BU7006 Strategic Financial management Assignment Sample 2024
1. Introduction
Next Plc Is a UK based global retail industry-focused to expand business in different foreign countries as well improving performance in the “global market”. Next Plc was founded in 1864 in the UK as a retail business. There are nearly 44,193 employees who assist organisations to perform in different markets. Next plc‘s current year total revenue is £3.6bnthat is decreased as contract with last year sales of £4.4bn.
Organisation faced 16.9% below sales. It indicates that organisation financial management has not been effective. This report is conducted for the evolution of financial and non-financial performance of Next plc. In this context financial evolution such as ratio analysis as well as non-financial analysis such as PEST and SWOT analysis is conducted to identify different types of challenges and issues of a company.
2. Ratio analysis
Ratio analysis is a financial analysis of any organisation that assists a company in understanding the performance of different types of financial factors. Ratioanalysis is the first preference for any organisation to understand the financial health of a company as well as the future health of a business. Further profitability is the main ratio among different types of financial ratios. It indicates core performance of any business.
There are four main types of profitability ratios. The four ratio analyses are “gross profit ratio, operating profit, net profit and return on capital employed”. Net profit is representing an organisation actual profit and income for that period of time. Besides, an organisation also calculates other ratios such as liquidity efficiency and Investors ratio. These types of ratios support stockholders as well as shareholders to understand the organisation’s efficiency for making any type of investment in an organisation.
2.1 profitability ratio
Profitability refers to an organisation’s ability to acquire profit through sales and other business processes. There is revenue and interest on investment is main sources for an organisation to generate profit and improve profitability of company.
An organisation’s profitability mainly depends on the revenue of the company. Thus it is important for companies that must improve their revenue for better performance of the organisation. In this context next Plc is facing decreased revenue from previous year.
A profitability ratio is a financial ratio that helps to evaluate company’s ability and to enhance gross income. This specific ratio sometimes helps to compare the overall expenses of a business and that helps to understand the overall cost-effectiveness of a business.
The specific ratio helps to describe a normal cash flow margin of a business and it effectively measures the company’s performance and growth. The profitability ratio is an accounting ratio that describes the financial resources of an accounting period. Sometimes net profit and net sales are generally described with the profitability ratio of Next Plc.
The profitability ratio sometimes indicates the gross profit margin of a business and that helps to determine the accurate profit of the specific business. Profitability ratios can easily access companies’ balance sheet income statements and numerous assets.
A specific ratio can easily compare the individual account statements of a company and that enhances the chances to generate more profit on companies operations. Earning power ratio sometimes indicates a gross profit of the specific company and that helps to understand net outcomes of a particular company. Sometimes profitability ratio is the ability to earn more profit from the operations or sales.
The efficiency level of the company is sometimes described by the profitability ratio and it can easily generate more profit to improve the basic performance level. The relationship between two or more companies’ financial statements is generally described by the profitability ratio and that helps to follow companies’ basic performance level to eliminate numerous troubles.
Gross profit
Gross profit refers to an organisation’s basic profit that is calculated by deducting the cost of goods sold from the total revenue of the company. It first profit not final income of any organisation. Nevertheless high gross profit is indicating high net profit of organisation. Total revenue of next Plc is 3,534 4,266 4,167 and 4,091 for 2021 to 2018. Revenue of the organisation has decreased too much as compared with the last three years. Besides, the gross profit of the company is 35.05, 39.42, 38.51 and 34.75.
This indicates organisations gross profit is not on behalf of the company. The main reason behind decreased gross profit is the total revenue of the company. Gross profit also decreased other profits such as operating and net profit of the company. Thus it is important for Next Plc to improve their gross profit for better results of other profitability ratios of the company.
The specific ratio helps to monitor the basic profit of a business and that is calculated by detecting the total revenue of a business. The gross profit ratio sometimes indicates the total revenue of Next Plc and this particular factor helps to enhance the high net profit of a business. Net profit of the organizations is compared with the help ratio analysis method and that helps to evaluate the overall business performance of Next Plc.
The total revenue of a company is clearly described by the gross profit ratio and that helps to describe the overall economic condition of a business company. 3534 (million GBP) sales are described by the profitability ratio and that helps to monitor the net profitability of an industry.
2.2 Liquidity ratio
Current ratio
Current ratio is used to understand liquidity of a company to make a short-term investment decision. The current ratio of Next PLC is almost 1.9 in 2021 and more than 2 in 2020. Company’s ability to manage daily activities by available current assets is represented by current ratio. Current ratio is more than 1.59 in 2019 and around 1.96 in 2018. Next PLC has managed to maintain good liquidity in the company that enhanced decision making of operating activities.
This company can easily pay all current liabilities by selling its available current assets and still operating a business without any complications. More than 1.5 current ratios of a company are considered as a firm with good liquidity and Next PLC has maintained more than it over four years.
