M&S, Tesco and Next financial analysis

Marks and Spencer financial performance analysis
Vs Tesco and Next (Plc’s)
Research and elaboration: Katia Benguela, Alhassane Diallo and Zahoro Msallam
At University of East London

Intermediate Financial Reporting – AC5001
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Abstract
This report analyses the Marks & Spencer financial performance based on its
financial statements and non-financial information comparing with Tesco and
Next. The analysis embraces several ratios calculations and common size
study. Marks & Spencer performance will be assessed comparing its progress a
long its last three financial years.

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Contents
Introduction ...........................................................................................................................................................4
Profitability Ratios..................................................................................................................................................5
1. Return on Capital Employed (ROCE) ...................................................................................................5
2. Return on Equity (ROE).........................................................................................................................5
3. Net Profit Margin..................................................................................................................................6
4. Gross Profit Margin (GPM) ...................................................................................................................6
Liquidity Ratios ......................................................................................................................................................7
1. Current Ratio ........................................................................................................................................7
2. Liquid/Quick Ratio ...............................................................................................................................7
Efficiency Ratios.....................................................................................................................................................8
1. Asset Turnover.....................................................................................................................................8
2. Inventory Turnover...............................................................................................................................8
3. Trade Receivable Collection Period.....................................................................................................9
4. Trade payable payment period ...........................................................................................................9
Solvency Ratios ......................................................................................................................................................9
1. Debts to Equity ratio............................................................................................................................9
2. Debts to Capital employed................................................................................................................10
3. Interest Cover.....................................................................................................................................10
Investors Ratios ...................................................................................................................................................10
1. Earnings per share .............................................................................................................................10
2. PE ratio................................................................................................................................................11
3. Earning yield.......................................................................................................................................11
4. Dividend cover....................................................................................................................................11
5. Dividend yield.....................................................................................................................................12
Cash Flow Movement ..........................................................................................................................................12
1. Operating activities............................................................................................................................12
2. Investing Activities.............................................................................................................................12
3. Financing Activities ............................................................................................................................13
Share Price Movement.........................................................................................................................................13
Conclusion ...........................................................................................................................................................15
Appendix 0 – Tesco and Next as competitors...................................................................................................16
Appendix 1 – Vertical and Horizontal analysis..................................................................................................17
Appendix 2 - Profitability ratios..........................................................................................................................17
Appendix 3 - Liquidity Ratio ...............................................................................................................................19
Appendix 4 - Efficiency Ratio..............................................................................................................................20
Appendix 5 – Solvency Ratios.............................................................................................................................22
Appendix 6 - Investors Ratios.............................................................................................................................23
Appendix 7 - Average Industry Ratio .................................................................................................................25
Reference list .......................................................................................................................................................28

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Introduction
This report compares quantitative and qualitative data among three major
companies, M&S, Next plc and Tesco plc from 2014 to 2016. It assesses the
companies’ financial position, profit growth and other measures of
performance by using various ratio calculations to inform investors who are
trying to measure future prospects of M&S.

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Profitability Ratios
1. Return on Capital Employed (ROCE)
M&S ROCE slightly decreased over the 3 years from 15.92% in 2014 to 11.19%
in 2016 (appendix 2.1). The equity and long term debt (capital employed - CE)
has been higher than the PBIT (profit before interest and tax). Shareholders’
equity is rapidly rising mainly by the capital redemption reserve increasing to
£2210.5m in 2016 due to share buyback of £7.9m and retained earnings that
increased by 9.52% from 2014 to 2016. The factor affecting the PBIT being
lower are the charges for non-underlying items which have increased
drastically. These include the closure of nine UK stores where M&S incurred
several costs which amounted to £26.7m in 2016 including the redundancy
costs and dilapidation (M&S Annual Report 2016, note 5). Moreover M&S
incurred charges of £50.4m for the insurance mis-selling provision. Apart from
non-underlying, the real profit of M&S would be at 7.44% (£784.9m) off the
total revenue (appendix 1.1). However, this still would not be satisfactory as
ROCE is falling year to year. The variance in inflation is one of the key drivers
of the change in cost of sales* in 2015 and 2016 (appendix 1.2). Significant
high selling and administrative expenses (appendix 1.2) due to more
employees cost (M&S Annual Report 2014-2016, note 3) is another reason for
the reduction in ROCE. It is vital for M&S to improve its ROCE as it measures
how successfully a company is at having return from the money received from
investors and lenders (Arnold, 2014). When compared to its competitors, it can
be seen that Next is doing better every year and Tesco is regressing quiet
significantly (appendix 2.1).
*Cost of sales explained in more details in gross profit margin.
2. Return on Equity (ROE)
From the appendix 2.2, M&S is not doing very well with its ROE ratio which has
declined form 18.69% (2014) to 11.74% (2016). This is resulted from a
decrease in profit after tax in 2015 and 2016 caused by aggregated non-
underlying items (as mentioned earlier with ROCE). Selling and administrative
expenses being very high is another factor at this point. M&S is slowly raising
difficulties in generating profit with the monies shareholders have invested in

