Financial Performance And Comparative Analysis In UK Retail Industry Essay

Question:

Describe about the Financial Performance and Comparative Analysis in UK Retail Industry.

Answer:

Introduction

Background

The future growth of a company depends on its financial performance. In order to identify the level of sustainability of an industry, it is important to analyze its financial performance over last few years (Lepperet al. 2016). This particular study will focus mainly on the retail industry in the United Kingdom (UK) and for better understanding; the case study of Marks and Spencer will be used. In this section, the study will outline the aim, objectives, questions and significance of the study.

Project research problem

The major problem area with which the research will deal is the high level of competition that the retail companies in UK are facing in current scenario. This is a big problem because due to the high competition, the companies are facing difficulties in improving their financial performances.

Focus for the study

Purpose of the study

The objectives of this study will be as follows:

  • To identify and analyze the last ten years’ financial performance trend of UK retail industry
  • To analyze the financial performance trend of Marks and Spencer
  • To identify the level of competency of Marks and Spencer in UK retail industry
  • To recommend some useful strategy for future financial benefits of UK retail industry

Research questions

The questions of this research project will be as follows:

  1. What is the performance standard of the UK retail industry in the last five years?
  2. What is the financial position of Marks and Spencer in the UK retail industry?
  3. How financially competitive Marks and Spencer at current market situation?
  4. How can the UK retail industry and specially Marks and Spencer improve its/their financial performance in the coming financial years?

Significance of the study

This study will solely concentrate on the financial performance of UK retail industry. Therefore, with the help of this particular study, it will be possible to identify the future growth prosperity of the industry. At the same time, the special focus on Marks and Spencer will help to identify and analyze the performance level of the company, which ultimately help to identify the areas, where the company is lacking behind. On the other side, the recommended strategies of the study will be helpful for future growth of Marks and Spencer as well as the overall retail industry in UK.

Research structure

The structure that the study will follow is shown in Figure 1.

Figure 1 Structure of the study

Literature review

Current financial state of UK retail industry

According to Michie(2015), the current financial state or position of the UK retail industry is stable. There are many large multinational organizations operating business in the retail industry in the UK. For example, Tesco (i.e. headquarters in the United States, US), Sainsbury’s (i.e. the UK) and Asda Stores Limited (i.e. in the UK), which earn profits from this industry. However, if the financial performance of this particular industry is evaluated at this current situation, then it can be identified that total sales value of the overall industry in 2015 was ?339 billion which has enhanced by 4.1% till September 2016 (Ons.gov.uk 2016). In the last year, the total contribution of UK retail industry in annual GDP of the country was 5% and the annual growth rate of the industry was 10% (Retaileconomics.co.uk 2016).

At the same time, the cost of the industry has also increased in the last year (2015). The percentage of increased cost of the industry was 2.9% (Ons.gov.uk 2016).Pederzoli and Kuppelwieser(2015) mentioned that the cost of the industry has increased due to the increased percentage of spending of the industry in online selling. As per the last year’s data, the online spending of the industry has grown by 22% in 2015 (Retaileconomics.co.uk 2016). Therefore, as per the overall results, it can be said that currently the retail industry in UK has the capacity to improve its performance standard; however, the industry needs to control its cost level.

Financial ratios theory

Financial ratios are the most vital parts that indicate the financial performance of a company. The theories of financial ratios have provided different formulas. Every company requires identifying the financial ratios, based on the data and information available in the financial statements of the company. The financial ratios of any company can be calculated as per some financial concepts and based on that, the financial ratios can be divided in different segments like, profitability ratio, liquidity ratio, gearing ratio, financial stability ratio and many others. Under each of this category, there are different ratios. For example, under the profitability ratio, there are – gross profit ratio, net profit ratio and operating profit ratio. Each of the ratios needs to be calculated based on particular formula. For example, the gross profit ratio can be calculated based on the following formula:

Therefore, it can be said that there are no theory of ratio but there are several formula to calculate the financial ratios.

