Financial Report of Both Marks and Spencer Plc and Next Plc

Introduction

Ratio analysis can help business organisations to identify their current financial health. The present report has focused on evaluating and calculating the financial report of both Marks and Spencer PLC and Next PLC for the years 2018 and 2017. Marks and Spencer PLC is a large retailing organisation of the United Kingdom. The organisation has more than 1,025 stores in the country (Marksandspencer, 2018). Next PLC is a retail organisation that has been launched in February 1982. In the current year Next has more than 500 stores in the United Kingdom (Next, 2018). Based on the financial ratios this report has compared the current financial position of both organisations in the market. Finally, this report has analysed the project of Brooks Private Limited. Using relevant investment appraisal techniques the report has determined the most profitable project for the company.

Task 1: Calculation of 10 financial ratios of both companies

Table 1: Ratio analysis of Marks and Spencer PLC and Next PLC

(Source: Nextplc, 2018; Corporate, 2018)

The above table has clearly shown that Marks and Spencer PLC has been able to maintain favourable financial ratios compared to Next PLC. However, Marks and Spencer PLC has failed to maintain a high ratio growth per year. It has been understood that the current ratio and quick ratio of Marks and Spencer PLC has been 0.73 and 0.89 respectively in 2017. However, the current ratio of the organisation has decreased in 2018 from 0.73 and 0.89 to 0.72 and 0.76 (Nextplc, 2018). This has cleared that the business organisation has failed to maintain assets liquidity in 2018. Additionally, market liabilities of Marks and Spencer PLC have also increased in 2018 compared to 2017. This can increase financial crisis for the company in future. Additionally, Marks and Spencer PLC can face difficulties to meet their short-term and long-term market liabilities in the business. This can also be increased the possibility of bankruptcy for the company as they are facing high market liabilities.

The profitability ratios of Marks and Spencer PLC have clearly shown that both net profit margin and gross profit margin has not increased in 2018. On the other hand, the net profit margin of Marks and Spencer PLC has decreased due to high finance cost in the current year. The gearing ratio of the organisation has decreased compared to 2017. This has helped to avoid irrelevant cash expenses in the business compared. The EPS and price earnings ratio of both organisations has decreased over the year. Therefore, in the views of Dehnavi et al. (2015, p.122), the capital amount has reduced in the current year. Finally, the efficiency ratios of Marks and Spencer PLC has described that the company has failed to improve their inventory management system. Nonetheless, the dividend payout ratio has increased in 2018 compared to 2017.

On the contrary, it has been understood from the ratio analysis of Next PLC has a low rate of current ratio and quick ratio. The liquidity ratios have increased in 2018 compared to 2017. However, the ratio rate is not appropriate for meeting their short-term and long-term market liabilities. The profitability ratios of Next PLC have decreased over the year due to high financial expenses per year. Finally, it has been understood that both investors’ ratios and efficiency ratios have decreased in 2018 compared to 2017. In the opinions of Uechi et al. (2015, p.488), low price earnings ratio and average inventories turnover can reduce sales revenue growth in future. Therefore, the possibility of insolvency can expand in future financial year.

Analysis the performance, financial position and investment potential of both companies

Table 2: Financial position analysis

(Source: Next plc, 2018; Corporate, 2018)

Figure 1: Financial position analysis

(Source: Next plc, 2018; Corporate, 2018)

The liquidity ratios of both companies have shown that Marks and Spencer PLC has high current and quick ratio rate compared to Next PLC. This has increased financial crisis for Next PLC in the current financial year. Additionally, Next PLC can face difficulties to meet their short-term and long-term market liabilities compared to Marks and Spencer PLC. According to Erasmus et al. (2016, p.997), a high number of market obligation can also be increased the possibility of bankruptcy for Next PLC and Marks and Spencer PLC can gain competitive over Next PLC. Marks and Spencer PLC can also attract the customers of Next PLC based on better product quality and service quality.

The financial positions of both companies have decreased in 2018 compared to 2017. However, it has been understood from the financial statement of both organisations that Marks and Spencer PLC has collected high net profit compared to Next PLC. This has helped Marks and Spencer PLC to increase their cash assets and improve their product and service quality compared to Next PLC. On the other hand, Next PLC has faced high amount of expenses in their financial income statement. Therefore, the cash assets of the organisation have decreased over the years and Next PLC has failed to improve their product quality. This can increase financial difficulties for the business in future (Trivedi et al. 2016, p.80). Similarly, the numbers of both customers and shareholders can decrease