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the business. The positive changes in the equity (driven by capital redemption,
share buyback and retained earnings as discussed earlier in ROCE) also have a
significant impact on this ratio. By observing the ROE of the three retailers,
Next plc is the company which will attract investors faster as its return on
equity is quite significant and improving each year. Tesco had suffered a very
deprived return on equity of -81.14% in 2015 however, a very surprising
improvement to 1.50% in 2016.
3. Net Profit Margin
From the analysis of this ratio, M&S showed very similar percentages for 2014
and 2015, approximately 7% and a slight change in 2016 falling down to
roundly 6%. The change in 2016 for M&S is due to an increase of the UK
operating costs, selling and administrative expenses aggregated by staffing,
renting, depreciation and other costs. Nevertheless, the revenue is improving
each year, especially in the UK where revenue is £9,470.8m including food
revenue of £5,509.5m. M&S have made customers satisfaction its priority by
focusing in quality, innovation, opening 54 new stores in 2015 and introducing
1700 new products (M&S CEO Strategy Update, 2016) even though this in fact
leads to higher employees cost. By owning 222 and franchising 349 Simply
Food stores, food revenue has a substantial contribution to M&S total revenue
and profitability. However, clothing business did not have a satisfactory
contribution to the revenue due to lack in design and clothing innovation.
Comparing to its competitors (Next and Tesco), it is clear that Next is the
company with the highest margin for the 3 years. Unfortunately, Tesco is
sinking with a margin of -10.10% in 2015 1.92% in 2016.
4. Gross Profit Margin (GPM)
M&S’s GPM have increased over the 3 years according to the computation. The
gross profit has had a continuous improvement contributing to the figures
arrived at net profit. Appendix 2.4 shows that a gross margin of
£39.11/38.65/37.54 was earned for every £100 of revenue made in
2016/2015/2014 respectively. The leading item at this point is the revenue
rising year to year. The changes in cost of sales (COS) did not stop the GP to

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rise. During the year-end 2015 COS balance had reduced as M&S bought less
inventory according to the “decreased in inventory” mentioned in the cash
flow. The overall fall in the inflation rate and importation cost during 2014
(bankofengland.co.uk) also contributed for this ending result of COS in year-
end 2015. In 2016 M&S invested more in stock leading cost of sales to
increase by 1.60% comparing to previous year. On the same period, cost of
sales also included £51m of employee cost (M&S Annual Report 2016, note 3).
Nevertheless, Tesco gross profit is very poor due to a loss in 2015 (appendix
2.4).
Liquidity Ratios
1. Current Ratio
M&S’s current ratio has increased by 0.11% from 2014 to 2016 (appendix 3.1).
This is caused by the significant negative gap between the current assets and
current liabilities. The current liabilities have distantly decreased by 0.32%
mainly driven by a reduction in trade and other payables of 1.50% and increase
in borrowings of 6.48% involving loan from Hedge End joint venture £5m (M&S
Annual Report 2016, note 20). Current assets balance has grown up being
affected by significant amount of cash and cash equivalent over the 3 years.
However, the working capital presents a negative figure as the current
liabilities have been greater that current assets along the three years. This
might mean a need for highlighting prospect liquidity issues. The selected
competitors have higher figure for this ratio, especially Tesco with a value of
2.99 in 2016 (appendix 3.1).
Side comment: With the changes in this ratio, M&S has taken shorter period to comply with its short-term
obligations in 2016 comparing to 2015 (appendix 4.4).
2. Liquid/Quick Ratio
Similarly to current ratio, liquid ratio of M&S has increased by 0.09% over the
years. By taking out the inventory from the current assets, it will provide a
more accurate figure of M&S capacity to respond to repayment demand from
its creditors or banks. Therefore, with 0.31 showed in the quick ratio for 2016,
it is acceptable given that so much of their current assets are rapidly moving

