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Report for potential investor - Essay Example

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Before the onset of financial crises and economic slowdown, demand was high for the consumer goods and different departments were performing quite well with higher growth rate. But the crash of housing bubble in US disturbed economics of whole world and resulted in drastic fall…
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Download file to see previous pages When the market will recover, companies with better fundamental state will be the one to come as market leaders and they will yield better results to the investors. So an investor should analyse any company comparison with the industry standards before taking any major decision. 3
It reflects how much of the company’s total assets are financed by debt or the degree of debt load used by the company. Higher ratio indicates higher riskiness of the company and can disturb company’s profitability when market conditions are unfavourable. The Gearing Ration of M&S for the past five years indicates that though it did not maintain any constant trend, but it was in a range of 25-40 percent. So it was found that the company’s Debt Ratio is not so very high. 17
This ratio measures the company’s ability to bear its financial burden which arises in form of interest to be paid for debt. This ratio is also known as times interest covered ratio. While calculating this ratio, analysts compare the company’s ability to pay the interest with the total interest payable on its debt, so higher ratio is an indicator of more stable state and less risk of default (Peterson & Fabozzi, 1999, p. 94). The Interest Coverage Ratio of M&S indicates it always has an Interest Cover Ratio greater than 1, or it can be expressed that it’s Earnings Before Interest and Tax (EBIT) was more than the interest payable. The company’s Interest Cover Ratio was constantly increasing, but due to financial downturn and economic slowdown throughout the world, this ratio declined in 2009 as profitability of the company declined. 18
So after undertaking all the efficiency ratios of M&S it can be said the company is maintaining higher debt structure in its capital and such financial leveraging is reducing company’s ability to retain meet long-term liabilities. But the good aspect is that the company’s Interest Coverage Ratio is at a comfortable state. 18
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