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Assignment

Subject: Financial Management
Course: Business Management (Level 7)
Student Name: Muddsir Hussain
Student ID: 3740












London Essex College Ilford, London.


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Table of contents Page No.
Task 1:
Consolidated Income Statement 1
Consolidated Balance Sheet 3
Ratio Analysis:
Current Ratio 4
Asset Test Ratio 4
Gross Profit Ratio 4
Net Profit Ratio 5
Management Ratio:
Stock Turnover Ratio 5
Activity Ratio:
Creditors Turnover in days 6
Return on Capital 6
Return on Asset Ratio 6
Working Capital 7
Cash Ratio 7
Debt to Equity Ratio 7
Task 2: 8
Task 3: 9
References: 10

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Task 1: Critically analyse and interpret a set of company accounts and evaluate the financial performance
of the company and suggest how it can be improved. At least two year data (recent) should be used.
NEXT PLC Annual report
Consolidated Income Statement
For the financial year ended 29 January 2010




2011 2010
Notes m m

Revenue 1, 2 3,453.7 3,406.5
Cost of sales (2,445.0)
(2,409.6)

Gross profit 1,008.7 996.9
Distribution costs (223.2) (232.1)
Administrative expenses (214.7) (236.6)
Other gains 2 2.2 0.7

Trading profit 573.0 528.9
Share of results of associates 11 1.8 0.9

Operating profit 3 574.8 529.8
Finance income 5 0.9 0.8
Finance costs 5 (24.3) (25.3)

Profit before taxation 551.4 505.3
Taxation 6 (150.5)
(141.3)

Profit for the year 400.9 364.0



Profit for the year attributable to:
Equity holders of the parent company 401.1 364.1
Non-controlling interest (0.2)
(0.1)

Profit for the year 400.9 364.0



Basic earnings per share 8 221.9p 188.5p

Diluted earnings per share 8 216.5p 185.6p






Consolidated Statement of Comprehensive Income
For the financial year ended 29 January 2010






2011


2010

Notes m m
Profit for the year 400.9 364.0


Other comprehensive income and expenses
Exchange differences on translation of foreign operations






(5.0)

Gains/(losses) on cash flow hedges

1.8 (61.4)

Actuarial gains/(losses) on defined benefit pension scheme 21 64.3 (12.6)

Tax relating to components of other comprehensive income 6 (15.5) 19.0


Reclassification adjustments
50.6 (60.0)

Transferred to income statement on cash flow hedges 2 (14.8) (8.3)

Transferred to the carrying amount of hedged items on cash flow hedges

4.7 5.2
(10.1) (3.1)
Other comprehensive income/(expense) for the year 40.5 (63.1)
Total comprehensive income for the year 441.4 300.9


Attributable to:

Equity holders of the parent company 441.5 301.0
Non-controlling interest (0.1) (0.1)
Total comprehensive income for the year 441.4 300.9







































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Consolidated Balance Sheet
As at 29 January 2010







ASSETS AND LIABILITIES
Non-current assets


2011 2010
Notes m m
Property, plant & equipment 9 592.4 577.2
Intangible assets 10 46.5 47.4
Interests in associates 11 5.1 4.0
Other investments 12 1.0 1.0
Defined benefit pension surplus 21 55.7
Other financial assets 15 24.3 22.7

725.0 652.3
Current assets
Inventories 13 368.3 309.0
Trade and other receivables 14 645.6 616.6
Other financial assets 15 4.1 8.6
Cash and short term deposits 16 49.3 107.0

1,067.3 1,041.2

Total assets 1,792.3 1,693.5

Current liabilities
Bank overdrafts 17 (10.2)
(4.7) Unsecured bank loans 17 (115.0)
Trade and other payables 18 (544.6)
(550.3) Other financial liabilities 19 (54.7)
(93.6) Current tax liabilities (108.4)
(109.5)

(832.9) (758.1)
Non-current liabilities
Corporate bonds 20 (471.2) (520.9)
Defined benefit pension deficit 21 (49.5)
Provisions 22 (13.3) (13.4)
Deferred tax liabilities 6 (23.4)
(3.7) Other financial liabilities 19 (2.6)
(4.4) Other liabilities 23 (216.5)
(210.1)

(727.0) (802.0)
Total liabilities (1,559.9) (1,560.1)
Net assets 232.4 133.4

EQUITY
Share capital 24 18.1 19.1
Share premium account 0.8 0.7
Capital redemption reserve 11.8 10.8
ESOT reserve (138.6) (78.2)
Fair value reserve (3.2) 5.1
Foreign currency translation reserve 4.6 4.7
Other reserves 25 (1,443.8)
(1,443.8) Retained earnings 1,782.6
1,615.2