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stock items matched by high levels of trade creditors (Arnold, 2014). However,
the quick ratio of M&S is very low comparing to its competitors especially
Tesco reporting higher values which are more typical for a retailer.
Efficiency Ratios
1. Asset Turnover
Asset turnover of M&S slightly decreased along the three years from 1.86 to
1.66. However, this does not mean that the utilisation of operational assets is
becoming less effective. As seen in the horizontal analysis, revenue has
increased by 2.38% whereas net current assets increased by 3.21% (appendix
4.1) influenced by the reduction on the current liabilities (due to a fall in
payables) and increase of total assets. M&S customers’ satisfaction strategy
has influenced sales to grow faster. The assets balance has gone up mainly
because of the retirement benefits that increased to £851m in 2016, almost
double of 2015. The PPE and intangible assets, although decrease, these still
have an enormous contribution to asset turnover. Through this perspective, it
can still be said that M&S has used effectively its operating assets. The asset
turnover ratio reveals that for every £1 of capital employed, M&S generates
£1.66 of return, resumed as £0.66 of earnings.
Tesco had a substantial improvement from 6.52 to 13.86 between 2014 and
2015 which declined again to 5.48 in 2016. On the other side Next has been
improving its asset turnover to 3.60 while its net assets reduced by 3500.70m,
which means that the assets utilisation has been quite effective.
2. Inventory Turnover
As per the computation in appendix 4.2, M&S took 45 days in overall to sell
out its inventory during the accounting year of 2015/2016 and turned its
inventory 8 times in overall. This is due to the nature of the products being
sold as M&S have variety of products which include homogenous goods (in
fact, these require higher inventory turnover rather than 8 times per year).
However, M&S also has a line of clothing and home supplies and it leads to a
lower inventory turnover since these items require longer period to be sold.

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From this point of view, it is considered that M&S in managing well its
inventory and somehow the turnover is slowly increasing.
Although M&S performance is improving, Tesco is also managing its inventory
quite well, with inventory turnover of 19 times per year.
3. Trade Receivable Collection Period
Trades receivable balance was taken excluding the prepayments (for M&S and
Next) to have a more accurate view. M&S receivables collection period has
been considerably unchanged within the last three years with approximately 4
days. However M&S revenue has been improving revealing an effective
management of credit customers’ collection.
Tesco has deemed reduction on the collection period from 8 in 2014 to 4 days
in 2016 - now very similar to M&S - although sales have reduced by 14%
(appendix 4.3).
4. Trade payable payment period
M&S payment period is slowly increasing (took longer in 2015 – 96 days),
however accounts payables balance has been decreasing. Cost of sales also
has a very small impact here as it was managed better in 2015 decreasing by
1.76% (even though the payment period rose to 96 days). In 2016 cost of sales
increased again by 1.60% because of more investment in sales unit to supply
new stores, though not as much as sales that rose by 2.37% (very positive).
Tesco payment period has been similar over these 3 years, even if the cost of
sales declined on 2016.
Next has taken longer time each year to pay its supplier. This change has
impact on cost of sales rising each year by closely 9% from 2014 to 2016, but
still sales kept growing within the same periods.
Solvency Ratios
1. Debts to Equity ratio
M&S has become less risky as the gearing ratio decreases to 44.35% in 2016
comparing to two years with 48.14/54.42 in 2015/2014 respectively

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(appendix 5.1). Net debs (debts-cash) has decreased while equity grown up
mostly due to share buyback. This reflects the ability M&S to meet its debts
using its own capital. Although this reduction in gearing ratio (together with
other performance aspects) affects ROCE to reduce along the three years, M&S
is still a profitable company being better for ordinary shareholders.
Next and Tesco, strong competitors of M&S, revealed higher gearing ratio
during the three years, more risky for ordinary shareholders, however higher
and quicker profitability.
2. Debts to Capital employed
This ratio also reveals that M&S risk level has been decreasing, with lower
percentages as capital employed is used (appendix5.2). M&S indicated to have
increased in its debts in the last two years but managed to attain lower gearing
as a result of shares buy-back. However Next bought back more shares but
was affected by mass issue of dividends which resulted in gearing of 32.33%
compare to M&S 29.27% in 2016. Tesco’s gearing decreased to 39.45% in
2016 as the directors retained its earnings for future investment (appendix
5.2).
3. Interest Cover
The ratio indicates that M&S could easily meet its interest’s obligations
towards its debts. M&S committed itself 6 times in paying back the interest
(appendix 5.3) as it increased debt in 2016 to £1,774.40m. Nevertheless, as
the PBIT declined the interest cover declined too, indicating that in 2016 M&S
PBIT cover interest for 5 times. Next managed 27 times due to debt reduction
of £847.70. Tesco covered 0.18 as result of massive debts taken (appendix
5.3)
Investors Ratios
1. Earnings per share
M&S’s EPS in 2014, 2015 and 2016 respectively decreased as 32.50, 29.70 and
24.90 (appendix 6.1). As mentioned earlier the profit had been affected mainly
by the selling and administrative expenses. M&S issued less ordinary shares in

