5UEFM Level 5 Effective Financial Management: Open Book Exam Question Answer
NOTE – The organisation summary must be completed and must accompany the submission otherwise the assessment will not be marked.
|Business profile (200 words)
Headquartered at London, United Kingdom, Marks & Spencer Group Plc is a major multinational retailer that was established by Michael Marks and Thomas Spencer in 1884. As of 2019, the organisation operated at a total of 1463 locations worldwide. As of 2019, the organisation had generated a revenue of over 10 thousand millions. The company operates with over eighty thousand employees that are employed in the locations where the company operates. From the inception of the company to date, the company is a specialist in the retail of home, as well as, food products along with clothing and apparel items. The company operates in a total of 57 nations whereas, the UK is the main and primary market for the company. India is the second most important market where M&S operates. Being a retail business, there are various competitors of Marks & Spencer as the retail industry is a highly competitive sector. The key competitors of M&S include the Macy’s, Aldu UK, Tesco, Debenhams, Asda, as well as, John Lewis Partnership. As a retail business, the organisation primarily targets both men and women that are within 33 to 55 years of age that fall into the middle to high income group of the populous (Burt et al. 2002).
|Assess the objectives of financial management and the role of different stakeholders in the financial strategy of your organisation.
One explanation behind why an association uses a budgetary manager is to enlarge benefits while managing the record of the association. The expansion can be in the short or long stretch. However, the essential place is that the individual or division managing the cash related issues of the association must ensure that the association being alluded to is making sufficient advantage. The arrangement of advantages for keeping up the business is in like manner an essential bit of cash related organization that the overseer needs to manage fittingly (Shapiro, A.C. and Hanouna, 2019). At the point when the central wraps up the estimation of the entire required for a business methodology, the important aggregate would then have the option to be referenced from any legal sources, for instance, debenture, shares, or even sales for bank credit. Regardless, the truth is that there should be a suitable concordance between the money the firm has and the total procured. The continuance of the association is major. That is one explanation the organization considers utilizing money related boss regardless. The director needs to choose adequate cash related decisions to ensure the association is productive. There must be a proper perception and association among the various divisions. The store office must fathom and agree with various workplaces inside the association for the business to work without any problem. Budgetary managers moreover endeavor their closest to perfect to decrease the cost of capital, which is something that is basic to the business. They ensure money acquired attracts small financing costs so the association can grow advantage.
Within a business, a stakeholder usually is a monetary investor from the business whose activities determine the outcome of the company options (Miles, 2017). These partners don't have to be benefit investors. They are able to likewise function as the business's associates, that have a stake in the organization's prosperity and motivating force for the ventures and also initiatives of the group to be successful. They may be co-workers, who rely on your prosperity to always keep the elegant chain going. Each business uses a different strategy to partners. The job that stakeholders play differs between organizations, governed by the concepts as well as responsibilities spread out at the developing of the organization of yours or perhaps as your small business created throughout the years. The most commonly recognized significance of any stakeholder, notwithstanding, is a concerned party which places a huge monetary investment which has both curiosities as well as influence to support a logical and justifiable "stake" within the business.
From a financial perspective, stakeholders can influence the financial management of Marks & Spencer in various ways including:
Influencing Corporate Management: The partners can be a piece of the governing body and consequently help in taking activities. They can assume control over specific divisions like assistance, HR, or innovative work and oversee them for guaranteeing achievement.
Investing or De-investing: Stakeholders are the huge speculators of the organization and they can whenever get or take out cash from the organization. Their choice will rely on the organization's money related execution. Along these lines they can pressurize the administration for money related reports and change strategies if essential. A few partners can even increment or decline the speculation to change the offer cost in the market and in this manner make the conditions good for them.
Influencing EDM: Major partners are a piece of the governing body. In this manner they additionally take choices alongside other board individuals (Qureshi et al. 2017). They have the ability to disturb the choices too. They bring in more thoughts and compromise the administration to obey them. The partners likewise have all the forces to select senior-level administration. In this manner, they are there in all the significant dynamic regions. They additionally take choices in regards to liquidations and furthermore acquisitions.
Corporate Conscience: Large partners are the significant partners of the organization and have observed over all the significant exercises of the organization. They can cause the organization to keep human rights and ecological laws. They likewise screen the redistributing exercises and may cast a ballot against any business choice on the off chance that it hurts the drawn out objectives of the organization.
Other Roles: Apart from the over four significant jobs they likewise have some different tasks to carry out in the organization. They can distinguish new zones for showcase entrance and expanded deals. They can get all the more advertising thoughts. They additionally draw in different speculators like bumble bees in the organization. They can be a piece of a choice board or an agent for the organization. Besides, they can make all the significant social and natural choices.
|Recommend how projected financial statements and other measures of business performance could be used by your organisation to evaluate its activities and processes.
