Arif you look at M&S they have a

Arif
Islam

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number: 17082897

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I will be explaining
the financial performances of both M&S and Sainsbury’s within 2016. This
report has 4 parts to it ; operational efficiency, financial efficiency, liquidity
efficiency and the conclusion.  M
is well known for the illustrious distinctive fashion line and high value
clothing as well as them being one of the biggest clothing retailers in the Uk. ` Our Womenswear, Menswear,
Kidswear, Lingerie, Beauty and Home products account for 40% of our UK
turnover.. (M EST,1884, no date). ‘Sainbury
is known for its illustrious supermarkets. ‘Sainsbury’s was founded in 1869 but only opened its first Sainsbury’s Local 15 years.'(Ruddick,2013)

 

Gross
profit ratio is the money that an organisation
makes after expenses is deducted from their profits which is then a
percentage. There is a substantial difference in gross profits of each organisation;
Sainsbury’s with 6% and M with 38% in 2016. The discrepancy between the
GP of each organisation is too great which will indicate to investor that
Sainsbury’s is not making enough profit. ‘Sainsbury’s
sees 9% fall in half-year profits despite rising sales’ (Skynews, 2017). This
illustrates that Sainsbury’s cost of goods sold has gone up this could be
because of the fall  in the pound as well
it meaning that items are being sold cheaper within Sainsbury’s so that they
are able to attract more customers because they need compete with M because
of their high gross profit.  However when
we look at M they have a gross profit of 38% which illustrates they are
doing better in the market than Sainsbury’s and making more of an profit.

Net
profit ratio is the profit you make after you minus
the operating expenses within a selected organisation. There is a major
difference of the net profits of each organisation; Sainsbury’s being 2% and
M being 7% in 2016. This indicates that Sainsbury’s are not making a
substantial and healthy profit from their sales. However on the hand when you
look at M&S they have a net profit of 7% which means they are more
efficiently  able to turn their sales
annually into an healthy profit compared to Sainsbury’s who’s net profit is
much lower  at 2%. ‘The supermarket chain’s pre-tax profits slid
by 8.2% to £503m in the year to 11 March. ( Butler, 2017)

Return on Capital employed ratio measures the profit of organization. The
ROCE for M&S 12% and Sainsbury’s is 7%.This illustrates that M are
more effectively able to capitalize on their capital and make it a profit
whereas Sainsbury’s has 7% which means they are not able to make profit as
efficiently. ‘M
recorded a jump in pre-tax profits from £25.1m to £118.3m in the six
months to September 30’ (Armstrong et el., 2017)

Overall
M&S operational efficiency is much higher compared those of Sainsbury’s
which would make it ideal to invest in M. M gross profit  being higher at 38% as well as the net profit
 which is 7%  compared to 2% and ROCE which is 12% compared
to Sainsbury’s. This illustrates that M&S is better in every factor  in profits and the investor should invest in
M&S as he will he will be able to get his investment from his return.

current ratio asses weather an organisation has the required funds to meet short term
obligations .M&S has figure of 0.69 which is higher than the figure of
Sainsbury’s which is 0.66 which means M are able to able to pay off any
liabilities compared to Sainsbury’s who are unable to pay off their liabilities
as efficiently . Therefore a future investor may be deterred by investing as
they will be bombarded with liabilities when they invest which will not make it
worthwhile investing in Sainsbury’s.

Acid
test ratio is how an organisation is able to pay its current liabilities
when they have to be paid. M acid ratio is 0.3 and Sainsbury’s with 0.5.
This illustrates that Sainsbury’s has more short term assets to cover its
liabilities compared to M which has less short term assets because there
figure is much lower at 0.3 compared to 0.5 of Sainsbury’s. ‘British
supermarket group J
Sainsbury has unveiled a sharp fall in quarterly
sales growth as it continues to struggle with rising costs and competition from
discounters’. (Rovnick, 2017).  This
illustrates Sainsbury’s is finding it hard to compete with competitors and is
struggling to pay bills which is an example of a liability.