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2016 compared with its last two years as a result in drop of profit. Next had
the highest EPS of 4.43 due to an increment of attributable profit. Tesco
release more shares in 2016 with the lowest EPS of 0.02 compare to its last
two years, however, this change is caused by slightly increase in profit of
129m (appendix 6.1).
2. PE ratio
M&S PE ratio varies in 2016 with 16.36, 2015 with 18.65 and in 2014 with
14.46. This indicated that investors paid 16.36p for every penny earned by the
company. The result has shown that low PE ratio in 2016 was better compared
to one in 2015 as a result of investors paying less money for every one pence
earned by the company. M&S is focused on core strategy by delivering
sustainable growth in EPS as a result of strong cash flow, invested in business
by spending 363.3m on new stores and able to continue with share buyback
programme. The higher PE ratio for M&S reflected that investors paid more
money for the company that earned less. By looking at the two companies,
Next would be the company to invest in at an attractive price as a result of low
PE ratio of 15.37 in 2016 if the aim is faster return.
3. Earning yield
M&S’s Earning Yield in 2014, 2015 and 2016 were 6.92%, 5.36% and 6.11%.
The result showed M&S had highest the Earning Yield in 2016. This is a
reflection that the company could reinvest earnings rather than paying
dividends to shareholders if it decided to do so. Next comparatively operates
almost the same in Earning Yield with M&S and Tesco the lowest (appendix
6.3).
4. Dividend cover
M&S’s dividend cover was lower in 2016 as 1.34, while in 2015 and 2016 were
1.72 and 1.85 respectively. However, the result reflected the ability to pay a
total of £301.7m dividend in 2016 comparing to the previous years when
lower dividends were paid. In this case M&S shows to sustain a better dividend

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cover comparing to its competitors, also availed adequate financing through
retained earnings and provided reasonable returns to shareholders (appendix
6.4). Tesco did not released dividends in 2016 as a result of incurring a net
loss in 2015 of £5766m, however, decided to retain its earnings. Next
performed second to M&S in terms of dividend covered.
5. Dividend yield
M&S’s Dividend yield within three years of business have increased year by
year as 2016 was 4.66%, in 2015 3.07% and 2014 3.07%. The result indicated
that dividends were paid equally in last two years 17p per share but with a
different market price of 554p in 2015 higher than 469p in 2014. The result
also shows that what matters is how much dividend is paid to investors in
relation to the market price. Next produced the highest dividend yield during
the three years with an amazing payment of dividend with Tesco being the last
(appendix 6.5).
Cash Flow Movement
1. Operating activities
On 2014, M&S reported a very positive net cash flow which had enormous
improvement on 2015 of £173.6m more (approximately 15%). Coming to
2016, this had a minor change of almost -3%. This variation has been cause by
the changes occurred in several accounts but mainly by the increase in
inventory (that limits the generation of cash inflow) and smaller increase
(comparing to previous year) in payables allowing some utilisation of suppliers
capital. The decrease in receivables means better collection from customers
enhancing the healthy cash. However, as mentioned earlier in current ratio
M&S working capital presents a negative figure. In this case the net cash flow
of £1,212m in 2016 was shorter than its current liabilities £2,104.8m.
2. Investing Activities
M&S in 2014, showed a significant amount of cash outflow from investing
activities, continuing to decay drastically in 2015 to -£649.1m that includes
purchases of PPE of £521.8m. In 2016 the balance have improved to -£576.1m

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as M&S only invested £363.8m (£158.5 less than previous year). These
fluctuations also involved smaller investments in intangible assets such as
Computer Software as the main driver (M&S Annual Report 2014/15/16). There
was also an investment in the acquisition of a subsidiary company that
resulted in a gain of £27.1m (M&S Annual Report 2016, note 25).
3. Financing Activities
M&S financing activities in 2014-2015-2016 showed a significant amount
decreasing respectively by 498.1, 614.5, and 631.4. According to the cash flow
statement, these changes arose since M&S borrowed £3.1m more in 2016
(being very controversial to the previous years when loans had reduced) to
help in supporting charges like the 9 UK stores closures, the increase in
employees cost and the overall business needs (although there was less
investments in new assets). The increase in equity dividends paid, share
buyback of £150m.7 and repayment of syndicate loans of £19.9m have also
contributed to the drop of the financing activities balance.
In overall, through the whole of the analysis, even though the net cash flow
balance is negative, M&S presents healthier cash (visibly in operating activities)
than the selected competitors and more stability than Tesco in their last three
accounting years. M&S generates cash from several sources such as sales,
loans, issuance of shares, franchising and proceeds of assets. On the other
side, cash is also spent in various payments and appropriate investments like
subsidiaries, shares and assets.
Share Price Movement
Spare price movement of M&S in 2014 had a range between 380p to 491p.
October was the month with smaller range of 387p to 398p because of
reporting a fall in the profit in clothing line (BBC Business, 2014). On 2015 the
share price continued at almost the same range until February when shares got
higher value among 500’sp keeping at this range until the end of the
accounting year although with some volatility. However in the second term of

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the year profit had fallen again (ig.com, 2016) causing uncertainty in the
investors and fall in the shares price again. Somehow the performance of M&S
have affected the share price and the investors’ decision.