Financial statement analysis for Marks and Spencer

Table 1 Financial performance ratios for Marks and Spencer (2006-2015)

Financial ratios of Marks and Spencer

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Operating profit ratio

9.56308

10.907

13.4261

9.60815

8.934

8.59214

7.51437

7.53979

6.73637

6.80121

Net profit ratio

6.70839

7.68389

9.09998

5.59252

5.48413

6.1456

4.92838

4.56776

4.908

4.67153

Current ratio

0.56624

0.52696

0.59415

0.60245

0.80413

0.74279

0.72808

0.56646

0.58251

0.68905

Quick ratio

0.38066

0.26777

0.34833

0.37011

0.47977

0.43273

0.38805

0.22365

0.22262

0.31123

Inventory turnover ratio

0.048

0.04847

0.05419

0.05915

0.0643

0.07036

0.06864

0.07652

0.08201

0.07737

Debt to equity ratio

0.94193

1.05048

1.32877

1.93012

1.04213

0.71864

0.70106

0.91618

0.79503

0.68366

Source: Corporate.marksandspencer.com. (2016)

Table 1, shows the financial ratios of Marks and Spencer from 2006 to 2015. The above ratios are indicating that in these ten years, the profitability of the company has declined. Moreover, the profitability ratios of the company have not reached to the industry standard. In case of operating ratio, the industry standard for the quick ratio is 25% and for net profit ratio is 20%. The profitability ratios below these percentages can be considered as bad. This indicates that the financial performance of the company became weak in these past ten years. However, the liquidity position of the company was more or less same in the last 10 years, still it cannot be said that the liquidity positions of the company in last 10 years were not up to the standard. As per the industry standard, the industry standard is 2:1 and for quick ratio, it is 1:1. If the ratios are below these standards, then it can be said that the liquidity of the company is at questionable situation. At the same time, the inventory turnover ratio of the company in last ten years is indicating that the inventory holding cost of the company was not so high in these ten years. As per the industry standard, the inventory turnover ratio of the company must be in between 1.40 to 1.82, which has not been achieved by this company. On the other side, the debt to equity ratios of the company is indicating that during 2007 to 2010, the company increased the debt capital in its total capital structure. Therefore, from the above ratios, it can be said that investing in Marks and Spencer will not be so profitable because the profitability and liquidity position of the company were not so high in last ten years.

Relationship between financial performance and business growth

Growth is one of the key mottos of a business or industry.Lewricket al.(2015) stated that the growth of an industry can be better understood by its financial performance. The growth in the financial performance of any industry indicates that the performance of the companies under the industry is improving. However, on the contrary, Moattiet al. (2015) stated that there are many companies in different industries, which misstate their financial performance in their financial statements. Therefore, in that case the financial performance of the companies discloses high level of performance but the actual growth of the business becomes low.

Hancerliogullari, Sen and Agca(2016) commented that if the financial statements of the companies show fake results, then the growth percentage of the companies will also be fake. Moreover, in maximum time, it has identified that if the financial performance of a company is positive, the company also has positive growth rate and vice-versa (Choudhry&Jayasekera 2015). However, exceptions are there if the financial performance of the company is negative in the last few years and improvement percentage is low because in order to get positive growth rate, the company needs to recover the loss (Kajalo&Lindblom 2015).

Research methodology

Types of investigation

The success of a research work depends on the right selection of the type of investigation for the study. The type of investigation of a research includes the philosophy, design and approach of the research (Katz 2015). This particular research will follow the positivism philosophy because this research philosophy will help to conduct the research on logical ground. At the same time, the positivism philosophy is based on the scientific methods. On the other side, the study will follow the deductive research approach because this particular research approach will take less time to complete the study. Apart from that, the deductive research approach can quickly explain the results in a proper way. Moreover, this particular approach is very easy to understand (Mackey&Gass 2015). Apart from the philosophy and approach, the research will also follow the descriptive research design. Descriptive research design will help to analyze the research data on the basis of the existing literature and at the same time, this research design is very simple and time-saving.

Data collection method

For a particular research work, there are mainly two types of data available and these are – primary data and secondary data. Primary data is the new data, which cannot be identified in any journal, article, book or websites (McCusker&Gunaydin 2015). This data needs to be collected through survey, interview, observations and focus group activities. On the other side, the secondary data is the existing data that can be found out easily in any journal, book, article and websites. Collecting the secondary data is easier and less costly (McNabb 2015).

