Report on Marks and Spencer Essay Example | Topics and Well Written Essays - 1500 words

Report on Marks and Spencer - Essay ExampleThe current liabilities includes trade payables and other payables, borrowings and other financial liabilities, partnership liability to the pension scheme, derivative financial instruments, provisions and current tax liabilities. The company had Interest bearing debts from external sources of ?2,760.9 million and loans from partners to fund the pension scheme of ?71.9 million. Both constitute of a mix of a long term arrogate and a short term portion which is due within the next 12 months. The slacken below provides that information for interest bearing or fixed interest debt.. Interest Bearing Debts Period Partnership loans ? Other Interest Bearing Loans ? integral certain 0 482.9 482.9 Non-current 71.9 2,278.0 2349.9 Total 71.9 2,760.9 2832.8 Marks and Spencers Financial Structure The following ratios in the table below will assist in the judging of Marks and Spencer. Ratio Formulae 2010 2009 Debt Management Debt ratio (Total liabil ities/Total assets) x 100% (4,967.3/7,153.2)x100% = 69.4% (5,157.5/7,258.1) x 100 = 71% Gearing Ratio Interest Bearing Debts (IBD)/ equity + IBD 2,832.8/5,018.7 = 56.4% 3,200.6/5,301.2 = 60.38% Interest Cover Profit Before Interest and Tax (PBIT)/Interest Expense 852/162.2 = 5 times 870.7/214.5 = 4 times Liquidity Ratio Current ratio Current assets/current liabilities 0.80 0.60 Acid Test Ratio Current assets - inventory)/current liabilities 0.47 0.37 Debt Management The debt management ratios indicate how the companys management has managed the debts of the company. accord to Brigham (2005) the extent to which debt financing, which is also referred to as financial leverage is used by a firm has three implications. Firstly, financing the business using debt will stomach sh be holders to maintain control of the company without increasing their investment in it. Secondly, sh atomic number 18holders returns can be substantially increased if the company earns more on investments that a re financed with borrowed funds. However, financial risk increases as debt increases. Thirdly, creditors depend on shareholders to provide a margin of safety. Therefore the more funds supplied by shareholders the more comfortable they are in doing business with the company. Additionally, the interest expense which relates to interest charged on borrowed funds is allowable as a deduction for tax purposes. Dividend is not so allowed and is a distribution after tax is deducted. The Debt Ratio The debt ratio is the ratio of total liabilities to total assets and provides information on how much of the funds are provided by sources other than equity. The companys debt ratio is 69.4% for the year ended April 3, 2010. Although this is an improvement over the previous years figure of 71%,. the guideline indicates that a percentage over 50% percent does not augur well. Marks and Spencers debt ratio is unfavourable and indicate problems with its financial structure. However, a comparison with the modal(a) in the industry in which Marks and Spencer operates is important. The gearing ratio below will provide additional information. The Gearing Ratio The gearing ratio is the portion of interest bearing debts to equity and interest bearing debt. The gearing ratio of 56% suggests that the company has a significant amount of interest bearing debt in its capital structure. The normal threshold of 50% has been exceeded. However, whether the ratio is favourable or not depends on the industry. The ratio for the year ende