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Conclusion
The report allow to conclude that during the three accounting years M&S had
some difficulties in generating sales from its clothing line (still sales did not
stop growing as the strength of food business continued improving). Although
all the interruption, M&S is still a strong business generating gains from
different sources and investing in appropriate manners. Such investments are
reflected in the asset turnover even though this ratio is slightly decreasing. The
company is prudent on cost control and healthy cash creation. However, Next
currently stands with stronger profitability outline for dividends gains. For
Tesco it will take a while to come back to the stock market and be seen as an
attraction for the investors. It is upon to the shareholders to decide in which of
the companies they would invest. It is very relative to what these shareholders
are demanding: whether next year dividends or future investments. If the
investors are looking for higher and/or faster dividends, it is advisable to buy
Next shares, as Next reveals more interest in attracting investors by paying
dividends. On the other side, if the investor is interested in future growth,
more long term investments and some stability in their gains/dividends, M&S
is strongly recommended. M&S has the opportunity to grow and get better
returns, even in its clothing line by implementing the CEO growth strategies.

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Appendix 0 – Tesco and Next as competitors
Tesco and Next had been selected as M&S’s competitors by comparing their
differences. M&S is a 133-year-old company (98 and 35 years older than Next
and Tesco respectively), has 914 UK stores - of which 349 are franchised – and
468 in overseas (corporate.marksandspencer.com). Next seems to be much
smaller than M&S as it has 500 stores in the UK and 200 in other 40 countries.
On the other hand, Tesco although younger than M&S has 6902 stores in 11
different countries and has become one of the major UK retailer (Retail
Economics, 2015).
Next is seen as a competitor for M&S because of their clothing strength on
fashion where M&S is comparably weak. M&S is losing its clothing sales to
younger retailers with more power to encounter the fashionable society. Tesco,
on the other side is much stronger than M&S in terms of groceries variety and
prices. Basically, Tesco and Next are competitors as the three of them are
large companies in similar industry, all with international business, targeting
the public, focusing on customers satisfaction and all with profitable goals
although different strategies. Moreover, it is interesting to compare them as
M&S is more mature but Tesco has grown much faster and became the UK top
1 retailer. On the other side, Next (also younger) is having healthier
performance than

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Appendix 1 – Vertical and Horizontal analysis
1.1. Vertical analysis – Marks and Spencer
1.2. Horizontal analysis - Marks & Spencer
Appendix 2 - Profitability ratios
2.1- Return on capital employed (ROCE)
Income Statement Vertical Analysis
2016 (£) 2016 (%) 2015 (£) 2015 (%) 2014 (£) 2014 (%)
Revenue 10,555.40 100.00 10,311.40 100.00 10,309.70 100.00
Cost of sales (6,427.00) 60.89 (6,325.90) 61.35 (6,439.00) 62.46
Gross profit 4,128.40 39.11 3,985.50 38.65 3,870.70 37.54
Selling and administrative expenses (3,412.90) 32.33 (3,304.80) 32.05 (3,224.30) 31.27
Other operating income 69.4 0.66 81.8 0.79 95.5 0.93
Underlying operating profit 784.9 7.44 762.5 7.39 741.9 7.20
Non-underlying items (200.8) 1.90 (61.2) 0.59 (47.4) 0.46
Operating profit 584.1 5.53 701.3 6.80 694.5 6.74
Income statement Horizontal analysis (changes (%))
2015-2016 2014-2016 2014-2015
Revenue 2.37 2.38 0.02
Cost of sales 1.60 -0.19 -1.76
Gross profit 3.59 6.66 2.97
Selling and administrative expenses 3.27 5.85 2.50
Other operating income -15.16 -27.33 -14.35
Underlying operating profit 2.94 5.79 2.78
Non-underlying items 228.10 323.63 29.11
Operating profit -16.71 -15.90 0.98
ROCE Profit /(Equity +long term liability)*100
M&S Next Tesco
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
PBIT (£m) 584.10 701.30 694.50 867.20 812.10 722.80 1,046.00 -5750.00 2,631.00
Capital employed(see
working 1) 5,219.90 4,945.50 4,362.40 1159.50 1395.70 1310.10 19,397.00 17,722.00 24,018.00
ROCE % 11.19 14.18 15.92 74.79 58.19 55.17 5.39 -32.45 10.95