Data from fiscal reports impacts business choices by giving information that would permit the business to move its arranging and foresee up and coming income crunches. To maximize the assessment of the fiscal summaries, it is an absolute necessity for the business to set them up routinely, and base them on careful, current data. Moreover, the business should likewise guarantee that it utilizes legitimate bookkeeping data to make strong, educated choices.
Projecting the Cash Flow
An income projection impacts business choices by featuring periods when the business will be shy of money, empowering the business as far as setting aside corporate income during progressively abundant occasions or think ahead to make sure about required subsidizing (Ardi and Murwaningsari, 2018). By demonstrating how much money will be streaming into and out of the business over the coming year, the income projection would give the business a fundamental arranging device, empowering it regarding budgetary choices to turn away income troubles before they form into out and out emergencies.
The accounting report of the association would give a general image of the money related strength of the business procedures, exercises and the produced outcomes as a mix of these procedures and exercises by contrasting resources and liabilities and computing your total assets. Monetary records impact business choices by indicating whether the business can manage the cost of new speculations, putting these choices with regards to a greater picture (Ramya and Kavitha, 2017). In the event that there is credit accessible to the matter of Marks and Spencer, it very well may be anything but difficult to dismiss the way that these capital implantations don't speak to real pay. An asset report impacts business choices by helping the business to remember this reality.
Statements of Company Income
Pay proclamations impact business choices by giving data about the organization's productivity, highlighting zones where the organization could be acquiring more or spending less. An explanation of the income records of the entirety of the organization's wellsprings of pay, just as the entirety of its classes of costs. This configuration would empower the organization as far as assessing whether the partnership is lopsidedly centered around a specific kind of deals action, for example, discount or retail, and to choose whether they association wishes to make an increasingly adjusted income stream (Franklin et al. 2018). Likewise, the data on a salary articulation could help the business as far as choosing to cut costs in a specific territory to improve the general edges benefited by the business toward the finish of each money related year.
Justifying the Recommendations
The budget summaries help huge companies, for example, Marks and Spencer as far as settling on successful business choices by empowering them to make a general evaluation of their business exercises from a monetary point of view. On the off chance that the pay explanation of the organization shows that the organization is gaining a benefit yet the accounting report of the organization shows that it has no money spared, at that point this data can control the organization toward choices that will improve the organization's pace of reserve funds. Then again, if the asset report shows that the association has capital accessible, yet the pay articulation of the organization shows that the organization is losing cash, this data can help essentially as far as permitting the organization to choose to utilize accessible assets all the more cheaply.
|In the context of your organisation, evaluate its main sources of potential financial risk using suitable techniques. For each risk area you are required to recommend and justify appropriate action to reduce the exposure.
Liquidity and funding risks
Liquidity is a term that refers to how easily the assets of a business firm can be sold and liquidated in the market for realization of money from the market. There are two types of liquidity risks. The first is the funding or cash flow and the second is the liquidity risk. In Marks and Spencer funding or cash flow liquidity is a major risk because it is always a great concern to the company pioneers whether in the future, the company can fund its liabilities or not. Liquidity risk is important for the pioneers of Marks & Spencer as the investors have interest in it and they will decide their further investment in Marks & Spencer after judging the liquidity of the company. The current ratio is the liquidity ratio that has been used as a tool for assessing the liquidity risk of Marks & Spencer. This ratio has measured the company’s power to meet its obligation for one year. Current ratio has been calculated by dividing the current assets by current liabilities.
The long run achievement of any corporate body is relying upon its sustainable profitability. In many corporate segments, like for “Mark and Spencer” it is not so easy to reach its profit volume at peak and more tough to continue. Profitability is taking a vital part in sustaining an organization as regards that concerned organization’s financial status. According to the last annual report of Mark and Spencer, it has been found that the concerned organization has faced a sharp downturn in its yearly profit rate. It is clearly shown that, profit rate before taxation of this retail group has collapsed up to 62% or 66.80 million pounds (Wood,2020).
Overall revenue of this retail giant has also reduced almost 2% up to 10.18 billion pounds. Net income of this company has also fallen 29% up to 23.70 million pounds. Dividend rate was also reached up to 0.04 pounds from 0.14 pounds. Total sales volume also decreased up to 2.3% in the financial year 2018-2019, which is 0.30% less than previous year. This fluctuation has occurred after restructuring of a bill of approx. 514.10 million pounds, which covers the first term payment of 321 million pounds regarding store closure activity. According to the management, it has also stated that at least one store among its three core clothing stores is planned to vanish from London’s highways within 4 years. This retail group also indicates that almost 150-million-pound closure price might be followed in near future (Integratedreporting, 2020).