In case of this particular study, only the secondary data will be used. The secondary data for this particular study will be collected from the official websites of the company that is Marks and Spencer. At the same time, in order to collect the data related to the retail industry in UK, different government approved websites will be used. The data will be collected from the official website and government approved websites to maintain the authentication of the collected data. The study will only use the secondary data because the data related to the financial performance of Marks and Spencer and the other retail organizations in UK is only available in the financial statements of the companies or in the other secondary sources. Apart from that, the collection of secondary data is easy and less time consuming.

Data analysis techniques

The results of the research can be identified after analyzing the data. The research data can be analyzed with the help of two different techniques – quantitative data analysis technique and qualitative data analysis technique. Quantitative technique of data analysis is a mathematical way to analyze the research data (Mackey&Gass 2015). With the help of this particular technique the research data can be analyzed very easily. On the other side, the qualitative technique of data analysis is a way to analyze the research data in detail (Katz 2015). However, this study will use both of the data analysis techniques for the better analysis of the research data.

Ethical considerations

It is possible that different ethical issues may take place at the time of conducting a research work and so in order to avoid the ethical issues, it is important to take proper steps before starting the research (Mackey and Gass 2015). During this study, special care will be taken to avoid the ethical issues. Before starting up the research, permission will be taken from the appropriate authority. At the same time, reliability and validity of the research data will also be maintained while collecting and analyzing the research data.

Project schedule

Table 2 shows the expected project milestones and due dates.

Table 2 shows the expected project milestones and due dates.

Project milestones

Due dates

Project proposal accepted

Literature search

Data collection

Draft project write-up

Draft project submission

Draft project feedback

Draft project corrections

Final project submission


References

Choudhry, T &Jayasekera, R 2015,‘Level of efficiency in the UK equity market: empirical study of the effects of the global financial crisis’, Review of Quantitative Finance and Accounting, vol. 44, no. 2, pp.213-242.

Corporate.marksandspencer.com 2016,Home. [online] Available at: [Accessed 7 Dec. 2016].

Hancerliogullari, G, Sen, A &Agca, E 2016,‘Demand uncertainty and inventory turnover performance: an empirical analysis of the US retail industry’, International Journal of Physical Distribution & Logistics Management, vol. 46, no. 6/7, pp.87-91.

Kajalo, S&Lindblom, A 2015,‘Market orientation, entrepreneurial orientation and business performance among small retailers’, International Journal of Retail & Distribution Management, vol. 43, no. 7, pp.580-596.

Katz, J., 2015,‘A theory of qualitative methodology: the social system of analytic fieldwork’, M?thod (e) s: African Review of Social Sciences Methodology, vol. 1 no. 1-2, pp.131-146.

Lepper, J, Shabani, M, Toporowski, J & Tyson, J 2016,‘Monetary adjustment and inflation of financial claims in the UK after 1980’, Financialisation and the Financial and Economic Crises: Country Studies, p.68-71.

Lewrick, M, Williams, R, Maktoba, O, Tjandra, N & Lee, ZC 2015,‘Radical and incremental innovation effectiveness in relation to market orientation in the retail industry: triggers, drivers, and supporters’, Successful Technological Integration for Competitve Advantage in Retail Settings, IGI Global, pp.239-268.

Mackey, A. and Gass, SM 2015, Second language research: Methodology and design. Routledge.

McCusker, K. and Gunaydin, S., 2015. Research using qualitative, quantitative or mixed methods and choice based on the research. Perfusion,30(7), pp.537-542.

McNabb, D.E., 2015. Research methods for political science: Quantitative and qualitative methods. Routledge.

Michie, J 2015. Financial architecture and industrial policy: alternative ownership structures and the role of mutuals.

Moatti, V, Ren, CR, Anand, J &Dussauge, P 2015,‘Disentangling the performance effects of efficiency and bargaining power in horizontal growth strategies: an empirical investigation in the global retail industry’, Strategic Management Journal, vol. 36, no. 5, pp.745-757.

Ons.gov.uk 2016. Home- Office for National Statistics. [online] Available at: [Accessed 17 Oct. 2016].

Pederzoli, D &Kuppelwieser, VG 2015, ‘Retail companies’ internationalization behavior and the 2008 crisis’, International Journal of Retail & Distribution Management, vol. 43, no. 9, pp.870-894.

Retaileconomics.co.uk 2016. The market leader of UK retail economic analysis | Retail Economics. [online] Available at: [Accessed 17 Oct. 2016].

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