Quick ratio
Next PLC’s quick ratio is almost 1.46 in 2021 and more than 1.5 in 2020 that shows the efficiency of this organization in managing operational activities. Quick reaction is used to find the ability of an organization to pay all current liabilities without selling inventories. Average quick ratio of Next PLC is more than 1.34 in the last four years.
Almost 1.18 in 2019 and approximately 1.45 in 2018 quick ratio has been maintained in Next PLC. Inventors make their decisions after evaluating companies’ available current assets that can pay upcoming bills and outstanding, quick ratio helps them to identify liquidity of an organization.
2.3 Efficiency ratio
Trade payable days
It has been found from efficiency analysis of Next PLC Days of trade payable are almost 28 days in 2021 and more than 30 days in 2020. Payable days represent the efficiency of a company to pay its dues within a short period. Next PLC has paid its dues within 30 days in the last four years that creditors are well satisfied by its efficiency. This company easily gets short term loans for operating activities due to low payable days.
A day of trade payable is almost 30 days in 2019 and more than 22 days in 2018 in Next PLC. Operating activities of a company are dependent on trade payable days because high trade payable days increase liquidity but represent an inability to pay its creditors.
Trade receivable days
Days of trade receivable has been calculated in this study to understand efficiency of Next PLC. Trade receivable days are used to find the number of days that consumers take to pay their dues to a company. Trade receivable days are almost 113 days in 2021 days and more than 111 days in 2020 in Next PLC. Consumers of Next PLC take a long time to pay their dues because the company faces operational difficulties.
Trade receivable days of Next PLC is around 111 days in 2019 and more than 105 days in 2018. A low trade receivable day manages liquidity of the company but shows an inability to allow credits to its consumers. After evaluating trade receivable and payable days, it has found that next plc manages its financial resources efficiently.
2.4 Investors ratio
Investor’s ratio is a financial ratio that evaluates the abilities of Next Plc and it also indicates the return on investment. The investor wants to invest money in the company and that can access the overall profitability of Next Plc. The investor’s ratio is generally calculated by the average inventory in the same period. Investor’s ratio generally provides a company’s ability to evaluate the overall risk involvement of a business.
Investor’s ratio generally compares the investment policy of an individual company that helps to evaluate the basic performance of several investors. Earnings per share help to recognize numerous business policies of industry and that describes income statements. A financial ratio is a systematic process that helps to generate new profit for a business company. Earnings per share are described by the financial ratio and specific factor helps to evaluate the higher earnings of a company.
The net income of the company and the number of shares is described by the investors’ ratio. The net income is 287 (GBP million) in the year 2021 and the number of ordinary shares is 128 (GBP million). Earnings per share help to develop the net profit of a business company and that helps to indicate about common outstanding shares of a business.
Earnings per share describe the company’s value and that is simply calculated by the net income from the operations. Investor’s ratio compares the prior period of a company and evaluates company’s ability to enhance return back to investors. A financial ratio is to compare the net income, generate profit, and a total number of shares that helps to indicate the overall business policy of Next Plc.
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PEST analysis
| Political | ● To control legal framework
● To control corruption level ● Industrial safety regulations |
| Economical | ● To develop the efficiency of the financial market
● To increase labour costs in the economy ● Increase economic growth rate |
| Social | ● Skill and demographic level of population
● To develop the education level and social conversation ● To develop leisure interest |
| Technological | ● To eliminate numerous competitors
● Impact on product offering ● Rate of technological diffusion |
Table 1: PEST Analysis
(Source: Self-created)
PEST analysis is a potential tool to describe the macro environment of the business industry. Next Plc has controlled their environmental factors by the PESTE analysis. Political factors control the legal factors of an industry and that helps to eliminate numerous difficulties of the business industry.
The basic efficiency level of the business is clearly described by the PEST analysis and that helps to develop basic knowledge that can easily control performance level. The overall profitability level of the business is clearly described by porter’s five forces and that helps to enhance the future opportunity of a business.
A consumer’s service industry helps to eliminate the overall business process of Next Plc and helps to eliminate several business difficulties of the specific industry. PEST analysis describes the great details of an industry and that helps to understand the basic efficiency level of Next Plc.
Political
The operating challenges of a business are clearly described by the PEST analysis and that describe the competitive forces of individual industries. High profitability and strong growth of the industry have been described by the specific analysis that helps to control the political environment of Next Plc. Political factors include political stability and growth of individual companies and this helps to eliminate the basic corruption level of the business environment.
Sometimes intellectual property protection is protected by political factors and that always protects a business industry from external threats. Individual business organizations describe their business policy with the help of trade regulations and these regulations are directly impacted by the political factors of Next Plc. Taxation and pricing regulations are included by the political factors and these specific factors are improving trade regulations to control business difficulties.
Anti-trusted laws of the retail industry have been developed by the PEST analysis and this helps to evaluate the overall business strategy of Next Plc. Tax rate and numerous incentives are easily recognized and controlled by political factors and the overall business policy of industry are measured by the trade regulations policy. Safety regulations of the industry are included by the political factors and specific factors are mandatory to increase mandatory benefits of numerous employees.
