Comparison of M&S to Tesco Plc

Topics: Balance sheet, Board of directors, Financial ratio Pages: 14 (3962 words) Published: December 12, 2009
1.0 Comparison of M&S to Tesco PLC

1.1Company Background
Marks and Spencer Group (M&S) is the premier retailer in clothing, foods and home ware within the United Kingdom. The company’s commitment to quality, value, service, innovation and trust is a key contributor to their success as a high street retailer in the UK. Their current core UK operations centre around three divisions, food, general merchandise (including clothing and home ware), and the financial services industry. Therefore Tesco plc is the prime UK retailer to analyse and compare growth, financial performance and the financial status of M&S Plc in line with other competitors within the same industry.

1.2 Analysis of Financial Statements
M&S’s financial statements represent stability within the company. Revenue increase was a highlight within the key performances, which included a substantial rise in its food business. However the segment information also shows that were less efficient in controlling their product costs (cost of sales).

Similarly Tesco Plc has also seen an increase in their revenue, and their cost of sales. One possible reason could be to the ‘Soaring food prices’, which ‘Pushed up output prices 1.4 per cent between March and April’, 2008. ( accessed 3/4/09 9.49 AM)

Another important aspect of the income statement is the expenses incurred by the business. This reveals that while both companies had increased revenue, the value of expenses has also risen; therefore applying that ‘Economies of Scales’ was not achieved.

In relation to the Balance Sheet, the Operating director of M&S referred to it as’ A strong Balance Sheet that underpins our future plans to invest’ and the figures seem to reiterate this message (M&S annual Report 2008, pg 9). During the last year M&S has seen increases in its current and non-current Assets, particularly in areas such as intangible assets, Property, Plant and Equipment.

Likewise, Tesco’s strategy to ‘Become a successful international retailer’ and ‘Be as strong in non-food as in food’ has seen a spike in borrowings over the past year (Tesco plc annual report 2008, pg 5). Both companies desire to expand and develop its retail services amid uncertainty show the strength and depth they have.

1.3 Analysis of Accounting Ratios
According to M&S’s annual report they have currently completed the first phase of ‘a three point plan’ that was first implemented back in 2004 (M&S annual Report, pp 5). Since the start of the year Marks and Spencer’s has enjoyed significant sale growth amounting to 5.1%, despite the economic downturn during the last quarter of the year. However compared to the 10.1% increase achieved in 2007, it has since seen a considerable drop, due to the economic uncertainty encountered during the last quarter of the year. Similarly Tesco Plc has also posted an ever increasing sales growth, but yet again shows little improvement on the year on year growth. This threat of the economy addressed by both chief executives who both firmly believe both companies are in a position to ride out the economic climate due to the infrastructure in place. . Unexpectedly the profit margins of both companies revealed a fall in gross margin. The same figures were also posted by similar retailers in their industry, such as Burberry (Burberry annual report, 2008, pg 5). Therefore most retailers in this sector are making less ‘profit on what it sells’ to that of the previous year (Gene Siciliano, 2003, pg 106). But the net profit margin is where they differ. M&S with their increase of 1.2%, and gradual increase year on year, prove that they have a grip on cost control. On the other hand Tesco profit margin seems to fluctuate year on year. This evidently proves that M&S have a tighter control on their costs compared with Tesco. But this could be expected as the size and power...

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6.By Hermanson, Edwards and Maher, Accounting Principles, Freeload Press, Inc
7.By David H. et al, Accounting: what the numbers mean, McGraw Hill Professional, 2003,Edition: 6,
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