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2.2- Return on equity
2.3- Net profit margin
2.4- Gross profit margin
Working 1 For capital employed:
Capital
employed Equity + long term liabilities
M&S Next plc Tesco plc
Years 2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
Equity 3,445.20 3,199.60 2,707.30 311.80 321.90 286.20 8,626.00 7,071.00 14,715.00
Long term
liabilities 1,774.70 1,745.90 1,655.10 847.70 1,073.80 1,023.90 10,771.00 10,651.00 9,303.00
Capital
employed 5,219.90 4,945.50 4,362.40 1159.50 1395.70 1310.10 19,397.00 17,722.00 24,018.00
Return on
Equity (Profit after tax/Equity )*100
M&S Next Tesco
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
Profit after tax
(£m) 404.40 481.70 506.00 666.80 634.90 553.20 129.00 -5766.00 970.00
Equity (£m) 3,445.50 3,199.60 2,707.30 311.80 321.90 286.20 8,626.00 7,071.00 14,715.00
Return on
Equity % 11.74 15.06 18.69 213.86 197.24 193.23 1.50 -81.54 6.59
Net Profit
Margin (PBIT/Revenue)*100
M&S Next Tesco
Years
2016 2015 2014 2016 2015 2014 2016 2015 2014
PBIT (£m) 584.10 701.30 694.50 867.20 812.10 695.20 1,046.00 -5750.00 2,631.00
Revenue
(£m)
10,555.40 10,311.40 10,309.70 4,176.90 3,999.80 3,740.00 54,433.00 56,925.00 63,557.00
Net Profit
Margin % 5.53 6.80 6.74 20.76 20.30 18.59 1.92 -10.10 4.14
Gross profit
margin (Gross profit/Revenue)*100
Year 2016 2015 2014 2016 2015 2014 2016 2015 2014
Gross
profit(£m) 4,128.40 3,985.50 3,870.70 1,452.70 1,343.40 1,240.10 2,854.00 -2112.00 4,010.00
Revenue(£m) 10,555.40 10,311.40 10,309.70 4,176.90 3,999.80 3,740.00 54,433.00 56,925.00 63,557.00
Gross profit
margin % 39.11 38.65 37.54 34.78 33.59 33.16 5.24 -3.71 6.31

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Appendix 3 - Liquidity Ratio
3.1 - Current ratio
3.2- Quick ratio/liquidity ratio
Quick
Ratio (Current Asset - Inventory) / Current Liabilities
Years 2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
Current
Asset 1,461.40 1,455.00 1,368.50 1,642.20 1,616.00 1,468.10 14,592.00 11,819.00 13,085.00
Less:
Inventory (799.90) (797.80) (845.50) (486.50) (416.80) (385.60) ( 2,430.00) (2,957.00) (3,576.00)
661.50 657.20 523.00 1,155.70 1,199.20 1,082.50 12,162.00 8,862.00 9,509.00
Current
Liabilities 2,104.80 2,111.60 2,349.30 1,170.60 886.60 834.50 4,886.00 7,852.00 5,827.00
Quick
ratio 0.31 0.31 0.22 0.99 1.35 1.30 2.49 1.13 1.63
Current
Ratio Current Asset/Current Liability
Years 2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m) 2016 (£m) 2015 (£m) 2014 (£m)
Current
Asset 1,461.40 1,455.00 1,368.50 1,642.20 1,616.00 1,468.10 14,592.00 11,819.00 13,085.00
Current
Liability 2,104.80 2,111.60 2,349.30 1,170.60 886.60 834.50 4,886.00 7,852.00 5,827.00
Current
ratio. 0.69 0.69 0.58 1.40 1.82 1.76 2.99 1.51 2.25

Page 20
Appendix 4 - Efficiency Ratio
4.1 - Asset Turnover
4.2- Inventory Turnover
Asset Turnover Revenue/Net Assets (total assets – current liabilities)
Next (£m) Tesco
Years
2016
(£m)
2015
(£m)
2014
(£m)
2016 2015 2014 2016
(£m)
2015
(£m)
2014 (£m)
Revenue 10,555.40 10,311.40 10,309.70 4,176.90 3,999.80 3,740.00 54,433.00 56,925.00 63,557.00
Assets less current liability:
Assets 8,476.40 8,196.10 7,903.00 2,330.10 2,282.30 2,144.60 14,828.00 11,958.00 15,572.00
Current
liabilities (2,104.80) (2,111.60) (2,349.30) (1,170.60) (886.60) (834.50) (4,886.00) (7,852.00) (5,827.00)
Net Asset 10,581.20 10,307.70 10,252.30 3,500.70 3,168.90 2,979.10 19,714.00 19,810.00 21,399.00
Asset turnover 1.66 1.69 1.86 3.60 2.87 2.85 5.48 13.86 6.52
Inventory
turnover (days) Average inventory /purchase*365
Marks & Spencer Next Tesco
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
Opening
inventory (£m) 797.80 845.50 767.30 416.80 385.60 331.80 2,957.00 3,576.00 3,744.00
Closing
inventory (£m) 799.90 797.80 845.50 486.50 416.80 385.60 2,430.00 2,957.00 3,576.00
1,597.70 1,643.30 1,612.80 903.30 802.40 717.40 5,387.00 6,533.00 7,320.00
Dividing by 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Average inventory 798.85 821.65 806.40 451.65 401.20 358.70 2,693.50 3,266.50 3,660.00
Cost of sales 6,427.00 6,325.90 6,439.00 2,724.70 2,656.40 2,499.90 51,579.00 64,396.00 59,547.00
Inventory holding
period (days) 45.37 47.41 45.71 60.50 55.13 52.37 19.06 18.51 22.43
Inventory turnover
(times): Cost of sales / average inventory
Marks &Spence Next Tesco
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
Cost of sales (£m) 6,427.00 6,325.90 6,439.00 2,724.70 2,656.40 2,499.90 51,579.00 64,396.00 59,547.00
Average
inventory (£m) 798.85 821.65 806.4 451.65 401.2 358.7 2693.5 3266.5 3660
Inventory
turnover (times): 8.05 7.70 7.98 6.03 6.62 6.97 19.15 19.71 16.27

