Capital Resources - Marks and Spencer - Essay Example

Introduction: For the emergence of a company, requires several things like men, material, money and other resources. The ‘capital’ means, the amount so contributed by the corresponding members who are willing to operate a company. It is one of the important resources appropriate for the proper flow of several functions. The development, existence and growth of a company is highly based on its capital resources. Moreover, it helps in the development of business plan and also providing aid to the entrepreneurs for moving forward. It is very essential because it is the finance required for setting up of a business. Capital may be of two types- fixed capital and working capital. Capital resource TMA (Turnaround Management Association) is an important concept in the area of Financial Management. TMA is an association which is non -profit making in nature, which lead to a turning point for the industrial development and implementation. In this concept, we are making an analysis of recent annual reports of Marks and Spencer plc and Debenhams plc for the year of 2007 and 2006. Marks and Spencer plc (M&S) is one of the largest retailers in food and clothing industry, having links through out the world. Debenham plc is also a retailer with a linkage of departmental stores. a) Critically discuss the extent to which they meet the information needs of the companies stakeholders in terms of environmental and social issues. Evaluation of Annual Reports: - For the purpose of providing a report based on the annual report, it is necessary to make an evaluation of both aforesaid companies. Marks and Spencer plc, one of the leading companies in the world is occupying an out standing business results per year. Taking in to account, the provisional results of company’s performance in the year 2006-2007, there is a growth in sales up to 11% and there by a corresponding increment in the adjusted profits before taxation, interim dividend etc. Similarly the company achieved progress in its major areas of retail trading also. During this period, the clothing industry achieves an increment of 10.1% and the rate of food industry goes up from 3.8% to 4% respectively. (Interim Results 2006/2007 2006). The growth rate in the investment sector is also drastic in nature. The major reason behind the success of M&S is treating their customers with good quality products and services. Business plan of the company is constant over a long period of time, but the competitors they are facing are varying. M&S identified its opportunities for the ensuing five years will be:- Make further development for retaining the popularity of M&S, due to the introduction of number of stores in prime market locations. Improve the leading power of M&S in the industry of retailing. The company is also giving stress on for following the Corporate Social Responsibility (CSR) and other ethical behavior for the better running of business. As a result, the company is running well, and looking forward for further implementation to speed up their growth through their customers by keeping them for long. “Marks & Spencer Group Plc, the U.K.s biggest draper, announced today that full-year profit rose 26 percent to the highest in nine years as the company gained from upgraded stores and fashions coupled with increased advertising to win customers.” (News: European 2007). Debenham is a leading cloth manufacturer, enhanced its position globally. The main reason underlies behind the success of Debenham is its control over cost and capital. At the same time the company gave emphasis on its ethical and cultural beliefs. The company is manufacturing variety of products, as compared to their past performance of handling only on a particular category. The company undertook its financial activities during last year according to International Financial Reporting Standards (IFRS). The growth in sales attained an increase of 0.5%; the basic Earnings per Share and cash flow are steadily goes up during the year. (Johnson 2006). The books of accounts and other relevant documents are keeping on the basis of accounting principles, and the audit work of the company should be carried on by independent auditors. The organization style of Debenham which helps to make an improvement for the overall development of the company. Moreover, the company is obtaining a considerable growth, as compared to its rivalries. But the major business risks faced by Debenham plc are its failure to forecast the customer’s taste and needs, high competition, environmental problems etc. It is very necessary to make a review of financial performance of both M&S and Debenhams for evaluating as well as comparing the existing status of both the companies. The main reason for the comparison and analysis of both the company is to take an appropriate decision as where to make investments whether in M&S or in Debenhams? For this, it is essential to concentrate on certain areas- calculation of ratios of M&S, compare M&S with Debenham plc with the techniques of ratio analysis and market factors. Take a detailed decision in respect of finance and stock market is very crucial for this assessment. For this, the present market situation of both companies and other relevant marketing strategies are taken as a tool. It is very necessary to make an analysis of both M&S and Debenham plcs. Both the companies are earning a high rate of profit and they are attained a steady profit margin. Therefore, by comparing both of these companies they are achieving an outstanding performance through out the year that is why these companies became very famous. Turn over, ratios, and net revenue of the company are increasing, and there by companies attaining a higher amount of profit margin. Application of generally accepted accounting principles, proper forecasting of budgets, cash flow and other related financial data are taking as an appropriate tool for making its proper running. By examining the recent annual reports of (2006/07) both company, it is very sure that even though these companies are profitable, they also are suffering certain problems and issues. The Marks &Spencer and Debenham plc is providing adequate in formations to their stakeholders in terms of environmental and social issues. M&S is providing three schemes for its stakeholders like-British Healthcare Trade Association, Institute of Export and Radio, Electrical and Television Retailers Association. (IFA-Promotion Stakeholder Update – Issue 5). The stake holders of a company consisting of its shareholders, employees, customers and public at large. Marks &Spencer is providing importance to its stakeholders, by keeply tighting their corporate social responsibility. It is very necessary to maintain a friendly relation with the stakeholders of the company, because they are having an idea about their customers and other competing organizations. Certain problems faced by Marks &Spencer are: 1. If there is any adverse effect about a particular business, that will ultimately effect the corresponding businesses within the same industry. Due to the enjoyments done by public media about the problems of M&S, became the reason for putting down its marketing strategy. 