Coursework Header Sheet 155517-1 Course FINA1074: Financial Management (MBA) Course School/Level BU/PG Coursework RESIT - Portfolio 2 Assessment Weight 40.00% Tutor B TBA Submission Deadline 12/08/2009 Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism. 000525874 Neeraj Jaura Tutor's comments Grade For Office Use Only__________ Final Grade_________ Awarded___________ Moderation required: yes/no Tutor______________________ Date _______________ Student Name: - Neeraj Jaura Student ID: - 000525874 Subject Code: - FINA 1074 Subject: - FINANCIAL MANAGEMENT Coursework: - Resit Portfolio II Introduction One of the UK top retailing giant, M&S enjoys great coverage and brand value. With business streamlines in food, clothing and home ware, it carries its business over in 41 countries and employed staff of 75000 people. Constantly looking after its core business values of quality, value and service, it came across a new theme of “YOUR M&S” to connect the business customer‟s to the company‟s heritage. With so intense competition and credit crunch, M&S also lost its momentum losing its major part in apparels segment, but still continuing to carry on with is steadily increasing turnover in the recent times(£9.1billion). Quick Facts Amongst UK top retailers. 21 millions store visitors every week. Over 2000 suppliers globally. Workforce of 75000 globally. 600 stores all over UK and expanding the retail units worldwide. Top provider of women wear and lingerie in UK. Known as “Green Credential” due to five year eco plan. Factors affecting valuation Now to analyse the company‟s critical factors more precisely, SWOT technique has been used to know the exact scenario. Strengths Weaknesses Opportunities Threats Proper Lack in Enabling Intense diversified promptness effective CRM competition. products range. systems. Effective Lesser and Attracting Loss of market advertisements. ineffective younger share in major innovation generation. segments. Brand Lower Enhancing Internet presence. compatibility in online shopping oriented designs and experience. customers. age group. Quality Less More Lack of youth products. competitive. diversification market focus. towards financial products. Strengths Proper diversified product range. With massive product range from food, apparels, home furnishing and few financial products like “& u card” that work both as a credit and loyalty card, M&S provided its customers the reasons to shop with it repetitively. Effective advertisements. What Marks and Spencer needed was a big idea that could make the country fall in love with the brand again. An idea that could work across diverse audiences from wavering current shoppers to cynical city analysts, and an idea that could showcase diverse products– from fashion to food to home ware to knickers. A big idea indeed...and so „Your M&S‟ was conceived: a powerful, colloquial and symbolic handing back of the rightful ownership of the brand to the British public. (Tanya Livesey et. Al), which made it closer towards the targeted customers. Brand Presence. Not only in home market, M&S is spreading its operations worldwide to enhance its brand presence in upcoming economies. Till date its retail operations started in 30 upmost countries in the globe. Quality products. This being an unbeatable strength of M&S providing top quality products to its customers but though reviews sometimes opposes it just due to the high prices related to the brand value. Weaknesses Lack in promptness. Many rapidly changing trends are not even being touched by this retailer, making it a back runner in the ever changing customer oriented industry. Lesser and ineffective innovation. With its key focus over the year on women‟s clothing, household products and lingerie, M&S still not stand as the first choice for the most spending segment of the market today that is youngster. Less compatible. Some out fashioned classy clothing along with few unattractive financial products hinders the growth of this retailer in many segments when compared, resulting in lower compatibility with the customers demand. Less competitive. Undoubtedly being best in quality but not in price which diverts the customers to the next possible alternate, makes M&S loses its significant business due to this weak point. Opportunities Enabling effective CRM Systems. It‟s the effective CRM which enables an entity to reduce the prices, by knowing the exact demand supply relationship leading to the appropriate production at best possible cost leading to competitive range available to the existing market. Attracting younger generation. More focus should be given on designing, attracting younger generation with upcoming funky-fusion mix in clothing. Ad campaigns should also reflect the theme towards the same giving youngsters a go. Enhancing online shopping. The whole product range should be made available via website to enhance online shopping experience for the internet based customers along with best buy deals. Launch of more financial products. Existing M&S products in financial segment doesn‟t really compete with the other available banking sector products, which have the room to be improved in a way to be made in use of existing M&S customers. Threats Intense competition. Same products and loads of providers create an inevitable competition in regards to entity in the same segment wherein M&S faces some of the big brands like TESCO, MORRISONS, ASDA, NEXT etc. Loss of market share. More newcomers as rivals for an entity bound to loses on their significant market share. With less competitive strategies, it‟s passing through the hard stage for survival and even for maintaining sustainability of profits. Internet inclined customers. Busy lives less time tends to take the support of mechanized systems like internet to save time in shopping and inclining more towards it in coming recent times, which can be a serious threat to the retailers. Less focus on youth market. The highest spending segment should be kept in mind, as their ever changing and increasing demands can be reason for significant profits. With concentration on women wear, M&S tends to lack in looking to the youth market, which can affect it as a threat in long run existence. 