis should be based on your calculation of basic accounting and financial ratios for 2021, and 2020 for comparative purposes; and an evaluation of the results of those calculations. In addition, your analysis should be supplemented by key data contained in the narrative sections of the 2021 annual report and other sources;

• a consideration of Marks and Spencer’s prospects for the foreseeable future, taking into account the challenges facing the group and its responses thereto; and,

• drawing on appropriate literature, an assessment of the extent to which Marks and Spencer could justifiably claim to have a diverse board of directors.

The remaining 10 marks will be awarded for the presentation and structure of
your report and appropriate referencing.

The report can be found here:
https://corporate.marksandspencer.com/msar2021/m-and-s_ar21_full_210602.pdf
Report Guidance:

As a guide, for the report, you should aim to devote:

• 900 words on Marks and Spencer’s past financial performance;
• 600 words on the future prospects of the group; and
• 500 words on the corporate governance aspect.

In addition, you should present the accounting ratios as a table in an appendix to your report (see proforma on final page); the appendix will not be included in the overall word count for the assignment. You MUST show the figures you use in the calculation of the ratios AND, if they do not come from the face of the Consolidated Statement of Comprehensive Income or the Consolidated Statement of Financial Position, you must show the exact source of the figure(s). Failure to do so will result in no marks being awarded for that calculation.

Your report should also be:

• Word-processed;

• Professionally presented with page numbers and having undergone a grammar/spell-check; and

• Properly referenced (where you use words taken from a source, you must give a proper citation to that source).

Solution

Introduction

Marks and Spencer is an in-store shopping, food, and clothing company founded in the year 1884. In this report, the annual report of the Marks and Spencer's will be used to analyze the financial performance of the company. As per the MBA Assignment Expert, The future aspects will be identified that will lead to the stability and the growth of the company. 

Marks and Spencer's Past Financial Performance 

The detailed analysis of the financial statement of the company helped to understand the financial instability of Marks and Spencer in the year 2021. The total current asset of the company reduced from 8968.9 in the year 2020 to 7042.2 in 2021. As per the view of Reuters (2021), the pandemic has been satiated to be the primary reason for the losses M&S is suffering. The reduction in the equity has been observed from 3708.5 to 2285.8, which depicts the company has lost money in normal business operations. In the business, the main reason has been identified to be the less technology involved in the company. The company was still focused on the target of the offline market with the increasing opening of the stores. The changing consumer behaviour has resulted in decreasing the demand for more products. 

The sale growth of the ratio and the income growth has been identified to be calculated and observed to be both negative in the years 2020 and 2019. The sale and the income growth in the year 2020 was -1.9% which increased to -10.1%. It showed that the company was already suffering from the losses before the pandemic and was impacted badly in the pandemic. The current ratio has been calculated with the help of the current ratio and the liabilities that are 0.66 in 2020 and increased to 0.69 in 2021. As per HASANUDDIN et al. (2021), the current balance has been stated to be the liquidity ratio that masseuses the business's ability to meet short-term obligations. The company sling in the percentages shows to weakening strength of it in 2021 as compared to 2020.
 

Figure 1: Marks and Spencer statement of Financial Position
(Source: Marks and spencer, 2021)

The balance sheet known as describing the financial position of the business helps the investors to analyze the proper use of the current asset in the balance sheet. The other reason for the failure is not to change the trend and not implement those. The reduction in the cost of the sales and the revenue generated from the food and clothing sector has been affecting the overall revenue of the Company. Marks and Spencer have still accepted the old behaviour of the people and have not considered the changing youth. This has been the primary reason for losing customers in the market and reducing the customer retention rate. This affected the share price of the Company in the market and reduced it from a value of 236.50 to 158.65. 
 
The calculation has been made to come across the asset growth rate of Marks and Spencer’s. As per the statement of Haralayya et al. (2021), the financial statements have been stated to be the science of managing the budget of the Company. The annual asset rate will help to analyze the different strategies of the Company towards the development of its asset. In the year 2020, the asset growth rate has been calculated to be 41.5%. It depicts that the Company was performing well in the development of the strategies that helped to the successful growth of the set. However, in the year 2021, the significant decrease in the percentage is calculated to be -15.2%. The Company failed to match the changing environment that resulted because of Covid-19. The negative number of tea asset growth is directly impacting the financial status of the Company in the market along with the shareholders. 