Shareholders equity 232.3 133.6
Non-controlling interest 0.1
(0.2)

Total equity 232.4 133.4


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Evaluation of the financial statements for the year ended
January 2010:
1) Current Ratio = Current Assets / Current Liabilities

2011 2010
1067.30/832.90=1.282:1 1041.20/758.10=1.374:1
The current ratio provides an indication of the business. The current ratio of the company is
falling if you see the last year for 1 current liability is available for the 1.374 current assets
but the in the year 2011 this is felled to 1.282 for the one liability. But over this entire ratio is
satisfactory. The company is going well.
2) Quick/ Asset Test Ratio= Current Asset-Inventory-Prepaid
Expences/Current Liabilities.
2011 2010
699.00/832.90=0.84:1 732.20/758.10=0.97:1
It shows a measurement of liquidity position of company. It is stringent test of liquidity. If
you see the Quick position of the company the both years are just acceptable level but in the
year of 2011 position of the company a little bit fall and this sign not good for the companys
future investor if this trend is going on continuously.
PROFITABITY OR INCOME STATEMENT RATIO:
3) Gross Profit Ratio = Gross Profit/Net sale *100
2011 2010
1008.7/3453.70*100= 29.2% 996.90/3406.50*100= 29.3%
This is a very important ratio of the company because the investors must look at the gross and
the net profit of the company for the safety measure. The Gross profit for both years of
company is almost the same and if we look at the revenue figure which is increasing as the
cost of sale that is why there is no big difference in gross profit of the company.

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4) Net Profit= Profit after Tax/Net Sale *100:
2011 2010
400.90/3453.70*100= 11.60% 364/3406.50*100= 10.70%
Net Profit ratio depicts the companys profit after deducting all expenses and taxation, govt
duties as well. The profit after tax for the year ended 2011 is almost 400.90. This time almost
0.90 per cent increase in the Net profit. It looks like that the company cost of good sold,
operating and financial are still higher as it is last year.

MANAGEMENT RATIO:
5) Stock Turnover Ratio= Average Stock/Cost of Sale *365
2011 2010
338.65/2445*365= 51 days 309/2409.6*365=47 days
This also very important ratio not only for the supplier but also the insurance and banking
companies because all the activity in the company may it is manufacturing or trading is
directly concerned with the stocks and turn over of the stocks in proper time would be the
benefits for the company. Minimum time should be better than the more because less
insurance cost storage cost and carrying cost would be paid. This ratio shows that the year
2010 is better than year 2011 which is 47 days.
ACTIVITY RATIO:
6) Debtors Turnover in days= Av. Debtors/Cr. Sale *365
2011 2010
631.10/3453.7*365= 67 days 616.6/3406.5*365= 66 days
In activity ratio the debtors turnover ratio is important for the company. This ratio tells that
how much time the company received from their customers. So that more time would be
affect the companys reputation and financial position. As less time would better for cash
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cycle and the company is in a better liquid position in case of less time. In above ratio, year
2010 is slightly better than year 2011.
7) Creditors Turnover in days= Av.Creditors/Purchases *365
2011 2010
547.45/Cr Purchases*365= 56days 550.30/Cr. Purchases*365= 49 days
There is no credit purchases.
In activity ratio the creditors turnover ratio is important for the companys suppliers and
manufacturer for the company. This ratio tells that how much time period the company paid
the finance to their creditors or suppliers. So that more time would be affect the companys
financial position and financial strength.
8) Return on Capital Employed = Net profit/ Capital Employed:
2011 2010
400.90/959.10*100=41.8% 364.00/935.40*100= 39%
Return on capital employed is very important not only for company s reputation, financial
position but also for the future investor ,trader, supplier, and everyone who interested in the
company like share holder and stake holders of the company. Todays business atmosphere
and especially in Far East Europe and America are change because the current prevailing
rescission on world economy has heavy effect on world businesses still in continue. Every
investors supplier look the company return on investment. If you see in both year have very
good with slight change the return on investment in year 2011, 41.8% as compared to year
2010.
9) Return on Asset Ratio = Net Profit / Total Assets:
2011 2010
400.9/1742.90*100 =23% 364/1693.5*100= 21.50%
As the case above the return on assets ratio the same meaning the return on capital employed.
In year 2011, return on asset is higher than year 2010 but a little bit felled as compared to year
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2011. The return on asset shows the return of capital employed, higher return is favourable for
the company.

