Analysis the Financial Performance of Marks and Spencer and Burberry Group

This survey involves an analysis of the fiscal public presentation of the Burberry Group ( BG ) over the past few old ages in comparing with its cardinal rival Marks & A ; Spencer ( M & A ; S ) . The cardinal features assumed for the investor who is sing puting in the BG include the disposition of the investor to concentrate on growing, while at the same clip keeping an acceptable hazard exposure. The overall gross revenues of Burberry, bearing in head the UK operations, have improved by 41.96 % as the gross revenues increased from ? 742.9 million in 2006 to ? 1279.9 million in 2010. It is seen that the per centum addition in the grosss has well declined to 6.5 % in 2010 compared to a rise of 20.7 % in 2009. M & A ; S has exposed the most first-class consequences in footings of growing and profitableness in 2008 where the concern made an operating net income of ? 1095.9 million, 14.5 per centum more compared to 2007.

The fiscal analysis of BG in comparing with its cardinal rival M & A ; S reveals that BG is non a suited pick based on the investor penchants. The investor is looking for long-run growing chances and is non prepared to take inordinate hazards in the stock market. This implies that the investor is in hunt of an investing that can break defy the forces of a fiscal crisis and can offer sustainable growing over the transition of clip.

Hire a custom writer who has experience.
It's time for you to submit amazing papers!


order now

Introduction

Burberry Group ( BG ) was established by Mr. Thomas Burberry in the twelvemonth 1856. The group presently produces and markets menswear, adult females ‘s vesture, kids ‘s garb, garnishing and aromas. It has an expanded merchandise portfolio and employs international distribution for its retail and sweeping mercantile establishments, besides licencing its assortment across quite a few merchandise classs to 3rd parties, for the most portion in Japan. Two pillar trade names operate under the Burberry Group: Burberry London ( BL ) and the voguish Burberry Prorsum ( BP ) . BL produces the majority of BG ‘s trade name gross revenues and the ware is chiefly produced in the UK and Italy. By June 2008, the company had 97 retail shops globally, 41 mercantile establishments and 80 different shops operational worldwide. BG was floated on the London Stock Exchange ( LSE ) in 2002 ( Burberry 2010, pp. 4-6 ) .

Marks & A ; Spencer ( M & A ; S ) is a major rival of the BG and was setup as a alteration market by a Russian migrator called Michael Marks. The concern formed a joint venture with Tom Spencer in 1894 and increasingly became the most booming retail imperium in British history and subsequently came to be identified as M & A ; S. The concern has over 21 million clients sing its shops each hebdomad and its retail group consists of more than 840 shops in over 30 finishs around the universe. The concern is at present offering vesture, nutrient and place ware of high excellence and good monetary value. M & A ; S chiefly offers adult females ‘s vesture, intimate apparel, work forces ‘s wear, childs ‘ wear and house merchandises. About 49 per centum of the production comprises of vesture and place merchandises. The remainder 51 per centum of the income is earned from grocery and other trade goods ( M & A ; S 2010, pp. 7-10 ) .

This survey has been specially conducted to analyze the fiscal public presentation and concern place of BG over the past few old ages. This study would analyze the current and past fiscal public presentation of BG and measure the fiscal scenario of the company. Thus the intent would be to appreciate the information given in the fiscal statements of the concern and to measure the strengths and failings of the concern in fiscal footings. The fiscal public presentation of BG has been contrasted with one of its chief rival in the manner industry, the M & A ; S Group.

Key Characteristics of the Chosen Investor

The cardinal features assumed for the investor who is sing puting in the BG include the disposition of the investor to concentrate on growing, while at the same clip keeping an acceptable hazard exposure. This implies that the investor does non hold any important hard currency flow demands in the signifier of dividends and is sing a long-run investing in the company. Furthermore, the fiscal crisis has reduced the willingness of the investor to presume inordinate hazard and is purposes to put in a stock that can offer moderate growing in the medium-term and offer significant stableness to the initial investing.

Fiscal Analysis of the BG and Marks & A ; Spencer

The gross net income borders decreased from 62.1 % in 2008 to 55.4 % in 2009 ; this diminution in the border is owed to a extremist rise in the cost of goods sold as grosss increased by 20.7 % but at the cost of goods sold augmented by 41.8 % . The gross net income borders increased in the recent twelvemonth and are about 62.8 % . M & A ; S reported superior consequences compared to BG for 2009 demoing comparatively less instability in its income throughout the recent planetary fiscal crisis.

The operating net income border ( OPM ) for BG is negative 0.82 % in 2009 and is credited to the augmented cost of gross revenues faced by BG throughout the period. The autumn in OPMs is the resulted by indirect costs such as reorganization costs, non-cash damage and plus purchases in countries including design and supply concatenation which were completed in 2009. The operating net income recovered to 13.4 % in 2010 screening that the concern has improved from the worse. The OPM of M & A ; S was 9.6 % in 2009 and diminished to 8.9 % in 2010.