1) Net Asset Value It is derived by subtracting the total liabilities from the total assets and dividing it by total no. of (outstanding) floating shares or either in mutual funds the daily fluctuating value of per unit for any security is also known as NAV( Net Asset Value). Formula:- Net Asset Value per share = Total Assets – Total Liabilities/Total no. of floating shares. Year NAV in NAV in pence Number of £millions unit in issue 2007 10.4 102.47 10,143,980 2008 8.9 77.87 11,454,980 2009 9.1 58.96 15,406,967 Marks & Spencer’s Ethical Fund.(as on 31 March’ 2009) 2) Market Value It‟s the price on which company‟s securities are tended to trade on a specific value by willing traders. It is calculated by multiplying the total no. of outstanding (floating) shares with the current market price of the share (company). The current quoted price at which investors buy or sell a share of common stock or a bond at a given time. Also known as "market price". In the context of securities, market value is often different from book value because the market takes into account future growth potential. Most investors who use fundamental analysis to pick stocks look at a company's market value and then determine whether or not the market value is adequate or if it's undervalued in comparison to its book value, net assets or some other measure.(www.investopedia.com, 2009) Formula:- Market Value = Current Market Price (Share) * Total No. of Floating Shares. Shares in issue- 1,687,338,465 Current Market price- 329.60 pence As given in the M&S corporate website. Current share price taken from Yahoo finance, UK. Market value= £ 5561467580. 3) Free cash flow technique A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run. (www.investopedia.com, 2009), This calculation clearly reflects the efficiency of the company in managing funds and other cash related transactions. Year Free Cash flow(£M) 2009 358.1 2008 778.5 Comparison of valuation techniques As per all the distinct techniques we have used above to carry out valuation for the M&S, every one suggests something really connected to a definite purpose according to different related group. As we can see in the charts above where in every valuation technique is following the downturn due to intense competition and credit crunch since last year and a half. Investors and shareholders always incline towards market value and NAV of the company‟s due to its clear reflection for the current situation where as free cash flow depicts the tandem approach for getting into company‟s perspective for a longer run. Present run of M&S reflects a steep downturn comparable to last year, which makes every entrant to this company a bit cautious to plan a safer investment option. Forecast and recommendation Present economy‟s situation directly affected every global brand in last couple of years, which is reflected by their performance as well with downturn. Counting M&S on same platform, its main valuation decreased but the expected bounce back recovery will re-establish and fix its lost image in global market, because of its strong sustainability in the profitability and liquidity ratio analysis. With its strong presence in market since last century, it will not be a tough task to regain its lost grounds with availability of favourable scenarios. A potential worldwide growth strategy for the company enables its stability and let the investors stay invested without losing their trust in the entity. Being an effective player of business expansion worldwide, its biggest loop hole is the lack of foresight to track the needs of the global customer, with regards to which its operating cost are increasing that doesn‟t have a positive effect over in the long run. As far as recommendation for the stock is concerned, very proficient financial analyst advice to stay neutral in it presently, to reap profits in the financial boom. It has to critically analyze the market trend according to latest fashion to keep an upper hand over its small and intense competitors. Consumer spending power always plays a vital role in enhancing the position of a company in a positive slope along with company‟s efforts to improve value for every process and keeping the running costs as low as possible to offer financial soundness to the entity with proper utilization of all resources. References Source: Datamonitor research store, Marks and Spencer Group plc. Available at- http://www.datamonitor.com/store/Product/marks_and_spencer_gr oup_plc?productid=DFE67A38-E021-448F-BC58- 3944E618713F(Accessed on August 11‟ 2009). Source: Marketing retail Assignment. Available at- http://www.businessteacher.org.uk/free-marketing- essays/marketing-retail-assignment/ (Accessed on August 11‟ 2009). Source: Business case studies- Marks and Spencer‟s. Available at- http://www.thetimes100.co.uk/case-study--the-role-training- development-career-progression--100-271-1.php(Accessed on August 11‟ 2009). Source: Company overview. Available at- http://corporate.marksandspencer.com/aboutus/company_overview (Accessed on August 11‟ 2009). Source: Not Just Advertising, Your M&S Advertising. Available at- http://www.wpp.com/NR/rdonlyres/20B82970-020F-466B-97DE- B7DE2D5DB39D/0/TheStore_newsletter_003_TanyaLivesy_YR_Lond on.pdf(Accessed on August 11‟ 2009). Source: International Franchise. Available at- http://www2.marksandspencer.com/thecompany/our_stores/world.s html(Accessed on August 11‟ 2009). Source: Unit trusts, Marks and Spencer‟s ethical fund. Available at- http://money.marksandspencer.com/pdf/ETHInterimManagersRepor t.pdf (Accessed on August 11‟ 2009). Source: Market value. Available at- http://www.investopedia.com/terms/m/marketvalue.asp(Accessed on August 11‟ 2009). Source: Free cash flow. Available at- http://www.investopedia.com/terms/f/freecashflow.asp(Accessed on August 11‟ 2009). Source: Press releases. Available at- http://corporate.marksandspencer.com/media/press_releases/RNS/ HoldinginCompany/13112006_NotificationOfMajorInterestsInShares 13Nov2006Part1(Accessed on August 11‟ 2009).