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Marks and Spencer
Profitability Ratios
Gross profit margin is calculated by dividing gross profit by revenue. Mark and Spencers gross profit for 2021 was £2,911.6 million (Marks & Spencer Financial Statements, 2021,p. 123). Mark and Spencers revenue for 2021 was £9,155.7 million (Marks & Spencer Financial Statements, 2021, p. 123). 2,911.6 divided by 9,155.7 equals 0.47, which amounts to gross profit margin of 47%.
Net profit margin is calculated by dividing net profit by revenue. Mark and Spencers net profit for 2021 was £ 1,472.7 million (Marks & Spencer Financial Statements, 2021, p. 124). Mark and Spencers revenue for 2021 was £9,155.7 million (Marks & Spencer Financial Statements, 2021, p. 123). 1,472.7 divided by 9,155.7 equals 0.16, which amounts to net profit margin of 16%.
Liquidity Ratios
The current ratio is calculated by dividing current assets by current liabilities. Mark and Spencers current assets for 2021 were £ 8,637.4 million (Marks & Spencer Financial Statements, 2021, p. 125). Mark and Spencers current liabilities for 2021 were £ 2,295.8 million (Marks & Spencer Financial Statements, 2021, p. 125). 8,637.4 divided by 2,295.8 equals 3.76.
Long Term Liquidity Ratios
The interest cover ratio is calculated by dividing net profit before interests and taxes by interest paid. Mark and Spencers net profit before interests and taxes for 2021 were £ 50.3 million (Marks & Spencer Financial Statements, 2021, p. 123). Mark and Spencers interest paid for 2021 was £ 219.3 million (Marks & Spencer Financial Statements, 2021, p. 123). 50.3 divided by 219.3 equals 0,22.
Investor Ratios
Debt to equity is calculated by dividing total liabilities by total shareholders equity. Mark and Spencers total liabilities for 2021 was £ 6,351.6 million (Marks & Spencer Financial Statements, 2021, p. 125). Mark and Spencers total shareholders equity for 2021 was £ 2,285.8 million (Marks & Spencer Financial Statements, 2021, p. 125). 6,351.6 divided by 2,285.8 equals 2.78.
Non-Financial Information
M&S was not ready for the increase in popularity of online sales following lockdowns. As a result, additional Clothing & Home inventory provisioning was required (Chairmans Governance Overview, 2021, p. 80). It may explain why the company has such a high current ratio it had to increase its debt to ensure the supply of additional provisioning.
At the same time, M&S does intend to use the opportunities created by the pandemic to its advantage. For instance, it intends to establish an online first culture (Chairmans Governance Overview, 2021, p. 28). If the company decided to shift at least some of its physical business to online platforms, it might explain how it managed to achieve such a high gross profit margin.
M&S is committed to reducing greenhouse gas emissions (Chairmans Governance Overview, 2021, p. 74). However, sustainable textile is more expensive, which forces the company to order a more costly textile. It is also reasonable to suggest that fewer people buy such clothes, which explains why the company has such a low investor cover ratio.
Next
Next is a retailer of clothing, which operates primarily in the United Kingdom. The reason for its choice lies in its financial indicators. Although compared to M&S, Next has lower profits, it is better equipped to service its debt. The corresponding analysis should showcase that the volume of the companys revenues does not determine its ability to pay off debts consistently.
Profitability Ratios
Nexts gross profit for 2021 was £ 1,247.9 million (Next Financial Statements, 2021, p. 151). Nexts revenue for 2021 was £ 3,284.1 million (Next Financial Statements, 2021, p. 151). 1,247.9 divided by 3,284.1 equals 0.38, which amounts to gross profit margin of 38%.
Nexts net profit for 2021 was £ 112.4 million (Next Financial Statements, 2021, p. 69). Nexts revenue for 2021 was £3,284.1 million (Next Financial Statements, 2021, p. 151). 112.4 divided by 3,284.1 equals 0,03, which amounts to net profit margin of 0.3%.
Liquidity Ratios
Nexts current assets for 2021 were £ 2,288.6 million (Next Financial Statements, 2021, p. 153). Nexts current liabilities for 2021 were £ 1,196.8 million (Next Financial Statements, 2021, p. 153). 2,288.6 divided by 1,196.8 equals 1,91, which is Nexts current ratio.
Long Term Liquidity Ratios
Nexts net profit before interests and taxes for 2021 was £ 342.4 million (Next Financial Statements, 2021, p. 153). Nexts interest paid for 2021 was £ 101.6 million (Next Financial Statements, 2021, p. 155). 342.4 divided by 101.6 equals 3.37, which is Nexts interest cover ratio.
Investor Ratios
Nexts total liabilities for 2021 were £ 2,209.0 million (Next Financial Statements, 2021, p. 64). Nexts total shareholders equity for 2021 was £ 836.1 million (Next Financial Statements, 2021, p. 64). 2,209.0 divided by 836.1 equals 2,64, which is Nexts debt to equity ratio.
Non-Financial Information
Next believes that with the pandemics end, physical stores will again have a large influx of customers. This is evident from the companys Assumptions About the Consumer Economy and Future Lockdowns (Next Financial Statements, 2021, p. 16). The companys desire to keep physical stores may also explain its poor net profit margin.
Similarly to M&S, Next is also dedicated to environmental sustainability (Next Financial Statements, 2021, p. 78). In order to comply with this principle the company has to order eco-friendly textile. This tendency may also provide an explanation for low profitability ratios.
Underperformance may also be explained by the companys attitude regarding the pandemic. Next does not have a goal of shifting to online retailing. Therefore, it did not need to increase its debt to finance technological advancements, which explains Nexts high-interest cover ratio. The company is extremely cautious about the diseases, which is why it has decided to limit the number of daily orders, which naturally decreased the companys revenues (Next Financial Statements, 2021, p. 79).
Comparison
It should be evident that M&S outperforms Next in every aspect, except for the interest cover ratio, which is 3.37 in the case of Next as opposed to 0.22 in M&S. Overall, M&S demonstrates higher profit and liquidity than Next does. However, it should also be noticed that Next has more capability to pay off its debts judging by its interest cover ratio, while M&Ss ratio indicates that the company is unable to service its debt. Both companies have high debt to equity ratios, indicating that both M&S and Next need to rely on debt to increase their cash flow. It is also apparent that companies different strategies regarding online retailing are the reason for such differences in financial indicators. While Next was waiting for the end of the pandemic, M&S chose to shift to online retailing, which is evident in its higher revenues.
Reference List
Chairmans Governance Overview (2021) Web.
Marks & Spencer Financial Statements (2021) Web.
Next Financial Statements (2021) Web.
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