An income statement is a financial statement that gives a detailed structure about the income of the Company and its different expenses of it. The analysis of the income statement of both the years 2020 and 2021 has helped to confirm across the Company in 2021. The revenue of Marks and Spencer in 2020 was 10181.9, which reduced to 9155.7 in 2021. The decrease in the earning per share has been observed with a percentage of 8. In covid-19, the targeted customers of the Company have been observed to be shifting to the retail Company that has involved technology. The delivery options and online booking activities was required to attract the customers. The Company adopted these measures a bit later, which affected the overall revenue that is being earned by the Company. However, the Company also showed some positive numbers in the financial statement, including the increase in the financial income in 2021 and the successfully monitoring of the finance cost.  

Figure 2: Marks and Spencer statement of Financial Position For year 2019,2020 and 2021
(Source: Marksandspencer, 2021)

The major decrease has been observed in the cash flow of the company affecting the overall operations. The decrease has been observed from 1045.4 to 876.7 and after paying off the taxes 870.9 is the cash flow from the operating activities (Marksandspencer, 2021). 
 

Figure 3: Marks and Spencer Income Statement for year 2021 and 2020
(Source: (Impressum, 2022))

The imbalance that is being faced in the cash flow of 2020 has impacted the investment activities of the company regarding the use of net cash. The net cash used in the investment activities in the year 2020 was recorded as 765.7 that reduced to 192.6. The difference has been analyzed in the closing net cash of the cash flow in 2020 closing net cash was  238.7, which increased to 669.7. The return on assets and the return on equity has been decreased in the year 2021, recorded to be 97.3% and 305.5%, as calculated in the attached excel file.

Future Prospects of Spencer and Marks

Spencer and Marks have an ambitious plan for future growth, and the company is also having a clear path for the transformed business. The company is trying to upgrade their overall trading performance, and it can be done with the extraordinary efforts of its employees. On the other hand, they are trying to transform their business by going faster and further and they are trying to fix the basics for reshaping M&S. Apart from that, the company is building a team for accelerating the overall change within their trading business and also they are trying to build the trajectory for the future development and growth. The future prospects of an organisation are better if the overall revenue shows the fixed expenses and growth year-by-year, such as the cost of labour that are relatively declining and stable (Gogate, 2019). Furthermore, the marketing perception of the company is the vital part for setting their market for the future with confidence, style and energy. 

On the other hand, the most crucial impact of the company is their food operations, and they are trying to implement medium-term solutions for stabilising the overall business. Apart from that, they are also trying to modify the food export in several countries by working with various partners. Therefore, these general operations are smaller within the main context of the company. Hence, this will be a change of the overall business that is related to costs while it may result in future restructuring changes. The future prospects are the limited awareness of something that is yet to have occurred, and it includes the anticipation, potential and expectancy of an organisation (Belfield, 2020). On the other hand, after the pandemic situation, M&S have outlined several challenges that are faced by them with the ageing and underinvested store estate. Therefore, this requires it to be modernised for staying fit for future development and growth. 

On the other hand, this will be modernised through several steps such as the programme of store rotation. It also includes redevelopments of the sites for unlocking the additional value and then making the important space across the overall estate and by trailing the formats of the new store. The future prospects also include the potential customers that are being qualified for fitting the various criteria that are outlined by the company that is based on their business offerings (Gamage, 2019). Apart from that, the company is planning a one-year action plan for sustainability by addressing several opportunities and risks for the societal and environmental issues of the business. Furthermore, it will drive M&S to make the better choice that ensures the company for better resources, and through this, it will give a better shape to the future of the company. Apart from that, the company is also preparing the future adoption on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Therefore, the company is making progress on this recommendation for aligning the climate reporting, and they are also setting out the overall plan for the future.                       

Corporate Governance Aspect of Spencer and Marks

The key priorities of the company include delivering the profitable and sustainable growth to the firm. Furthermore, the company is also observing the immediate return on investments that will help in the conscientious and proactive ESG plans and these are having better performance on corporate governance, social and environmental areas. Apart from that, there are several factors that provide the overview regarding the activities and process of risk management. Therefore, these are undertaken in the overall business of the company that fulfils the obligations under the aspects of Corporate Governance (M&S, 2021). The steps are Risk ownership and Identification, Risk assessment, Risk response and Risk reporting, escalation and monitoring. 
 

