Financial Resources And Profitability Of Organisation
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6681 Downloads I Published: 21 Nov ,2017
To conduct effective practices in business, an organisation requires proper resources whether it is human capital, financial resources and technological expertise. The proper use of business resources is the key of success. Whatever the resources are physical including property, equipments, material, and tangible resources including monetary funds are to be used in a better manner to achieve the goal of enterprise (Melero and Sese, 2015). As a result, the management of finance is inseparable from the management of the business as a whole. According to many management leaders including Kotler, financial resources are the back bone of business that helps in running the operations smoothly and making desired profits. It has been increasingly witnessed that manufacturing, selling or even retailing business cannot be survived for a long run, in the lack of financial resources. However, effective balance better existing and future financial funds generally depends on the effective use of financial resources. The retailing business that makes consistent profits may survive in the market for long runs and can gain the attention of stakeholders (Arbidane and Ignatjeva, n.d). The business offering of retailer’s i.e. new products and services is totally depends to their capacity to make profits. To a greater extend, financial aspects of retailing business generally covers forecasting, budgeting, profit planning, asset management, and effective allocation of business resource. The major question of present investigation is that if there is a relationship between effective utilization of financial resources and profitability of organisation. To identify the fact behind the research statement, a leading entity of UK retailing market namely Marks and Spencer’s is taken into consideration.
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The major aim of retailing corporate entities is to achieve maximum profits so as to customers can be offered with innovative products. Marks & Spencer is witnessed as the most profitable retailer in Europe along with having presence in global market as a global supermarket chain. The global reputation for company is achieved on the basis of effective use of business resources (Annual report of Marks and Spencer, 2014). The major issue associated with research is that business entity is continuously making huge investment in research & development that involves huge monetary resources. This shows availability of sufficient funds and higher profitability in business to run operations smoothly (Kumar, Shah and Venkatesan, 2006). The rational of present study is to assess the major reason of profitability whether it is an effective allocation of financial resources. Recently, company has been observed to make continuous investment retained earnings in many of projects with the aim of making huge profits; hence, it is trying to manage its funds. The company is also preparing budget to make effective allocation of funds for each activity so, through the present investigation the relationship between effective utilization of financial resources and profitability of organisation.
The current investigation intends to know whether there is any relationship between utilization of financial resources in Marks and Spencer and its profitability. This investigation will specifically focus towards Marks and Spencer’s and its financial system. With the help of the present study, retailing managers can take sufficient steps towards the improving profitability of business. After analysing the importance of financial management in retailing business Marks and Spencer can make the profitability position better than other competitors and also attain huge market share (Agarwal, 2015).
The present investigation is significant for scholars, academicians, researchers as well as retailing business. This study purposes at identifying the relationship between effective utilization of financial resources and profitability. The significance of present research topic is in judging the competitive advantages of an organisation against the proper allocation of financial resources. The scholars will be benefited from the findings of investigation as they will be aware with the importance of effective allocation of financial resources as well as the factors of improving business profitability (A Marks and Spencer case study, 2013).
To the view point of Wilson-Jeanselme and Reynoldsm (2005) the success of a corporate entity depends upon the effective use of business resources. There are major three resources that play a vital role in the company such i.e. human resource, financial resources and technological resources. According to Kumar, Shah and Venkatesan (2006) financial resources are essential in every aspects as the application of such resources can be seen to the availability of other two resources. According to Chapman and McNeill (2004) finance is a life blood of every organisation and without it company cannot carry out its operations and other working. For every aspect fund is required and organisation cannot survive without finance. It is used for purchasing raw materials from suppliers, for paying fix and variable cost, for hiring and remunerating human resources, for investing in physical resource and many more. Thus, in every step and process finance is required. For this purpose, it is necessary for the company to recognize and analyze all types of financial resources so that at time of requirement fund can be availed quickly and effectively, hence time and cost both can be saved.In the study conducted by Maswadeh (2015) presented that in lack of financial resources business entities could not sufficient human resource as well as technical expertise, hence, it crucial to have sufficient amount of funds to run business operations. However, the management and proper allocation of financial resources is witnessed essential for continuously offering products and services to the consumers.
Maswadeh (2015) stated that it is very important to have financial resources in the company because without it company cannot survive. Also it is required for day-to-day activities such as stationary, miscellaneous expenses, daily wages to the labors, etc. when company plans to expand its business or diversify its venture than for that purpose one important thing required is finance, if company lacks the finance than expansion or diversification cannot be done. When new product has to be produced for that purpose machinery is needed and to purchase the machinery, fund is required. If company do not possess fund than it cannot install new machinery and thus, innovative product cannot be launched. To get success in the market and in this dynamic environment company requires appropriate fund without incurring high cost on them. According to Friedlob and Schleifer (2003) Company require fund for hiring and remunerating personnel because without compensation people will not work for the organisation. At initial level company has to pay to the employees from its capital but later payment is done through profit margin. But it is necessary that company should avail these resources from appropriate sources after evaluating all types of sources by keeping in mind several factors such as cost, time, risk, future consequences, etc.
