Ratio Analysis of Next Plc

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Business Accounts – Assignment I

Introduction

Next plc is a retailer founded 1864 in the United Kingdom, that not only sells men’s, women’s and children’s wear but also has a home ware department. Their clothes wear are stylish but affordable. Throughout the United Kingdom and Ireland there are over 550 Next stores plus 50 franchises operating in Asia, Europe and The Middle East.
This report will analyse and outline the company’s profitability, liquidity, solvency and investment potentials based on 15 ratios. All information is taken from the Next plc 2011 statement.

Profitability and Performance
The gross profit ratio indicates that Next plc was able to maintain their gross profit. It has decreased insignificantly by 0.05%. In 2011 the revenue has increased by roughly 47 Million, hence the sales of costs increased proportionally to this. The reason for the increase could be either an introduction of a higher priced product line or merely a purchase of more goods. One reason could be that due to higher demands they had to stock up their inventories. This ratio indicates that the company was able to sustain the same level of costs in year 2011, but also that the trading department successfully negotiated better prices with suppliers.
The operating margin has experienced an increase in numbers from 15.55% to 16.64%. It seems that Next plc found a way to control their costs more efficiently. On the income statement one can see that the administration costs and distribution costs have reduced. This could be due to cuts in wages or rent. In general, however, it can be said that Next plc improved their cost accounting. This could be an explanation for the increase in the operating margin ratio.
The asset turnover ratio has fallen slightly by 0.05. A reason for this could be slightly higher investments in fixed assets like plant or equipment. All in all though, they have managed to maintain leveraging their assets, but in future they should try to use their

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