The return on entire assets measures the income earned on entire assets that a company owns during a specific period of clip. A higher ROA means that the concern is gaining important returns on its investings but this is non automatically good as it might be a effect of the pick to utilize a batch of debt. The ROA has decreased to negative 0.53 % in 2009 but it has improved to 7.14 % in 2010. The ROA figures for M & A ; S are higher than BG and are estimated to be 14.8 % in 2009 and 11.9 % in 2010.

The return on equity ( ROE ) shows the rate of return appropriate for the common stockholders ; the higher the ROE the better the return for the proprietors ( Brigham and Ehrhardt 2008, pp. 22-26 ) . The ROE for BG is weakening as it fell to negative 1.1 % in 2009. However, the ROE improved to 13.5 % in 2010 which is low in contrast to 27.3 % in 2008. The ROE for M & A ; S is worsening over clip but is still high relation to BG ; that is 24.13 % in 2009 and 23.9 % in 2010.

BG has the maximal return on capital employed ( ROCE ) for 2008 that stood at 39.4 % , connoting that the capital employed by the corporation is giving the maximal returns during this twelvemonth. A high ROCE stimulates investors to put capital in the concern ; nevertheless, a speedy lessening in 2009 may hold an unfavorable impact on the company as the ROCE decreased to negative 1.7 % . It is due to the operating losingss that BG faced during the twelvemonth owing to higher costs and increased spendings. A stockholder would merely put in the corporation if he believes that he can have high returns or else the investor will provide capital elsewhere. In 2010, the ROCE increased to 26.82 % , showing optimism for the investors for elevated returns on their investing. However, M & A ; S has offered its investors with a superior ROCE compared to its rival BG ; that is an ROCE of 41.45 % in 2009 and 38.97 % in 2010.

This pitching ratio ( GR ) establishes the per centum of debt and equity required to keep an optimum capital construction of the company. A corporation with a high GR or fiscal purchase is more susceptible to worsen in the industry rhythm for the ground that it must persistently serve its duties despite a low gross revenues environment ( Morden 2007, pp. 46-52 ) . A big per centum of equity offers protection to the company and is seen as a gage of fiscal authority. BG had a GR of 0.74 with a easy lifting tendency over the old ages. In 2009 it rose to 1.09 illustrating that the debt liabilities amplified more than the addition in equity ; nevertheless, it was once more brought back to 0.89 in 2010. The GR for M & A ; S has remained at similar degrees until the most recent twelvemonth when it dropped from 0.72 in 2009 to 0.32 in 2010.

This involvement screen signifies the sum of times a concern ‘s net incomes in an accounting period can cover up the involvement sustained during the period on the house ‘s liabilities ( Brigham and Ehrhardt 2008, pp. 56-59 ) . This fiscal ratio is used for the calculation of a house ‘s adoption capableness and in mensurating the hazard of obtaining extra debt funding. The involvement screen of BG perceptibly declined from 33.6 in 2008 to negative 1.60 in 2009 showing the inability of the house to pay its involvement spendings for the period without geting auxiliary financess. The first footing of this job is the recent diminution in gross revenues grosss due to the recession ; nevertheless, the ratio improved to 33.5 in 2010. The times involvement earned ( TIE ) by M & A ; S has remained relatively low and it decreased further from 9.54 times in 2008 to 2.57 times in 2009 ; nevertheless, in position of the fact that it has recovered slightly at 4.3 times in 2010.

The net incomes per portion ( EPS ) are estimated by spliting the income after revenue enhancement by the figure of portions of the company that are held by the populace. Firm ‘s often employ the leaden norm of portions outstanding during the coverage period for the computation of EPS ( Pettit 2007, pp. 122-128 ) . In instance of BG it is seen that the EPS is lifting ; connoting that the shareholders comprise the chances to gain extra returns on their investings. However, it the EPS shows an increasing tendency it has decreased in 2009 to 30.6p from 32.4p and has subsequently augmented to 35.9p in 2010. The EPS for M & A ; S were at extremum during 2008 recorded at 43.6p, but the EPS fell to 28p in 2009 during the depression and has exposed some recovery at 33p in 2010.