Financial resources can also be raised through profitability as taken from the study conducted by Stolowy and Lebas (2006). He defined that profitability is an ability of an organisation to earn a profit and a profit is a revenue which is left after deducting cost. This act as one of the sources of finance. If company earns good profit than it could raise its fund from profit margin also. But there are many factors which affect the profitability of a company. If the market is highly competitive and there are many competitors present in the industry than profitability can be affected. Because market share get divided and similarly customers also get divided. Thus, company can earn less profit due to this reason which profitability of company get reduced. Also if demand is very high during certain time than there are chances that company can earn maximum profit by supplying goods and services of customer's need. Further, the good promotional technique also affect the profitability of company in a positive manner. As per the view point of Shapiro (2008) products and services are promoted using integrated promotional techniques such as advertising including sales promotion and also above-the-line techniques are combined with the below-the-line technique than this results in sales maximization which ultimately leads to profit maximization. Substitutes of good also affect the profitability of a company if less substitutes are available in the market than the firm can charge high price for their products and thus it will increase the profitability of a company whereas, if more substitutes are available than firm has to charge lower price and hence it will lead to lesser profitability. Moreover, the degree of cost of production also affects the profitability of an enterprise as the price of product mainly depends upon the fixed and variable cost which have been incurred at the time of production. But it is essentially required by the company to enhance its profitability so that firm can get success in a dynamic environment.
Wilson-Jeanselme and Reynolds (2005) cited that there are many sources through which company avail their financial resources. These sources are basically bifurcated into two types that is internal source and external source. Internal source is one which is present inside the organisation and company can avail the fund internally. These can be retained profit, shareholders fund, etc. It is good if fund gets availed from internal sources because amount of risk get reduced. If fund is raised through retained profit than it will be available in less period of time and also at lowest cost, however company's liquidity will get reduced and further it cannot expand. While raising fund from shareholders by issuing shares, then it can also be easy to avail fund in a shorter time and with less cost but it is not necessary that people may buy the shares of the company and existing shareholder may sell their shares. Risk associated is that it will become necessary to repay the amount at the time wind up. Whereas, external sources include banks, financial institutions, debentures, government bonds, etc. From these sources fund can be availed in a good amount but involve lot of time. If bank loan is taken or loan from World bank or other financial institution is taken than this require lot of formalities to get complete and it also involve high amount of risk as timely installments have to be paid along with interest. If any installment get missed than company can come under debt-trap. Debentures fund can be taken but firstly payment have to be done to them at the time of wind up. Thus, Merriam (2009) said that internal sources should be adopted while raising fund for the organisation as it involve less time, cost and amount of risk is also low. But Weil (2012) argued that fund should be raised from both internal and external sources so that cost, time and risk get divided and company could not depend solely on one source of finance.
In a recent article written by Agarwal (2012) financial resources are required by a retail firm to run its business as well as to meet day to day requirements. Nevertheless, the investigation made by Melero and Sese, (2015) found that the degree of financial resource management as well as allocation of funds within the organisation impacts the overall performance of business. Today's retailing sector has become more competitive and to be at the first position and to beat the competition the business entities required sufficient knowledge to earn market share and to gain profitability (Rahim, 2014). In the general phenomenon, it has been observed that the profitability of an enterprise depends upon management of financial resources as well as business operations. However, financial resources are witnessed as crucial factor that limits the growth potential. To the point of view of (Arbidane and Ignatjeva, n.d) success of business is highly depends upon continuous movements of funds in and outside the business. Within the retailing business financial management depends upon the activities such as allocation of financial resources, effective use of finance resources, maximizing income sources, minimizing expenses. In respects with the leading relater of United kingdom namely Marks and Spencer, it has been witnessed that a single financial step taken by financial department impacts a lot to each store (A Marks and Spencer case study, 2013).
Profitability of a corporate can be increased following these guidelines which have been given by Shim and Siegel (2008). According to him, company should firstly manage its cost of production and other cost so that profitability can be increased. For this purpose, firm should do the close management on the cost and search out the method which can reduce unnecessary cost and stop them to incur in future. For this work company can hire the employee which can do close management by taking into concern all the related aspect and also making effort to improve them. Further, organisation should review its existing offer that is product or services in respect to its features, benefits, quality, pricing, etc. this will help in focusing on the loopholes and improvements can be bring so that more sales can be done which will ultimately leads to increase in profitability. Further, Palmer (2012) stated that company can concentrate on their promotional techniques and also bring changes and improvement in the existing technique. This will help in communicating the information about the products and services in a better manner and this may influence the customers and potential customers to buy the products and do repeat purchase which will lead to the enhancement of profitability by increasing the profit margin. By following these methods profitability can be increased.