As per annual report, the sales of “Mark and Spencer” has fallen up to 2.3% as compared with the past year. Total volume of cloth selling has declined approx. 1.4% up to 3.7bn pounds by 31st March. It has also seen that this retail giant is already facing a risk of misplacing its leading market position to Primark in the annual year 2018. The adjusted EPS of “Mark and Spencer” has also decreased up to 8.6% due to lower modified profit on a yearly basis. The food selling halls of “Mark and Spencer’s” are also backwards, which has reduced its sales down up to 0.6% in the last 3 months. These changing operational structures, fall in sales, growth has turned this retail group outperformed in the opposing store market (Corporate.marksandspencer, 2020).
Profitability risk: After analyzing the financial report of Mark and Spencer, it has been found that worsening in selling clothes and immense store closure prices are liable for this fall in the company's yearly profit. It has also found that crucial structural transformations like changing the selling process from retailer to internet based also affects the profitability status of this retail giant. Hence, “Mark & Spencer'' is required to adopt no-frills fetters like its rival group Lidl, Primark and ALDI. This retail giant also requires to transform its corporate culture, as this organization carries many committees, many layers.
It has also found that the online capacity of “Mark and Spencer '' is underrated than its rival groups. Therefore, when the consumers are searching for any product of “Mark and Spencer”, the product information-oriented page is taking a long time to give response and also the search operation has some problems. Hence, this organization needs to rectify those lack areas, make its systems updated to meet the peak demand of its customers. The management requires them to deliver better proposals to give correct money value and gain attention from more consumers. The organization has also evolved a completely new sort of store which would help to appeal to this corporate giant in a better way.
Liquidity and funding risks: As per financial report, it has found that “Mark and Spencer” captures almost 10183.90 volume of its total assets, whereas it covers 3702.5 of its total equity and 6481.4 of its overall liability. The “quick ratio” and “current ratio” of this retail giant are 0.35 and 0.66 respectively (Corporate.marksandspencer, 2020). This statistical data indicates that “Mark and Spencer '' have capacity to meet it's long- or short-term liabilities. However, this result also shows that this liquidity capacity of the retail group is decreasing year by year. Hence, the concerned organization needs to increase its sales volume, because this increasing rate in sales would help “Mark and Spencer” to gain more profit and fix its position in the current market probably.
|In the context of your organisation, evaluate options for the financing of business activities. You are required to include in your evaluation the characteristics of the different sources of finance.
The sources for producing financial investment for M&S might end up with equity, obligation, debentures, held benefit, word developments, functioning capital developments, letters of recognition, adventure subsidizing, euro issue, and so forth. These wellsprings of property are employed in numerous instances. They're classified with regards to the timeframe, influence and proprietorship, as well as the wellspring of theirs of the age range. It's ideal to evaluate every wellspring of capital just before choosing it. Wellsprings of capital are probably the most explorable area especially for the company individuals that will start one more small business. It's possibly the toughest slice of a significant amount of endeavours. You will find a variety of capital energy sources which could be recognized influenced by a variety of details.
How in the direction of picking out the right wellspring of a within comes wit by account as well as out searching of each and every wellspring of property. For decomposing as well as taking a look at the energy sources, the understanding of a significant amount of characteristics of the funding solutions is needed by it. There are many attributes depending on what wellsprings of the fund are set up. Determined by a timespan, energy sources are called lengthy haul, medium-term, as well as the existing second. Balance, as well as possession, characterize wellsprings of the bank account into advertised as well as acquired capital. Outside sources and also inward sources will be the 2 wellsprings of capital or maybe fund development. All of the energy sources have many characteristics to fit a variety of types of essentials. The company ought to fully grasp them inside a bit of profundity.
● Long haul funding suggests capital essentials for some time of more than five to ten years. In addition, depending upon various components, capital consumptions in repaired materials as device and creating and acreage, and so forth of the company are backed making use of lengthy haul wellsprings of the fund. A bit of component of dealing capital that for most moment continues to be together with the company is the same funded with night haul wellsprings of property. The long haul energy sources of financing can include, but aren't restricted to, inner accruals or even kept earnings, word loans from the federal government, industrial banks and, any other monetary institutions, equity shares or even discuss capital, venture funding, preference shares, global funding as well as Foreign Loans and so on.
● Financing more than a moderate take indicates funding for three to five years and it is utilized mostly for 2 reasons. A particular, when lengthy stretch capital can't be availed for the second and present when surrendered income utilizations as offers are manufactured that are to become restricted with several three to five yrs. You will find numerous kinds of energy sources out of in which financial could be gotten within a medium-term. Although aren't restricted to, lease financial, corporate bonds or debenture, capital loans coming from fiscal institutions as well as hire buy financial, these energy sources include things like.