10) Working Capital = Current Assets Current Liabilities:
2011 2010
1067.3 832.9= 234.40 1041.2- 758.10= 283.10
It serves as liquid reserve available to satisfy contingencies and uncertainties. This ratio
indicates short term solvency and in determining, the firm can not pay its liabilities when due.
The firms working capital depicts down word trend as compared to last year and over all
position of the company is good.

11) Cash Ratio = Cash & Cash Equivalent / Current Liabilities:
2011 2010
49.30 / 832.90 = 0.060 107.0/ 758.10 = 0.142
It indicates a conservative view of liquidity. The firm faces highly intentional problem to
create liquidity in such circumstances. In above cash ratio the year 2010 is better than year
2011.


12) Debt to Equity Ratio = Total Debt / Total Equity
2011 2010
471.20 / 232.40 = 2.028 520.90 / 133.40 = 3.905
Indicates how well creditors are protected in case of the companys solvency. Debt to equity
ratio of the company is growing time by time as shown above which is 2.028 in year 2011 as
compared to year 2010. The major difference in equity is increasing as compared to debt from
previous year which results in lower down the ratio to 2.028.
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Task 2: Discuss the best way for the management of the chosen company in task
1 to decide whether to make a new investment.

Company Profile:

Next is a United Kingdom based retailer that offering products in footwear, clothing,
accessories and home products. The Company distributes through three channels. Next Retail,
a chain of more than 500 stores in the United Kingdom, Next Directory, a home shopping
catalogue and Website with three million customers, and Next International, with more than
180 stores globally. Other group businesses include NEXT Sourcing, which designs, sources
and buys NEXT branded products Lipsy which designs and sells its own branded younger
womens fashion products through retail, Internet and wholesale channels, and Ventura,
which provides customer services management to, Full Overview of NXT.L clients wishing to
outsource their customer contact administration and fulfilment activities.
Investment Opportunities:

The primary financial objective of the Next group remains the delivery of sustainable long
term growth in earnings per share. Next believes this objective is best achieved by
continuation of the following strategies in its operating businesses:
Nevertheless mail order is an important plank in the retail trading stakes. Employees
aged 20-40 have little time to do their shopping. So it is good that NEXT has gained a
foothold in this market. They are ranked number one among the High Street names
which are offering mail order clothing. This could be a great opportunity for NEXT to
increase market shares of the domestic market as of the foreign markets.
Developing and Improving Next product ranges, success in which is reflected in total
sales and like for like sales performance.
Managing gross and net margins by better product sourcing, continuous cost control
and efficient management of stock levels and working capital.
Increasing the number of Next Directory customers and their average spend.
Profitably increasing Next Retail and Lipsy selling space. New store appraisals must
meet demanding financial criteria before the investment is made and success is
measured by monitoring achieved sales and profit contribution against appraised
targets.
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Purchasing and cancelling Next shares when it is earnings enhancing and in the
interests of shareholders generally.
Maintaining the Group's financial strength through an efficient balance sheet and
financing structure.



Task 3:
The Managing Director (M.D.) of a company wishes to float his company on the
official listing of London Stock Exchange (LSE) to raise finance to fund a new
project.

Benefits of joining the Stock exchange:

Access to more capital which could help your company raise finance for further
development, both at the time of admission and through further capital raisings.
Facilitation of acquisitions increasing your company's ability to make acquisitions,
using listed shares as currency.
Improving employee commitment you can use shares as an employee incentive to
encourage their long-term motivation.

Matters to consider:

You should also carefully consider the potential issues involved in joining the Main Market,
for example:

Market fluctuations, these can be caused by a range of external factors, including
social, political and economic change, all of which can affect your company's share
price both positively and negatively.
Listing costs: The expense of joining a public market can be considerable, both at the
time of admission and in on going costs. You will need to pay for the services of a
range of advisers, including a reporting accountant, lawyer, investor relations and
public relations.
Compliance: As a publicly listed company you will need to comply with the UK code
on Corporate Governance.



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References:

Annual reports and accounts:5 year history". Next PLC. January 2010.
Next Plc NXT:LSE Company Description". Financial Times. January 2010
Next history". Nextplc.co.uk.
"Next launch on-line catwalk". Fashionunited.co.uk.
Next launches TV campaign
Next plc. "Next Open New Concept Superstore with a Smillie