2. Different marketing and business strategies are required for two different businesses within the same industry. But it will widely applicable through out the industry, because they all are known by a unique name. “Stakeholder pressures are not limited to reputation concerns, the broader context of social and sustainability issues must be considered and standardized corporate responsibility/sustainability responses are inadequate. An integrated and holistic approach that understands the linkages between projects and local sustainability issues, and of stakeholder perceptions and its relationship to core business activity (and vice versa) is needed to not only shape CSR programs but also the way core business is conducted.” (Litvin 2007). The stress being faced by the stakeholders are highly based on the company’s products and its brand. For this company should maintain a reputed brand imager for their market sustainability; and if there is any variations takes place on the product pattern, it is heavily depends on the company’s Corporate Social Responsibility. Large sized companies are highly influencing on its ethical behavior towards its society and they will neglect long-term environmental issues. The main success of M&S is reflecting on its organizational culture, because the company is following a good communication and interaction through out, especially with its stake holders for their further implementation. “Environmental materiality is growing ever more important to financial stakeholders as it enables organizations to make money with fewer negative externalities, the costs of which are increasingly being internalized. This generally means gains for other stakeholders by association, and may be the catalyst for transformational change in how some companies manage their environmental impacts and liabilities. (Business Systems News for Finance and IT Professionals. Materiality, Accountability and Sustainability). Similarly Debenham plc is also giving necessary company in formations to their respective stakeholders in relation with environmental and social issues. Debenham lost enormous benefits by eliminating their wastage of resources, which will ultimately affect the stakeholders. For getting necessary changes taking place within the industry by the appropriate stake holders, the company’s social and environmental issues are playing a vital role. Both these public limited companies are giving the information so required by their relevant stakeholders in a meaningful manner by adopting its environmental and social impacts. This will ultimately affect the stakeholders of both in an adverse manner, because environmental and social ethical issues are creating a lot of problems nowadays. Number of risks and uncertainties is occurring due to environmental issues, as a result the proper running of company will decline to a certain extend. The major areas in which the risk will highly reflect in business are its turn over, margin, customers, product and finance. Even though all these sources are vital, customers and adequate investors are the ultimate personalities affecting this risk and uncertainty. But in order to over come this problem, better management of CSR and other related ethical principles and guidance are a must, and there by improve the worth of the shareholders of the company. b) Critically compare and contrast the financial performance of the two companies in the year under review. It is essential to make a review of the famous two retail industry in the world, Marks and Spencer and Debenham plcs, on the basis of its financial performance. Both these company is holding a prestigious status in the retail sector, so they try to maximize their performance as compared to the other one. For achieving its everlasting success, M&S followed its moral, ethical and social responsibilities and qualities. Marks and Spencer attained its almost all predefined targets in a sufficient manner, and they highly focused its attention towards to cope up with the environmental and climatic changes and also to protect the wastage of adequate raw materials. In the year 2006-07, M&S highly gave its attention in UK, and earned a turn over of more than 90%. The major responsibility of the workers of M&S is to undertake their task in accordance with their scope of work. (Rose 2007). It attained an enormous growth during the year, in 2006, the company attained sales of £7.8bn instead of £7.5bn in 2005. Operating profit of £855.8m; EPS of 31.4p; ROE of 52.3%; cash flow of +£550.5m. (Myners 2006). Similarly, last year the company offered more recent and fashionable products to its customers, which became one of the reasons for triumph. The financial performance or the attainment of profit earned by both the companies are very accurate; and earned a huge profit margin during last year. Al most all areas of financial sectors are highly improved through the attainment of a marvelous profits. During last year, Debenham plc’s gross margin rate was declined to certain extend. Rob Templeman, Chief Executive of Debenham plc said that, “Although it is far too early to draw conclusions on the performance of our Spring/Summer ranges, we have been encouraged by the consumer reaction to our new collections. We continue to expect the retail environment to remain challenging and to this end we will focus on managing our stocks, costs and cash margins.” (Debenham plc, Pre-close Trading