‘The gearing ratio measures the proportion
of a company’s borrowed funds to its equity'(Bragg,2017) M&S
has figure of 27% compared to 21% of Sainsbury’s this means M has higher
gearing ratio, which indicates that M owes more money compared to Sainsbury’s
as well it showing how much has been invested into each organisation. Therefore,
the gearing ratio illustrates how much M&S tends to borrow which is more
money than how is currently invested into organisation by shareholders. As result,
this may deter future shareholders, as they will not be able to get their money
back if they invested.

Sainsbury’s is more financially efficient compared to
M. For example, when we compare  Sainsbury’s
gearing ratio of 21% which is lower than M&S gearing ratios it Is an indicator
that less money is less money being owed than what is being invested. Sainsbury’s
acid test ratio is 0.5  compared to its gearing
ratio of 21% which  illustrates that Sainsbury’s
are able to cover their liabilities therefore they are in better financial position
to be invested in.

Receivable days is the money
that a customer’s owes to an organization. There is a substantial difference in
receivable days for M who have 11 days and Sainsbury’s with 8 days. This
illustrates it took M&S customers to pay back what they owed longer than Sainsbury’s
customers which means that M debt will be increasing as customers have
not paid back what they have borrowed from M which puts the organization in
an bad financial position.

Creditor days is an organization,
which owes money to a supplier and how long it takes them to pay them back. There
is a significant difference in the creditors of each business; M being 89
days compared to Sainsbury’s 50 days. This implies that M&S are not abrupt
enough with deadlines for payments to the supplier, which implies their
relationship with their suppliers which may deter future shareholders compared
to Sainsbury’s who are

Inventory days is how
many days it takes an organization to sell there investor. It took M 44
days to sell their inventory compared to Sainsbury’s, which only took 16 days.
This implies that Sainsbury’s are able to sell stock quicker than M,
which means they will be able to make more money than M, which means they
will make a higher revenue because M will have hold their stock as it not
selling as fast as Sainsbury’s which means M&S will be losing money.

In conclusion, I believe
that the investor should invest in Marks and Spenser’s compared to Sainsbury’s purely
for the reason that they have higher gross profit at 38% compared to 6% of Sainsbury’s
which is an substantial difference. Therefore by investing in M the invested
will be able to make money after tax from the gross profits of M.

 

Reference list:

Armstrong, A et el., (2017) ‘M&S profits rise but investors worry that growth
in food is slowing’ The telegraph online November 2017 Accessed on the 10th
December 2017 http://www.telegraph.co.uk/business/2017/11/08/ms-finance-boss-leave-profits-rise/

Butler, S ‘Sainsbury’s warns over pay
squeeze as profits slide’ the guardian. online 3rd May 2017
Accessed on the 11th December 2017 https://www.theguardian.com/business/2017/may/03/sainsburys-pay-squeeze-profits-supermarket-argos

Bragg, S (2017) ‘Gearing ratios’
Accountingtools online may 5th 2017 Accessed on the 11th
December 2017 https://www.accountingtools.com/articles/2017/5/5/gearing-ratio

Corporate.marksandspencer.com.
(2017). M&S Today. online Available at:
https://corporate.marksandspencer.com/aboutus/mands-today Accessed 12 Dec.
2017.

Ruddick, G (2013) ‘Sainsbury’s Local stores to overtake supermarkets
for first time’ Thetelegraph online 10th July 2017 Accessed on
the 10th December 2017 http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/10172461/Sainsburys-Local-stores-to-overtake-supermarkets-for-first-time.html

Rovnick,N ‘Sainsbury’s hit by sharp fall in quarterly sales
growth’ Finanacialtimesonline November 9th 2017 Accessed on the 6th
December 2017 https://www.ft.com/content/0a65cf18-c51d-11e7-b2bb-322b2cb39656

Skynews (2017) ‘Sainsbury’s sees 9% fall
in half-year profits despite rising sales’Skynews Online 11th november
2017 Accessed on the 12th December 2017 = https://news.sky.com/story/sainsburys-sees-9-fall-in-half-year-profits-despite-rising-sales-11119217

 

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