Economical
Recognizing the economic factors of the industry helps to understand the inflation rate of Next Plc. Economic factors include foreign exchange, interest rate, savings rate, inflation rate and it describes the economic cycles to identify aggregate demands. Economic factors are important to recognize the basic efficiency level of the business and most business organizations identify their economic factors to develop their current business plan.
An aggregate investment plan describes the basic economic factors of the business and that helps to control the economic cycles of the individual business industry. The economic system of the country is recognized by the economic system and that helps to evaluate the overall business process of Next Plc. PEST analysis helps to evaluate the overall business policy of Next Plc and that is clearly described by the overall business process of a specific company.
Sometimes economic factors control economic factors of specific businesses and that helps to evaluate the significant development of Next Plc. PEST analysis critically describes the overall business process of Next Plc and it sometimes clearly describes the basic opportunities in the future. Economic factors sometimes describe the accounting and financial conditions of a business and that help to rectify numerous challenges of a business.
Understanding the cost management and accounting helps to enhance the overall business process of Next Plc and that describes the specific performance level of Next Plc. Sometimes labour cost and the educational level of individual employees helps to enhance the overall business process of Next Plc.
The economic factors sometimes describe the financial growth rate and discretionary income of a company. The inflation rate and unemployment rate are sometimes described by the economic factors of Next Plc.
Social
The overall culture of the society and organizational environment is described by social factors. Standard population and current market position help to evaluate the overall social factors of a business. Next, Plc has described their social factors with the help of PEST analysis. Numerous customers and understanding the overall pop elation level helps to enhance the overall business process of Next Plc. Numerous retail industries are developing their current factors with the help of PEST analysis.
Sometimes demographic levels and skills are easily recognized by social factors and that helps to develop an overall relationship with numerous customers. Social factors sometimes describe the environmental threats of the business and that helps to eliminate numerous difficulties of Next Plc. The cultural activity of the retail industry is measured by the social factors and that specific factors are improving the basic performance level of Next Plc.
Technological
The technological factors of the business industry that describe the overall business process of the industry are clearly described by the PEST analysis. Most business organizations are monitoring their business performance with the help of technological factors. Individual business organizations are easily impacted on their business process with the help of technological factors.
Technological factors are disrupting the overall business process of the industry and that helps to enhance the basic performance level of the individual business. Sometimes technological factors eliminate numerous business difficulties of Next Plc and that helps to enhance the basic performance or efficiency level of the specific company.
Individual team performance helps to develop technological factors of the industry and that helps to enhance business opportunities of the organization. The rate of technological diffusion helps to enhance the overall business process of Next Plc.
The value chain of consumer service sectors is clearly described by technological factors. Technological analysis helps to evaluate the overall business performance of Next plc and most of the business organizations describe their technological factors with the help of PEST analysis. Most business organizations track their basic performance with the help of technological factors and that is the most effective factor of individual business industry.
Apart from this, most of the retail industry is helped to analyse their business performance with the help of technological actors and that specific factors are sometimes enhancing their business policy by monitoring their performance level. Technological analysis of an industry helps to increase the overall profitability of the business and that easily eliminates numerous business difficulties of Next Plc.
Technological development sometimes improves the overall business performance of Next Plc and that helps to enhance the financial position of the specific company.
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SWOT analysis
| Strength
● Financial planning to enhance economic factors ● Increase investment policy for a high rate of return ● Fastest growing technology for improving efficiency level |
Weakness
● Low product demand ● Effective planning does not manage difficulties ● Need more investment to enhance new technology |
| Opportunity
● Maintaining accurate product quality to enhance product demand ● Increasing decision-making plan for future growth ● Investment to improve their financial demand |
Threat
● Financial issues ● Numerous laws and regulations ● Broad economic uncertainty |
Table 2: SWOT analysis
(Source: Self-created)
Strength and weakness are basic factors of the business and it helps to enhance numerous business policies of the business. The SWOT analysis helps to enhance basic opportunities and it helps to understand the overall business performance of Next Plc. Moreover, specific factors help to recognize numerous business threats of industry and that helps to enhance the overall business performance of Next Plc.
The SWOT analysis helps to enhance basic performance levels and recognize future threats of an industry. Most business organizations are helped to recognize their business performance with the help of SWOT analysis.
Threats, weaknesses, strengths and opportunities are recognized by the business performance of Next Plc. Most business organizations identify their business performance with the help of SWOT analysis and that helps to enhance overall business opportunities.
SWOT analysis sometimes describes the basic opportunities of the business and that helps to enhance the overall business performance of industry. Some financial issues, laws, and regulations create a general barrier to a business but it has been easily recognized by the SWOT analysis.
Reference
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Websites
Nextplc.co.uk,2021: annual report of Next plc Available at: https://www.nextplc.co.uk/~/media/Files/N/Next-PLC-V2/documents/2021/annual-report-and-accounts-jan21.pdf
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