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A Quick Look At Marks and Spencer Group plc’s Cash Flow Statement

In this series of articles looking at financial statements, we are going to see if we can delve into Marks & Spencer‘s (LSE: MKS) cash flow statement for the year ended 30 March 2013.  If you are new to investing, or are just baffled by some of the terms that make up a cash flow statement, then read on.

Again, I will start by noting the cash flow statement is only one of three main financial statements. Both the balance sheet and income statement are as important, and should be viewed in conjunction to gain the full picture.

The cash flow statement is very useful in gaining a real understanding of what has actually happened during the year.  Unlike the income statement, which is ruled by accrual accounting, and the balance sheet, which is a mere snapshot of one point in time, the cash flow statement gives a perspective on how Marks & Spencer has performed in hard cash.  There are far less hiding places to be had when reporting this one.

Cash is king

The first line is cash generated from operations.  We need to go to note 26 to see that this is pulling directly the profit for the year from the income statement of £458m, removing any non-cash based accounting adjustments such as depreciation and pension costs, and then including cash transactions such as the changes in amounts due from debtors and creditors and the actual cash contributions to the pension scheme.  The net result of all this is to give us an undiluted view of how much cash was actually generated from normal operations. £1.2bn in this case, with the main difference being the depreciation of £467m.

‘Cash flows from investing activities’ is always interesting as it shows the commitment and ambition to future growth. The question is always how well companies have targeted their investments. Marks & Spencer has piled £643m into the purchase of property, plant and equipment. A quick look at note 15 shows that £430m was for fixtures, fittings and equipment and a further £187m assets in the course of construction as at the year end.

Intangible assets accounted for a further cash outlay of £187m.  Again we can refer to the notes, with note 14 attributing the whole amount to computer software completed or under development.

Dive into those savings

The cash inflow of note in investing activities is the sale of current financial assets.  These are usually funds, bonds or equities that are readily convertible into cash or payable within one year.  We can see in note 16 that the balance of these investments fell from £254m in 2012 to just £17m representing a major sell-off.  Without this cash injection, the closing net cash of £161m would have been in the red.

Finally, in financing activities, the outstanding line item is the redemption of medium-term notes.  These are fixed and interest and term loan agreements requiring Marks and Spencer to pay £606m during the year. It’s not likely this figure will reduce next year, with note 20 showing £2.2bn still outstanding.

Hopefully that whistle-stop tour was helpful although, as ever, there are many more terms that could be cleared up too.

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> Barry does not own shares in Marks & Spencer.