Part 2 Financial Management

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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).

				
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