As per an illustration there could be seen some financial implications of new delivery schedule, store development, as well as the putting expenses on day to day activities. The management of Marks and Spencer is committed to hire logical, analytical and business-minded people who can perform locally-based financial management (Rahim, 2014). As per the case study related to financial management of Marks and Spencer stated that financial planning of preparing budget for each store is the major task for management. It has been witnessed the management team of each store look back at the previous year’s sales as well as income and expenses so that future financial projections can be made. The major reason behind the task is to allocate sufficient amount to each activity to make a maximum use of finance resources and to make huge profits (A Marks and Spencer case study, 2013). From the financial statement of 2014, it has been witnessed that Net margin of company has been increased from previous year (2013), which is all due to the increased sales and reduction in expenses. A major part of company's cash is used for purchasing fixed assets that is significantly increased from previous years (Annual report of Marks and Spencer, 2014). In addition, the Capital expenditure of business entity is witnessed fluctuating for al the years. However, the position of cash is the business has also improved after 2012 (Morning star, 2015). The effective cash flow management can lead to reduce unnecessary costs which makes store financially sound. However, it will lead to create competitive advantage for the business and provide a path to achieve desired profitability.
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This is the way that gives a clear path to the researchers for conducting present investigation and collecting information. There are three major philosophies such as positivism, realism and interpretivism (Kothari, 2011). The aim of present investigation is to assess the relationship between effective utilization of financial resources and profitability of organisation, therefore an in-depth knowledge is required, hence, the use of interpretivism philosophy is suitable.
In the research world, there are two major research approaches such as inductive and deductive. The use of inductive approach suggests for the application of new theories and development of new model to investigation the research objectives (Chapman and McNeill, 2004). On the other hand, deductive approach is used to investigate into depth. The rationale behind suggesting this approach is that the study is focused towards the specific company namely Marks and Spencer. In additional, the approach will provide a clear path to draw effective findings.
To investigative the nature of present study, it is crucial to imply specific research type. The academic research is divided into two parts such as qualitative and quantitative. The qualitative research is seen to be based on the human behaviour aspect and observational theories (Merriam, 2009). On the other hand, quantitative research type presents the facts in terms of numerical forms. The present investigation will be qualitative one as it is going to be based on the in-depth investigation into the research problem. The finding will be presented in a qualitative so as to reach the objectives.
The research design is also known as the blue print of entire investigation that presents the way in which the investigation has been conducted (Kothari, 2011). The selection of effective research design is based on the chose approach and nature of investigation. For the present research work descriptive research design will be used that will be effective in conducting investigation to a specific company.
To conduct a proper investigation, it is crucial to collect the information that is pertaining to the research problem (Kothari, 2011). Mainly, there are two major methods of data collection such as primary and secondary. . In regard to the present investigation secondary data collection methods will be used or the data will be collected from secondary sources. To collect the data online and physical libraries will be approached (Merriam, 2009). The evidence of secondary information will be shown in literature review section. Further, to collect secondary data, various books, journals and online published articles will be used. In addition, to assess the profitability and the use of financial resources, the financial reports of past 5 years of Marks and Spencer will be evaluated. This will also call as the secondary source of data collection.
There are various techniques of data analysis such as descriptive, quantitative, qualitative, statistical etc that would be used to assess the information that is collected from primary and secondary sources (Kothari, 2011). With the use of thematic analysis method researcher will become able to generate valuable insights and findings through analysing the information through various themes. The information gathered from secondary sources such as financial statement ad online sites, will be used to assess the reason of profitability of company.
There might be some challenges faced by the researchers during a course of work that need to be overcame in a well effective manner to reach out the objectives. The major barriers that are going to be faced by the researchers are of limited funds, manpower, availability of enough financial information, etc. The researcher faced difficulty to obtain accurate information that might hamper the authenticity of information (Miller and Birch, 2012). In order to overcome this limitation, investigator will seek for the permission of Marks and Spencer's managers for using past financial records. The shorter time limit of the study herewith will be a major limitation of the investigation. Along with this, availability of sufficient funds and management of such funds is major challenging areas of present investigation. Such barriers can be resolved through applying time management strategies as well as concentration of researcher (Kothari, 2011).
During this work, it is mandatory to keep eye on the ethical practices that are to be followed to make a research valid and accepted. It is also mandatory to identify the ethical issue that can be faced at the time of conducting investigation (Kothari, 2011). The knowledge of researcher in regard to the research topic is an ethical aspect of investigation hence, in the present investigation researcher is going to earn huge knowledge in regard to the research topic. It is also important to obtain the data from reliable sources (Miller and Birch, 2012). This study is going to be secondary one and the researcher is going to collect the financial information of company after taking a permission from the management. To assess the factors of profitability, management of Marks and Spencer will be the perfect research participates and it is quite necessary to take out the permission from such participants. The information that is collected from the secondary sources will be keep confidential and will be used for research purpose. However, honesty and integrity will be maintained throughout the research that is the foremost considered ethical ground.
The retailing organisational will be more beneficial from the findings of this investigation as they can judge their financial research allocation and can arrange the practices to earn profitability. In addition, this investigation is going to help in suggesting the ways to enhance the profitability of Marks & Spencer through management of financial resources. Overall the significance of manuscript herewith, is seen for entire retailing industry because it will promote companies to enhance their profitability via effective allocation and management of financial resources.
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