Financial Statement Analysis

Sports Direct

• Total asset turnover ratio: Outcome of ratio analysis reveals that M&S failed to generate enough sales revenue or return by using both fixed and current assets. Moreover, total assets turnover ratio of M&S decreased from 1.30 to 1.25 times over the time frame. On the other hand, total assets turnover ratio of Sports direct fluctuated with the range of 1.23 to 1.60 times. In 2016, total assets turnover ratio was only 1.23 times which is highly lower. Hence, during such year, both the companies were failed to make optimum use of both current and non-current assets. Internal reasons such as ineffective machinery and equipments are the main causes due to which companies face difficulty in getting the desired level of output (Luypaert, Caneghem and Van Uytbergen, 2016). Along with this, strategies and policies farmed by business unit also have great impact on outcome. Thus, both these aspects are the main causes due to which assets turnover ratio of M&S and Sports Direct decreased.
• Debtor’s turnover ratio: Assessment of financial statement reveals that in the year of 2014, debtor’s turnover ratio was 33.31 days. On the contrary to this, such ratio reached on 32.04 and 32.87 days during 2015 and 2016. Hence, it can be stated that as compared to 2014 M&S generated amount from debtors within the less time frame. Besides this, Sports direct also received amount from debtors earlier in comparison to the previous years. In 2016, debtor’s turnover ratio was only 10 days which is highly lower as compared to past years. It shows that during the period of 2016 working capital position of Sports Direct was sound. Hence, in 2016, Sports Direct met its day to day activities more effectively and efficiently. Debtor’s turnover ratio fluctuates because company offers high credit when demand level is low. Along with this, availability of competitors and their policies also closely influence the credit policies of firm (Arkan and et.al., 2016). Hence, by taking into account all such aspects it can be stated by considering the brand image and market trends credit is offered by both the companies to debtors for short time frame.  

Investment ratio analysis

M&S

Sports Direct

• EPS: From ratio analysis, it has been identified that EPS offered by M&S to the shareholders decreased from .33 to .25 in 2016.  Hence, there are several factors that closely influence the earnings associated with per share. It includes inflation, availability of substitutes, demographic and market trend changes etc. Due to all such EPS of M&S declined, whereas in the case of Sports Direct earning per share inclined from .58 to .91. EPS is the main elements that closely influence the decision making aspect of investors. Moreover, earning high returns in against to the investment made is one of the main objectives of investors (Lakshmi, Martin and Venkatesan, 2016). Hence, from the perspective of investment investors or shareholders Sports Direct is highly good over others.
• DPS: Graph entails that DPS offered by M&S to the shareholders during the period of 2014, 2015 and 2016 implies for .18, .17 & .18 respectively. This aspect shows that M&S is offering dividend to the shareholders regularly. Getting high dividend from the shares held is one of the main objectives of investors. Profit is one of the main factors which in turn closely affects the dividend policy or return of the firm. Moreover, company usually prefers to declare and offer high dividend only when it earns enough amount of profit margin (Wijesundera and et.al., 2016). Due to this aspect, fluctuation takes place in the dividend offered by M&S. Thus, business unit should focus on undertaking stable dividend policy which in turn helps in maintaining the faith of investors.

CONCLUSION 

By summing up this project report, it has been concluded that profitability aspect of Sports Direct was sound from 2014 to 2016 over the rival firm. It can be revealed from the report that due to having less control on direct and indirect expenses M&S failed to generate high profit margin. Besides this, it can be inferred that Sports Direct was highly capable in relation to financial terms as compared to M&S. Moreover, both current and quick ratio shows that Sports Direct maintained more current assets which in turn help them in meeting obligations on time. Further, it can be stated that Sports Direct has made optimum use of financial aspects and thereby generated high profit margin or returns. Earning which is offered by Sports Direct on per share is also higher as compared to M&S. Hence, to attract large number of investors M&S is required to make suitable changes in the strategic and policy framework.

RECOMMENDATIONS 

On the basis of the outcome of ratio analysis, it is recommended to M&S to make suitable changes or modifications in the existing framework:

 It is recommended to M&S to lay more emphasis on social media marketing which in turn helps company in building long-lasting relationship with the customers. Along with this, by using such tool business unit can develop awareness among the large number of people regarding the retail products or services offered by it.  In the present times, needs, wants and expectation level of customers are getting changed with the very high pace. Thus, by considering the feedback of customers business entity would become able to offer suitable products or services to the customers according to their requirements. Hence, by taking all such actions M&S can enhance its sales revenue to the significant level.

• Further, to improve the profitability aspect business unity is required to undertake the system of budgeting. Hence, by making proper estimation of income and expenses business entity can prepare highly competent framework. Thus, by circulating such budget in the all respective departments business unit can provide direction to the personnel about the manner in which they need to spend money. By this, M&S would become able to reduce the level of expenses and thereby enhance profitability.
• By considering the liquidity position, it is recommended to M&S to exert control on spending level. By doing this, business unit can maintain enough current assets and thereby become able to improve liquidity. At the time of making investment decisions, investor considers the extent to which firm is highly capable in relation to meeting the obligations.
• Along with this, M&S should focus on the proper maintenance of fixed assets such as plant and machinery. Moreover, company can generate higher output only when it has effectual machineries. Further, to make optimum use of current assets business unit should take decision after making evaluation of both internal and external factors.

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REFERENCES

• Arif, T. M. H., Noor-E-Jannat, K. and Anwar, S. R., 2016. Financial Statement and Competitiveness Analysis: A Study on Tourism & Hospitality Industry in Bangladesh. International Journal of Financial Research. 7(4). p.p180.
• Arkan, T. and et.al., 2016. The Importance of Financial Ratios in Predicting Stock Price Trends: A Case Study in Emerging Markets. Finanse. Rynki Finansowe. Ubezpieczenia, (1 (79) Rynek kapitaÅ‚owy i zarzÄ…dzanie wartoÅ›ciÄ…). pp.13-26.
• Dung, N.V., 2016. Value-relevance of financial statement information: A flexible application of modern theories to the Vietnamese stock market. Quarterly Journal of Economics. 84. pp.488-500.