Report on Marks and Spencer Essay Example | Topics and Well Written Essays - 1500 words

Report on label and Spencer - Essay ExampleThe current liabilities includes tack payables and other payables, borrowings and other financial liabilities, partnership liability to the pension scheme, derivative financial instruments, provisions and current tax liabilities. The ac company had Interest boot debts from external sources of ?2,760.9 million and loans from partners to fund the pension scheme of ?71.9 million. both consist of a mix of a long margin portion and a short term portion which is due within the next 12 months. The table below provides that information for interest bearing or fixed interest debt.. Interest burster Debts Period Partnership loans ? Other Interest gallery Loans ? Total Current 0 482.9 482.9 Non-current 71.9 2,278.0 2349.9 Total 71.9 2,760.9 2832.8 Marks and Spencers Financial Structure The following proportionalitys in the table below will assist in the assessment of Marks and Spencer. Ratio Formulae 2010 2009 Debt Management Debt symmetry (T otal liabilities/Total assets) x 100% (4,967.3/7,153.2)x100% = 69.4% (5,157.5/7,258.1) x 100 = 71% Gearing Ratio Interest Bearing Debts (IBD)/Equity + IBD 2,832.8/5,018.7 = 56.4% 3,200.6/5,301.2 = 60.38% Interest Cover Profit Before Interest and Tax (PBIT)/Interest Expense 852/162.2 = 5 times 870.7/214.5 = 4 times Liquidity Ratio Current proportion Current assets/current liabilities 0.80 0.60 acrimonious Test Ratio Current assets - inventory)/current liabilities 0.47 0.37 Debt Management The debt circumspection proportionalitys indicate how the companys management has managed the debts of the company. According to Brigham (2005) the extent to which debt financing, which is also referred to as financial leverage is used by a unanimous has three implications. Firstly, financing the business using debt will allow share holders to maintain control of the company without increasing their investment in it. Secondly, shareholders returns can be substantially increased if the company ea rns more on investments that are financed with borrowed funds. However, financial risk increases as debt increases. Thirdly, creditors depend on shareholders to provide a margin of safety. consequently the more funds supplied by shareholders the more comfortable they are in doing business with the company. Additionally, the interest outgo which relates to interest charged on borrowed funds is allowable as a deduction for tax purposes. Dividend is non so allowed and is a distribution after tax is deducted. The Debt Ratio The debt ratio is the ratio of append liabilities to total assets and provides information on how much of the funds are provided by sources other than equity. The companys debt ratio is 69.4% for the year ended April 3, 2010. Although this is an improvement over the previous years figure of 71%,. the guideline indicates that a percentage over 50% percent does not augur well. Marks and Spencers debt ratio is unfavourable and indicate problems with its financial s tructure. However, a comparison with the average in the industry in which Marks and Spencer operates is important. The gearing ratio below will provide additional information. The Gearing Ratio The gearing ratio is the portion of interest bearing debts to equity and interest bearing debt. The gearing ratio of 56% suggests that the company has a significant amount of interest bearing debt in its capital structure. The normal threshold of 50% has been exceeded. However, whether the ratio is favourable or not depends on the industry. The ratio for the year ende