This report is prepared from the standpoint of a shareholder who is interested in the financial performance of Next plc with the particular concern for dividends, earnings and share price.
The main findings of this report are the following:
•accounting policies adopted by Next plc correspond to the required standards and, in our views, prove to be relevant, reliable, understandable and consistent. •Analysis of investment ratios, gearing ratio and profitability ratios was done and, in our view, being a highly financed business Next plc managed to deliver quite decent results in this testing and critical period. It adopted such policies and made such decisions that allowed earning per share rise 24% and increase the dividend payout in spite of the fact that the dividend cover ratio has not changed. It has increased its operational profit that is of great importance for Next plc due to its high level of gearing. It still has a huge debt but it also has plans for expansion and increasing its profit. The price per earning ratio may be of concern for investors but it seems that Next plc takes measures to strengthen its shares.
1. Appraisal of the accounting policies of Next plc.
The Next interim statements up to July 2010 have been prepared in accordance with IAS 34 Interim Financial Reporting (www.next.co.uk). Accounting policies correspond the required standards. The financial statements have been prepared on the historical cost basis in accordance with the historical costs convention; exceptions have been made for certain financial instruments, pension assets and liabilities which were measured at fair value.
As for the going concern convention, the Directors’ report states that they have a reasonable expectation that the business has adequate resources to continue its operations for the foreseeable future. www.next.co.uk.
The interim statement of Next plc reveals some changes that were adopted to the accounting policies due to the adoption of the requirements of IFRS 3 Business Combinations. It states that the most significant change to the Next plc accounting policies is that any changes to the cost of an acquisition, including contingent consideration, resulting from events after the date of acquisition are recognised in the income statement whereas previously such changes resulted in an adjustment to goodwill. www.next.co.uk.
Although it is not easy to give an objective appraisal of the quality of the accounting information presented we will look at each characteristic separately.
We can assess the accounting information presented in the interim statement of Next as relevant because it made the board of the Directors able to make the decisions regarding the future of the business such as expansion of the Next Home, growth of the Next Directory both in the UK and overseas, etc.
The accounting information in the interim statement may also be assessed as reliable as it supports the above made decisions by the results that might be achieved in terms of numbers, such as increase in sales by 2% to 5% per year over the next three to five years and others as stated in the Chief Executive’s review. www.next.co.uk.
The accounting information in the interim statement of Next plc also seems rather comparable. The information in the financial statements is available not only for the current period and for the past 6 months but also for the last year that gives a slightly bigger picture of the company performance. In addition Next plc makes its accounting policies adopted in measuring and presenting information quite clear that tends to enhance the comparability. (Peter Atrill, Eddie McLaney, 2008).
Understandability is quite a subjective characteristic of the accounting information to judge as all the pieces of the information can not be fully understandable for all stakeholders. We can say that the information in the interim statement of Next plc presented in a clear manner...