Gearing Ratio Of Marks And Spencer

MEASURE:

Gearing Ratio:

Marks and Spencer: Gearing ratio of Marks and Spencer was stable for three years from 1999 to 2001. Fall in 2001 has forced it to revert to old policy whereby it proposed group structuring and capital restructuring strategy which required funds.

"To funds these cost, it entered into structured Sale and lease back agreement, sold its 78 freehold and leasehold stores across UK for cash consideration of Ј348 million to Top land Group". (www.marksandspencer.com, 03/03/2004)

It raised altogether of Ј1513m from its Asset portfolio and two Euro bonds which altered its financial structure eventually raising its Gearing ratio of 70 % in 2002 however it decline slightly by 10 % in 2003, yet Gearing ratio is still high to be ignored.

Although company is using cheaper loan compare to equity to fund costs, it must consider that high gearing ratio represents high risk, requiring higher return for investors as they stand most to loose if company fails in risky ventures.

Next: Gearing of Next plc has remained low over 5 years period. Lowest Gearing ratio was 1.82% in 1999 and highest is 12 % in 2003. It has ability to burrow more debt capital without having any liquidity problems. It is not using its strength by utilizing cheaper loan to take tax advantage as loan gets tax exemptions.

LIQUIDITY MEASURE

Quick Ratio:

Marks and Spencer: Its quick ratio of Marks and Spencer is on increasing trend reflecting that current Liabilities are adequately covered by its current assets. In quick ratio calculation, only liquid assets are included, thus stock has been excluded to give acid test of its liquidity position. Quick ratio is 1.74:1 in 2003 which shows sound liquidity position of Marks & Spencer. Its stock and creditors has decreased in line with fall in sales turnover, however debtors has increased.

NEXT: Quick ratio of Next plc has decline over five years period, decreased from health 1.35: 1 to

unsafe 0.59:1. Liquidity position has deteriorated showing its vulnerability in liquidity position. Current liabilities have increased by `126 % which amounts to Ј371m and stock has increased by

Ј92 m which is 65% increase. Increase in Stocks is reasonable as sales has increased too so that it may not run out of stock when needed.

Earning Before Interest Tax Depreciation Amortization (EBITDA):

Marks and Spencer: EBITDA for marks and Spencer have fluctuated over 5 years period. It is particularly looking good in year 2002 and 2003. EBITDA for year 2003 is Ј953 m which is 16 % increase in 5 years duration.

Next: EBITDA for Next has increased gradually over 5 years