Page 21
4.3- Trade Receivable Collection Period
4.4- Trade Payable Payment Period
Trade receivable
collection period: Average receivable /credit sales*365 (or revenue)
Year 2016 2015 2014 2016 2015 2014 2016 2015 2014
Opening
receivables (£m) 123.70 126.8 108.30 737.80 703.6 622.2 803.00 1,330.00 1,636.00
Closing
receivable (£m) 115.80 123.70 126.80 954.10 737.8 703.6 491.00 803.00 1,330.00
239.50 250.50 235.10 1,691.90 1,441.40 1,325.80 1,294.00 2,133.00 2,966.00
2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Average
receivables (£m) 119.75 125.25 117.55 845.95 720.70 662.90 647.00 1066.50 1483.00
Revenue 10,555.40 10,311.40 10,309.70 4,176.90 3,999.80 3,740.00 54,433.00 56,925.00 63,557.00
Trade receivable
collection period
(days) 4.14 4.43 4.16 73.92 65.77 64.69 4.34 6.84 8.52
Trade payable
payment period: (Average Payable/Cost of sales or Purchase
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
Opening payables
(£m) 1,642.20 1,692.80 1,503.80 636.50 594.00 537.20 9,922.00 10,595.00 11,094.00
Closing payables
(£m)
1,617.70 1,642.40 1,692.80 673.50 636.50 594.00 8,568.00 9,922.00 10,595.00
3,259.90 3,335.20 3,196.60 1,310.00 1,230.50 1,131.20 18,490.00 20,517.00 21,689.00
2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
Average payables
(£m) 1,629.95 1,667.60 1,598.30 655.00 615.25 565.60 9,245.00 10,258.50 10,844.50
Cost of sales (£m)
6,427.00 6,325.90 6,439.00 2,724.20 2,656.40 2,499.90 54,433.00 62,284.00 63,557.00
Tr. payable
payment period
(days)
92.57 96.22 90.60 87.76 84.54 82.58 61.99 60.12 62.28

Page 22
Appendix 5 – Solvency Ratios
5.1. Debts to Equity Ratio
5.2. Debts to Capital Employed
Debts to
equity ratio Net Debts/Equity*100
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
Debts £m 1,774.70 1,745.90 1,655.10 847.70 1,073.80 1,023.90 10,711.00 10,651.00 9,303.00
Cash £m (247.60) (205.90) (182.10) (105.20) (342.20) (274.50) (3,082.00) (2,165.00) (2,506.00)
Net Debts £m 1,527.10 1,540.00 1,473.00 742.50 731.60 749.40 7,629.00 8,486.00 6,797.00
Equity 3,443.40 3,198.80 2,706.70 1,449.10 1,445.60 1,510.60 8,626.00 7,071.00 14,722.00
Debts to
equity ratio % 44.35 48.14 54.42 51.24 50.61 49.61 88.44 120.01 46.17
Debts to Capital
employed: Net Debts/capital employed*100
M&S Next plc Tesco
Years
2016 2015 2014 2016 2015 2014 2016 2015 2014
Debts £m 1,774.70 1,745.90 1,655.10 847.70 1,073.80 1,023.90 10,711.00 10,651.00 9,303.00
Cash £m (247.60) (205.90) (182.10) (105.20) (342.20) (274.50) (3,082.00) (2,165.00) (2,506.00)
Net Debts £m 1,527.10 1,540.00 1,473.00 742.50 731.60 749.40 7,629.00 8,486.00 6,797.00
Capital employed
(See working 1) 5,218.10 4,944.70 4,361.80 1159.50 1395.70 1310.10 19,337.00 17,722.00 24,025.00
Debts to capital
employed % 29.27 31.14 33.77 64.04 52.42 57.20 39.45 47.88 28.29
Working 1 For capital employed:
Capital
employed Equity + long term liabilities
Years 2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
Equity 3,445.20 3,199.60 2,707.30 311.80 321.90 286.20 8,626.00 7,071.00 14,715.00
Long term
liabilities 1,774.70 1,745.90 1,655.10 847.70 1,073.80 1,023.90 10,771.00 10,651.00 9,303.00
Capital
employed 5,219.90 4,945.50 4,362.40 1159.50 1395.70 1310.10 19,397.00 17,722.00 24,018.00