Figure 1: Risk management process under Corporate Governance
(Source: M&S, 2021)

The aspects of corporate governance generally require the company to issue the declaration of viability statement, which includes whether the company believes the group can continue meeting and operating the overall liabilities or not. In addition, it also includes whether it will take into its account the current principal and position risks or not. On the other hand, the aim of corporate governance is to encourage the overall directors that focus on the long term, and they are involved actively within the internal controls and risk management. Apart from that, corporate governance generally entails several areas of ethical behaviour, compensation, environmental awareness, risk management and compensation (Ali, 2018). Furthermore, there are several basic principles regarding corporate governance, and they are transparency, responsibility, fairness and accountability. Moreover, the company generally maintains clear and appropriate records reading their overall services, and it continues in meeting their requirements of the UK corporate government aspect.  

The aspect of the UK corporate governance is ensuring the overall effectiveness regarding the process of risk management. In addition, it is also confirming that the overall uncertainties and principal risks of the overall business are disclosed externally in an appropriate manner. On the other hand, as per the corporate governance and the control of non-financial arrangements, the ESG committee supported the overall process. It is done by providing and reviewing the audit committee with several recommendations of all the risks related to ESG, including climate change. Apart from that, corporate governance is a system through which the organisations are controlled and directed (Zandi et al.,2021). The three of the pillars of the corporate governance aspects are security, accountability and transparency. Therefore, these three pillars successfully run an organisation and also form strong professional relationships between the stakeholders that include managers, board directors, important shareholders and all the employees.        

Conclusion

From the above report, it is concluded that M&S is having a good recovery in their financial performance after the pandemic in their home and clothing division. On the other hand, the overall retailer credits shifted to the focused goals, sustainability and promotions that resulted in increasing the price sales of the company. Therefore, the company has become more profitable after the recovery of the pandemic situation with its product innovation and product development and growth.      

Reference List

Ali, M., 2018. Impact of corporate governance on firm’s financial performance (A comparative study of developed and non developed markets). Economic Research, 2(1), pp.15-30.

Belfield, H., 2020, February. Activism by the AI community: Analysing recent achievements and future prospects. In Proceedings of the AAAI/ACM Conference on AI, Ethics, and Society (pp. 15-21).

Gamage, S.K., 2019. Product features, problems and prospects of insurance retirement plans in Sri Lanka. International journal of arts and commerce, 8(9), pp.1-20.
Gogate, M.R., 2019. Methanol-to-olefins process technology: current status and future prospects. Petroleum Science and Technology, 37(5), pp.559-565.
Haralayya, B., 2021. Financial Statement Analysis of Shri Ram City Union Finance. Iconic Research And Engineering Journals, 4(12), pp.183-196.

HASANUDDIN, R., DARMAN, D., TAUFAN, M.Y., SALIM, A., MUSLIM, M. and Putra, A.H.P.K., 2021. The Effect of Firm Size, Debt, Current Ratio, and Investment Opportunity Set on Earnings Quality: An Empirical Study in Indonesia. The Journal of Asian Finance, Economics and Business, 8(6), pp.179-188.
Impressum, L., 2022. Marks and Spencer Group plc • Annual Report 2020. [online] Valuu.io. Available at: <https://valuu.io/annual-results/marks-and-spencer-group-plc/2020> [Accessed 17 March 2022].

M&S, 2021. Annual Report. [Online]. Available at: https://corporate.marksandspencer.com/msar2021/m-and-s_ar21_full_210602.pdf. [Accessed on 5th March, 2022]
Marksandspencer, 2021. OUR YEAR IN REVIEW 2021. Available at: https://corporate.marksandspencer.com/annualreport[Accessed on 2nd march, 2022]

Reuters, 2021. M&S profit seen crashing 90% in "lost year" of pandemic. Available at:   https://www.reuters.com/business/retail-consumer/ms-profit-seen-crashing-90-lost-year-pandemic-2021-05-21/[Accessed on 2nd march, 2022]

Zandi, G., Singh, D. and Shahzad, I.A., 2021. Corporate Governance Impact on Significant Aspect of Firms’ Performance: An Evidence From Top 100 Global Public Companies. Advances in Mathematics: Scientific Journal, 10, pp.1749-1769.