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A Fundamental Analysis for Financial and Investment Risks in Marks and Spencer Group Plc

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Even though the above stands true, that a GP margin of 5.5% is mediocre, and might even be considered a mistake if it were just mentioned without any supporting figures of revenues and cost of sales. But it is not, and after a careful analysis of the financial statements of the company, it was ascertained why the margins are so low, actually J Sainsbury PLC does not franchise its space, instead they operate on the traditional ‘ buy more and cheaper’ routine, and therefore have significantly lesser marketing and selling expenses. The remaining costs of advertisements and other selling and staffing expenses have been placed within the cost of sales header under the Income Statement, and this accounting guideline (personal to the company) is the reason why the cost of sales of the company amount for 94.5% of its revenues; the actual cost of sales for the year 2009 of Sainsbury were £ 17.8 billion, while the revenues were £ 18.9 billion.

The gross profit margins of both these companies are quite synchronous in terms of growth and decline patterns. And therefore the operating policies don’ t seem distinctive.

But this still does not account for the distinctiveness amongst the net profit trend line… Due to significant investment in some new policies and expansion plans, the net income of Sainsbury was quit lower in 2006, although, a similar fall is witnessed in the Net profits of Marks and Spencer in the year ending 2009; the company supposedly blames the recession and higher celebrity endorsement costs for the recent fall (Talking Retail weekly, 2008). A common trend amongst both companies is the fact that the revenues of Sainsbury and M& S are increasing at a steady rate, and yet net and gross profits have significantly fallen in 2009, and therefore it may be assumed that this fall is likely due to an external factor like the markets or recession.

Other figures such as interest expenses and dividends seem in order, with Sainsbury spending more in these areas, but considering the mammoth turnover of the company, which is more than double than that of M& S, these would appear normal.

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preview essay on A Fundamental Analysis for Financial and Investment Risks in Marks and Spencer Group Plc
  • Pages: 15 (3750 words)
  • Document Type: Essay
  • Subject: Business
  • Level: Undergraduate
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