Update, March - 2007 Page no: 2) But as per the Forward looking statement, there will be a chance of variation in actual and budgeted result of Debenham plc during the ensuing years. The company deeply analyzes the demand and supply of products, and moreover the company earned a high reputation. The budget or the forecasting aspect of Debenham should be maintaining on a quarter bases. A company’s financial performances are being compared with the help of its competing companies. While comparing the performance, it is essential to consider only leading companies with high financial back ground. For this Financial Gap Analysis, is crucial. Through this it is possible to find out a slight variation in the performance as a whole. Certain factors that are taken in to account by Debenham plc are, it is very essential to tightly keep up the valuable human resources, maintain a cordial relation with their suppliers as well as their customers, proper control and emphasis should given in the stock market areas to protect the relevant investors of the company. The proper organizational structure and well qualified management system are the prime reason for the leading position of Marks &Spencer and Debenham plcs. The gross profit rate, ratio analysis, budget and budgetary control and the proper maintenance of books of accounts; on the basis of which the preparation of financial statements and other appropriate reports are highly essential. Similarly the investment group, does not provide any guarantee for the time, accuracy, return etc. making investment through shares are highly risky, then also stock markets are leading. Profitability, marketability and market share or strategies are highly depending on the way in which the companies are performing. The risk and uncertainty in finance area are handled by company’s finance department. Debenham plc charged only approximate rate of prices for catching a large number of customers. The financial statements of these companies reflected that both these companies are holding a prestigious position, then also certain implementations are required. Moreover, it is necessary to give appropriate values to the staff personnel’s of the company. For the better carry out of business function, Marks &Spencer and Debenham plcs should taken in to consideration of certain aspects like:- 1. Improve the current operational efficiency of the company. 2. Provide better services to their ultimate customers. 3. Forecast about their future business plans and functions. 4. Make reduction over the total cost of production. For maintaining any solution for the prevailing problems, the retail industries will approach Business Objects, which is a leading software company in the world for giving recommended solution for the retailers. Better products and customer services are also necessary. Every Business is highly concentrating on attaining its financial growth, accountability and sustainability. Marks and Spencer, is providing high importance to its stakeholders. M&S also providing their attention towards social responsibility. Even though the attain the target of shareholder value is not the only objective of M&S, it attained a better result in this regard. It is necessary to evaluate the up to date in formations and changes being taking place within the company, to adopt necessary implementations. Financial performance became the ultimate reason for the future sustainability. But the Debenham’s trading sector highly improved during last year. But critically speaking, both these companies are having certain difficulties and limitations. They are mainly failure to meet the actual business objectives; decline in the value of share holders will ultimately affect the standings of business, failure to cope up with competing power. Therefore, for the further development and improvement, it is crucial to make relevant suggestions and implementations. Therefore maintain better reputation with the customers, suppliers and society as a whole. Works Cited Interim Results 2006/2007. (2006). M & S. [online]. Last accessed 14 July 2007 at: http://www.marksandspencer.com/gp/browse.html?ie=UTF8&node=50765031&no=43453031&mnSBrand=core&me=A2BO0OYVBKIQJM News: European. (2007). Marks & Spencer Groups Reports 26% Rise in Full Year Profit to the Highest in Nine Years. [online]. Finfacts Ireland. Last accessed 14 July 2007 at http://www.finfacts.com/irelandbusinessnews/publish/article_1010142.shtml JOHNSON, Guy (2006). Debenhams Styling the Nation Annual Report and Accounts 2006. [online]. Last accessed 14 July 2007 at: http://www.investis.com/debenhams/pdfs/Annual_Report_2006.pdf IFA-Promotion Stakeholder Update – Issue 5. Stakeholder provider activity- Publicly Announced Win List. [online]. Unbiased.co.uk. Last accessed 14 July 2007 at: http://www.unbiased.co.uk/media/media-resources/press-releases/5-5-2001%5B23%5D/ LITVIN, Daniel (2007). Knowledge Center – News Digests. Extractive sector stakeholder engagement-the big lessons from derailed projects. [online]. Ethical Corporation. The Centre. Last accessed 15 July 2007 at: http://www.accpa.com.au/resources.php?m=45&r=news+digest Business Systems News for Finance and IT Professionals. Materiality, Accountability and Sustainability. (2007). FSN. [online]. Last accessed 15 July 2007 at: http://www.fsn.co.uk/channel_kpi_environment/materiality_accountability_and_sustainability.htm ROSE, Stuart (2007). How We Do Business. Chief Executive’s Message. [online]. Last accessed 15 July 2007 at: http://72.14.235.104/search?q=cache:MQMOyj4JBmwJ:https://images-na.ssl-images-amazon.com/images/G/02/00/00/00/32/17/82/32178202.pdf+financial+performance+of+Marks%26Spencer+plc+during+the+year+2006-07&hl=en&ct=clnk&cd=12&gl=in MYNERS, Paul (2006). Chairman’s Statement. Annual Review and Summary Financial Statement 2006. [online]. Last accessed 15 July 2007 at: http://72.14.235.104/search?q=cache:m79e8KOm3qAJ:www.marketadvices.com/reports/Marks_Spencer2006.pdf+financial+performance+of+Marks%26Spencer+plc+during+the+year+2006-07&hl=en&ct=clnk&cd=13&gl=in Debenhams plc. Pre- Close Trading Update – March 2007. [online]. Last accessed 15 July 2007 at: http://72.14.235.104/search?q=cache:9JvxgRGv9nIJ:www.debenhamsplc.com/deb/ann/2007-0316.pdf+financial+performance+of+Debenham+plc+during+last+year&hl=en&ct=clnk&cd=2&gl=in Read More