The sum of dividend that a shareholder receives is known as the dividend per portion ( DPS ) . It is estimated by spliting the entire sum of dividends paid with the entire portions outstanding ( Katsioloudes 2006, pp. 11-15 ) . The DPS for BG exhibits a lifting tendency from 8.0p in 2006 to 12.0p in 2008 and see no alteration in 2009 but subsequently improved to 14.0p in 2010. However, the general turning tendency represents a scheme to continue a stable and lifting dividend payout and do available an encouraging signal refering the growing of the corporation. M & A ; S has varied its DPS over the past depending on its income for a given twelvemonth and does non prosecute a steady dividend policy. The maximal dividends were stated in 2008 at 22.5p, condensed to 17.8p in 2009 and farther to 15p in 2010. The dividend policy of M & A ; S is right for its operations as the corporation is doing invariably high income for stockholders and frequently requires the keeping of its net incomes to keep its capital construction and take advantage of the investing opportunities available to the company.

The association of the worth of the stock of a company to its income is called the monetary value to net incomes ( P/E ) ratio. The P/E ratio of BG is soon at 2456.79 times implicative of the fact that future chances of BG appear superb to its investors and they discover the concern as a applaudable investing. M & A ; S ‘s P/E ratio is soon at 475.64 times, which is low comparative to its rival. The really elevated P/E ratios for these companies point towards the fact that these companies are focussed towards growing but they can affect important uncertainness owing to the overdone P/E ratios.

The current ratio signifies the grade to which current liabilities are sheltered by the assets that are likely to be transformed to hard currency over the short-run ( Jain and Khan 2007, pp. 82-88 ) . A current ratio below one demonstrates a scrawny liquidness place as the company may non be able to transform its assets into currency to cover the payment of current liabilities and may turn out to confront bankruptcy. However, a current ratio that is above two in most instances implies that the house is keeping excessively many idle assets that could instead be used to bring forth net incomes. Therefore, the preferable current ratio is between one and two as a wide regulation of pollex. The liquidness place of Burberry is satisfactory and really much sweetheart as the current ratio varies from 1.28 and 1.53 over the last 5 old ages. M & A ; S reports a well inferior current ratio demonstrating that the concern needs to progress its liquidness place to besiege terrible hard currency flow deficits. The current ratio for the corporation has enhanced from 0.6 in 2009 to 0.8 in 2010 ; nevertheless, it is still below its rival.

The quick or the acerb trial ratio is an improved gage of liquidness than the current ratio ; this is since the speedy ratio subtracts the measure of stock lists from current assets ( Eckbo 2008, pp. 48-52 ) . It confirms a company ‘s accurate capacity to pay off its current liabilities and as a common regulation it should besides be near to one. In the instance of BG the acerb trial ratio is between 0.73 and 1.2. This ratio offers a tighter place for M & A ; S and is recorded at 0.37 in 2009 and 0.48 in 2010.

The twenty-four hours ‘s gross revenues outstanding ( DSO ) shows the standard continuance of clip a house must wait after doing a sale prior to having hard currency ( Kim and Kim 2006, pp. 32-36 ) . The longer the DSO the more the clients are taking clip to pay out the billed sums. For BG, the DSO has deteriorated from 53 yearss to 62 yearss during 2005 to 2009. This influenced the operations of the house since fewer hard currency would be gettable to accomplish concern aims. The DSO has shown a worsening tendency from 2009 forwards and has dropped to 36.5 yearss, which is a positive development for the concern. The working capital direction of M & A ; S emerges better than its rival BG as reported by a low DSO ratio that has reduced farther from 11.55 yearss in 2009 to 2.95 yearss in 2010.

The stock list turnover yearss are the figure of yearss that typically hard currency is held in stock list. The longer the militias are tied up in stocks the worse it is for the company as the hard currency is non accessible to be used someplace else ( Brigham and Ehrhardt 2008, pp. 22-24 ) . As stock list is portion of the working capital it is imperative that it is accessible for usage fleetly. In the instance of BG, the Numberss of yearss are lifting boulder clay 2008 after which they have shown a worsening inclination. This means hard currency is tied up in stock due to an addition in gross revenues, which is an sweetening for the fiscal public presentation of BG. The stock list turnover yearss have improved for M & A ; S as demonstrated through a decreasing stock list turnover from 16.91 times in 2009 to 15.55 times in 2010.

The overall gross revenues of Burberry, bearing in head the UK operations, have improved by 41.96 % as the gross revenues increased from ? 742.9 million in 2006 to ? 1279.9 million in 2010. It is seen that the per centum addition in the grosss has well declined to 6.5 % in 2010 compared to an rise of 20.7 % in 2009.

M & A ; S has exposed the most first-class consequences in footings of growing and profitableness in 2008 where the concern made an operating net income of ? 1095.9 million, 14.5 per centum more compared to 2007. This demonstrates that the company has adequately controlled merchandising and administrative charges for the period ; nevertheless, 2009 and 2010 reveal falling net incomes and this revealed by the growing in operating expenses each twelvemonth that caused profitableness to bead.