Page 23
5.3. Interest Cover
Appendix 6 - Investors Ratios
6.1. Earnings Per Share*
*Figures given in the firms’ income statement in the annual reports.
6.2. P/E ratio
Interest Cover: PBIT/Finance cost
Years 2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
PBIT 584.10 701.30 694.50 867.20 812.10 695.20 162.00 6,376.00 2,259.00
Finance cost 116.40 116.40 139.10 31.60 30.70 28.30 892.00 661.00 564.00
Interest Cover 5.02 6.02 4.99 27.44 26.45 24.57 0.18 9.65 4.01
Earnings
per share (Profit attributable to shareholders)/No. of ordinary share
Years 2016 2015 2014 2016 2015 2014 2016 2015 2014
(EPS) in
pence 24.90 29.70 32.50 450.50 428.30 366.10 1.70 -70.82 12.07
Price /Earnings (P/E) Market price per share/Earnings per share
Years 2016 (p) 2015 (p) 2014 (p) 2016 (p) 2015 (p) 2014 (p) 2016 (p) 2015 (p) 2014 (p)
Market price
per share 407.30 554.00 469.90 6925.00 7150.00 6280.00 184.15 245.40 329.20
Earnings per share 24.90 29.70 32.50 450.50 428.30 366.10 1.70 -70.82 12.07
P/E 16.36 18.65 14.46 15.37 16.70 17.15 108.32 -3.47 27.27

Page 24
6.3. Earning yield
6.4. Dividends Cover
6.5. Dividends yield
*The figures for dividends per share were converted from £ to pence for consistency as the market per
share is provided in pence.
Earning yield
Earnings per share/Market share price*100
Year 2016 201 2014 2016 2015 201 2016 2015 2014
Earnings per
share (pence) 24.90 29.70 0.31 4.43 4.28 3.66 0.02 -0.71 0.12
Market share
price (pence) 407.3 554.00 469.90 6925.00 7150.00 6280.00 184.15 245.40 329.20
Earnings yield
% 6.11 5.36 6.92 6.51 5.99 5.83 0.92 -28.86 3.67
Dividends
Cover Profit after tax/Total ordinary dividend
Years
2016
(£m)
2015
(£m)
2014
(£m)
2016
(£m)
2015
(£m)
2014
(£m)
2016
(m£)
2015
(m£)
2014
(m£)
Profit 404.40 481.70 506.00 666,80 634.90 553.20 216.00 -5,719.00 1,912.00
Total
dividend 301.70 280.70 273.60 581,90 433,90 238.90 0.00 914.00 1,189.00
Dividend
Cover 1.34 1.72 1.85 1.15 1.46 2.32 0.00 -6.26 1.61
Dividends yield Dividend per share/Market price per share *100
Years 2016(p) 2015(p) 2014(p) 2016(p) 2015(p) 2014(p) 2016(p) 2015(p) 2014(p)
Dividends per share*
(see working 2) 19 17 17 386 284 154 - 11 15
Market price per share 407.30 554.00 469.90 6925.00 7150.00 6280.00 184.15 245.40 329.20
Dividends yield (%)
4.66 3.07 3.62 5.57 3.97 2.45 - 4.48 4.56
Working 2 For dividends per share:
Dividend
per share Total dividend/No. Of ordinary shares
Years 2016 (£m) 2015 (£m) 2014 (£m) 2016 (£m) 2015 (£m) 2014 (£m) 2016 (£m) 2015 (£m) 2014 (£m)
Ordinary
dividends 301,700,000 280,700,000 273,600,000 581,900,000 433,900,000 238,900,000 - 914,000,000 1,189,000,000
No. Of
issued
share 1,622,964,807 1,647,814,746 1,613,888,192 150,670,000 152,874,333 155,032,000 8,141,083,114 8,122,991,499 8,095,821,091
Dividend
per share 0.19 0.17 0.17 3.86 2.84 1.54 0.00 0.11 0.15

Page 25
Appendix 7 - Average Industry Ratio
Current ratio
ROCE Return on equity
Gross profit margin Net profit margin
Liquid/Quick ratio

Page 26
Asset turnover
Inventory turnover
Trade receivables collection period Trade payable payment period
Debts to equity Debts to capital employed

Page 27
Interest cover Earnings per share
Price earnings ratio
Earnings yield
Dividends cover
Dividends yield
The average industry ratio shows how the ratios are volatile during the years due
to the variance of the figures obtained by the three companies. The charts
illustrate how the average is affected by the degradation of some ratios from
Tesco and elevation from Next. presents in overall a more stable comparison of
the years depending on the nature and objective of each ratio.

Page 28
Reference list
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