The company’s operating
The company’s operating margin is arrived at by deducting cost of sales or services and operating expenses from gross margin. If one wants to get net margin, he or she must further deduct or add non operating expense/income items. Thus normally net margin is lower than operating margin. With these ratios the company’s good performance are undeniable if correlated with return on equity earlier. These latter ratios are more of management efficiency measures that are indeed needed in motivating employees which Marks and Spencer has also indicated to have indeed produced a motivated and well-organized management along the way.
This is evident in the consistency of a number of critical ratios that are almost maintained for the years 2003 to 2007. Such behaviour only provides an evidence of monitored and periodically evaluated performance against the accomplishment of its financial objectives using established criteria under Hermes principles as explained earlier. The profitability may be best observed below: Surprisingly, the profitability appears not reflected in the company’s liquidity. The current rations 0. 42, 0. 57, 0. 41, 1. 92 and 1.
61 for the years 2007, 2006, 2005, 2004 and 2003 respectively do not show the profits going in terms of generated funds. The same could be had in terms of quick ratios which were reflected at 0. 21, 0. 38, 0. 24, 1. 72 and 1. 43 for the same years respectively. Investigation however revealed higher borrowing by the company for the last three years from 2005 thru 2007 to finance its working capital for as a result of business expansions to respond to surge in demand for company’s products for those years mentioned.
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