The net net income border ( NPM ) for BG declined by 1.36 % to 12.96 % in 2007 but it so improved in 2008 to 13.58 per centum ; nevertheless, the NPM significantly fell to negative 0.5 % in 2009. This is a double effect which is caused by a decrease in the GPM and OPM due to an addition in the cost of gross revenues and indirect disbursals of the company. The NPM has augmented to 6.36 % by 2010. The NPM for M & A ; S was highest during 2008 at 9.1 % and has since so decreased to 5.6 % in 2009 and 5.5 % in 2010.

The basic net incomes power ( BEP ) ratio confirms the natural gaining power of the company ‘s assets prior to the impact of revenue enhancements ( Brigham and Houston 2007, pp. 42-46 ) . For BG it shows a deteriorating inclination which is due to its decreased net income border on grosss and the low turnover ratios. It shows that BG is non gaining a high return on its assets. The BEP for M & A ; S has besides decreased from 12 % in 2009 to 9.8 % in 2010.

Restrictions of fiscal analysis and the demand for futuristic steps

An scrutiny of fiscal ratios is imperative in finding the fiscal tendencies and overall success of a corporation. Ratio analysis is non absolute unless these tendencies are earnestly evaluated maintaining in head the incommodiousness faced by the industry or the concern itself ( Ahlstrom and Bruton 2009, pp. 35-38 ) . Tendencies of some ratios may be interpreted in a different manner depending on the diverseness of state of affairss. There are many sentiments involved when analyzing the different ratios. For illustration, the operating net income border has exposed a haphazard tendency over the old ages but there could be varied grounds to clarify the tendency. It is be argued that the fluctuation is caused by changing graduated table of operations or it could be due to reduced effectivity and a terrible bead in 2009 can be complemented by the fresh planetary fiscal crisis. Furthermore, the manner BG ‘s rival defined assorted ratios was dissimilar, which made matter-of-fact contrast without appraisal of ratios utilizing a dependable graduated table hard. The industry norms besides differ as provided by a assortment of beginnings since the appraisal is based on unlike methods used by analysts to rate BG ‘s and other companies ‘ public presentations.

A critical analysis of fiscal ratios requires the usage of character opinion in supplying a sound analysis ; such opinion may ask doing certain premises refering the concern theoretical account of the company ( Berry 2006, pp. 52-56 ) . However, it must be inexplicit that premises and opinions are non ideal and can be distorted. The fact that diverse accounting patterns are used by every corporation made it difficult to contrast the ratios that were calculated. Furthermore, it could non be generalised that a demanding ratio is good or bad ( Crouhy et al. , 2006, pp. 1-6 ) . The fact is, one can non entirely trust on fiscal ratios to categorize the public presentation of a company and it is imperative to supplement the fiscal analysis of companies with a non-financial analysis together with the critical analysis of the strengths, failings, chances and menaces faced by a house. Another, technique that can be utilised to back up the analysis is the usage of the PEST analysis of the political, economic, societal and technological environment faced by a house ( Keiningham and Vavra 2001, pp. 22-23 ) .

Recommendation on Burberry Group for the Investor

The analysis of the fiscal public presentation of BG and its rival M & A ; S suggests that both concerns have handled their operations good during the fiscal crisis. However, BG experienced a hard twelvemonth during 2009 demoing its exposure to a crisis status and displayed a higher hazard for the concern in footings of net incomes instability. M & A ; S continued to execute good during the fiscal crisis and has recorded sensible net incomes over the period. The P/E ratio for M & A ; S is much lower but the ability to accomplish better than BG implies that either M & A ; S is undervalued or BG is inordinately overvalued. The analysis of the statements suggests that BG attempted to take a large bath in 2009 and the direction could be vulnerable to net incomes direction. The ability of M & A ; S to continue its operating profitableness during the fiscal crisis make the company less at hazard to crisis state of affairss and implies that the company is a better investing based on the fiscal analysis conducted through this study.

The fiscal analysis of BG in comparing with its cardinal rival M & A ; S reveals that BG is non a suited pick based on the investor penchants. The investor is looking for long-run growing chances and is non prepared to take inordinate hazards in the stock market. This implies that the investor is in hunt of an investing that can break defy the forces of a fiscal crisis and can offer sustainable growing over the transition of clip.

Decision

An scrutiny of fiscal ratios is imperative in finding the fiscal tendencies and overall success of a corporation. The analysis of the fiscal public presentation of BG and its rival M & A ; S suggests that both concerns have handled their operations good during the fiscal crisis. However, BG experienced a hard twelvemonth during 2009 demoing its exposure to a crisis status and displayed a higher hazard for the concern in footings of net incomes instability. The fiscal analysis of BG in comparing with its cardinal rival M & A ; S reveals that BG is non a suited pick based on the investor penchants

x

Hi!
I'm Heather

Would you like to get such a paper? How about receiving a customized one?

Check it out