● Fleeting or momentary funding infers financing for less than one year of time. The basic need for a transitory report rise to fund the present property associated with an adept ton of unrefined materials plus completed bank balance, least cash, obligated people, and items, and so on. Transient funding is additionally known as functioning capital funding. Although not minimal to, creditors, developments coming from customers, trade credit, payables, costs discounting and then fixed build up not extending greater than one season of your time and so on, the momentary energy sources of financial happen to be inclusive of.
Wellsprings of property are structured dependent on command and also ownership with the company. These 2 variables are an enormous notion while selecting a wellspring of benefits for the company. Within no matter what thing capital is obtained by us, at this time there are 2 types of fees - 1 will be the curiosity and also an additional is revealing influence as well as belonging. Some reps abhorrence to debilitate the ownership rights of theirs within the company among others usually takes self-esteem within posting the chance. Self-esteem is suggested by assured capital furthermore. It's sourced from promoters of the connection or perhaps through the normal population by providing innovative really worth provides. The owners start up the company by receiving the cash that is very important for a startup. Acquired or even dedicated capital may be previously set up by using extrinsic sources. With this kind of capital, the borrower leverages as a result of the company-owned property in deep situation a monetary mortgage isn't repaid through the company and that suggests the group will shell out the borrower by offering the benefits when generally there need to develop an occurrence of liquidation. An additional component on the acquired retailer is a regular instalment of fixed intrigue as well as compensation of capital.
|Discuss how your organisation might evaluate potential investment opportunities to ensure that decisions reflect the needs of the business and its financial management strategy.
To assess potential and useful open doors for putting corporate assets in an organization, it is significant that the organization gauges a couple of the organization's key monetary measurements. To assess an organization's funds, there are three budget reports that must be painstakingly inspected including the cash flow statement, the income statement, as well as, the balance sheet of the company. The best spot to begin while assessing an organization is searching for liquidity on the monetary record in real money structure (Salimi and Rezaei, 2018). Basically, Marks and Spencer will be watching the fiscal summaries to check whether the organization has enough cash to cover its costs. The organization ought to likewise be verifying whether the organization's transient obligations will make them exhaust their money before the ending of the current financial year.
To decide an organization's liquidity on the accounting report, the organization needs to search for the ebb and flow proportion, which is an estimation of the working capital that the organization has at the ebb and flow time. To compute the present proportion of an organization, looking at its present resources that can be transformed into money and its present liabilities that must be paid in the up and coming year. A company that is perfect for speculation is commonly an organization that will have a 2:1 proportion of resources for liabilities (Basu et al. 2019). A few organizations can have a lower proportion on the off chance that they are all around run, implying that they are adequately controlling your money. Organizations in moderate development ventures additionally may not require as much liquidity as organizations in quickly developing businesses. Most organizations, be that as it may, ought to have a 2:1 proportion.
In the wake of deciding an organization's liquidity, the investigation should proceed onward to the salary articulation. This archive will incorporate a few budgetary measurements that can enable the organization to conclude whether to put resources into an organization. Specifically, Marks and Spencer must guarantee to check the development of profit and the development of total compensation. Checking these measurements can help Marks and Spencer to decide whether the organization is really developing. Take a gander at the base and top lines of the pay proclamation returning 10 years. Ideally, the top and base development lines will be equal. At the point when these lines are equal, it implies that both the business development rate and the net income development rate are increasing at a similar rate. In the event that the lines are not equal, it might imply that the organization's income is developing while income is going down (Ding et al. 2018).
With the assessment of the aforementioned financial, as well as, tangible areas of business, it would be possible for Marks & Spencer to identify and determine potential opportunities for investment along with deciding the manner in which to divide the investment. For instance, it could be stated that in some cases, the company could be aiming to invest for long-term and thereby, instead of focusing on the short-term returns of the shortlisted businesses, it could look for long-term returns over the period of 5 or more years. On the other hand, for medium-term investment plans, that company could be looking for businesses that have shown a strong growth over a three-year period and for short-term, businesses that have shown a strong growth over a yearly period.
The following money related metric that M&S needs to inspect is the short-recorded organization's arrival on resources. There are three unique estimations that one can check to figure out what an organization is achieving with its profit contrasted with how much the organization is spending to acquire that income. These estimations remember the arrival for capital contributed, the retrun on value, just as the return on organisation-possessed assets (Ferracuti and Stubben, 2019). Organizations worth putting resources into will have solid returns. Typically, a great investment opportunity can be availed in the form of investing in an organization that has at least a 30% return on a yearly basis. Looking at an organization's return on the invested resources such as the capital, as well as, the company-owned assets and the company equity will uncover its benefit to reflect the extent to which the organization is viable in terms of utilizing its advantages for acquiring revenues, as well as, profitability.
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