BU7006 Strategic Financial management Assignment Sample 2024

BU7006 Strategic Financial management Assignment Sample 2024

Introduction

Company Background

NEXT Plc Company is a merchant from the United Kingdom that sells apparel, shoes, accessories, cosmetics, and housewares. The company has various segments like NEXT Retail, NEXT International Retail, NEXT Online, NEXT Finance, and NEXT Sourcing. The warehousing and logistics activities ensure a smooth product delivery system. In Ireland and the United Kingdom, the company has about 700 outlets.

The business partners have over 200 outlets in 37 countries. The Company’s locations assist its online shoppers by enabling order retrieval and return procedures. It also provides the next step, a loan account that allows clients to stretch the cost of items over 3 months with no charge.

Next plc designs products and sells unique, furnishing products for home, and different facilities through 350 Next retail locations and the company’s Next Directory mail-order sales catalog. Almost majority of Next’s business outlets are in the United Kingdom and Ireland. Next has franchises in about 20 worldwide regions.  Nevertheless, the poor economic situation in some nations hampered Next franchise development.

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NEXT Plc Company has expanded their business in over 700 countries and they have faced profit margin with their proper strategy and financial plans. The company is facing some major issues due to its current position in the market.

Aim

The aim of this paper is to provide Next Plc’s management with information about the financial aspects of the investment proposal, and equations of the crucial quantitative information, perception, and, finally, well-grounded suggestions on the framework of the organization. Raising capital provisions that the firm would need to enforce if such an endeavor were to be conducted (Alawattage and Azure, 2021).

The reputation of Next plc has shifted during the last 5 years. With the performance of the business reaching an all-time high in 2016, there has been a slight significant decline even though, much of which can be credited to the firm’s hyper-competitiveness, because they also “proceeded to encounter a radical transformation in the company, with sales progressing to transport from retail locations to the internet.”

Next plc’s return on assets was 19.45 percent in 2019, which has decreased slightly from 19.65 percent in 2018. This is the income generated by gross sales. This statistic reflects Next plc’s high sales while also demonstrating improved cost management and adequate product pricing. In comparison to one of its closest competitors, Marks & Spencer, which has weak profitability of 1.56 %, and online rival ASOS, which has low profitability of 1.28 %.

Calculation

Earnings per share are financial measures used by finance professionals to assess and evaluate a company’s ability to generate revenue (profit) in terms of sales revenue, capital requirements resources, operational expenses, and investors’ interest throughout tenure (Adedejiet al.2019). They indicate how well a company uses its assets, income, and income to benefit its shareholders. Most companies look at a greater proportion of valuation because it implies that the company is performing effectively to capture the market, competitiveness, and working capital.

A profitability percentage is used to calculate revenue, which is then used to evaluate the company’s finances. Efficiency is the capacity to generate a profit, while earnings are what exist following subtracting all assets necessary to generate revenue.

Current Ratio

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Current ratio is calculated to determine the current assets of the company. This can analyze the present market position and it will be essential for determining the company’s current market position.

Current Ratio for the year 2018        =      current assets / current liabilities

    =       1797500 / 914800

    =        1.96

Current Ratio for the year 2019       =      current assets / current liabilities

   =       2032200 / 1112500

      =        1.82

Current Ratio for the year 2020        =      current assets / current liabilities

   =   1955400 / 949800

    =       2.08

Current Ratio for the year 2021        =      current assets / current liabilities

   =   2288600 / 1196800

   =     1.91

Quick ratio

Next Plc has many lens and liability towards their current market position. This quick ratio will be used to determine whether the company’s current possibility to repay all the liabilities with their current financial situation.

Quick ratio for the year 2018     = (Current assets – inventory) / current liabilities

= (1797500 – 490100) / 914800

=1.42

Quick ratio for the year 2019     = (Current assets – inventory) / current liabilities

= (2032200 – 502800) / 1112500

= 1.37

Quick ratio for the year 2020 = (Current assets – inventory) / current liabilities

= (1955400 – 527600) / 949800

= 1.5

Quick ratio for the year 2021     = (Current assets – inventory) / current liabilities

= (2288600 – 536900) / 1196800

= 1.46

Total assets turnover ratio

Next plc total assets turnover will determine the value of the company sales and assets of the company that will be used for determining the current revenue that is generated. The four years revenue is generated and compared to determine their current profitability rate.

Total assets turnover ratio for the year 2018 = sales / total assets

= 4055500 / 2561500

         = 1.58

Total assets turnover ratio for the year 2019 = sales / total assets

= 4167400 / 2811300

         = 1.48

Total assets turnover ratio for the year 2020 = sales / total assets

= 4266200 / 3673300

         = 1.16

Total assets turnover ratio for the year 2021 = sales / total assets

= 3534400 / 3758000

         = 0.94

Debt to total assets ratio

Next Plc’s ability to raise cash from their new debt for last 4 years is described in this section and it will be helping to generate profit margin.

Debt to total assets ratio for the year 2018 = total debts / total assets

     =   1088500 / 2561500

    = 0.42

Debt to total assets ratio for the year 2019   = total debts / total assets

          =   1282500 / 2811300

           = 0.45

Debt to total assets ratio for the year 2020     = total debts / total assets

= 2488400 /   3673300

 = 0.67

Debt to total assets ratio for the year 2021      = total debts / total assets

= 2442300 /    3758000

   = 0.64

Working Capital ratio

Next plc’s ability to check whether they can pay their business obligations is checked in this section. This shows their liquidity in cash flow for revealing their ability to return the investments.

Working Capital ratio for the year 2018 =   current assets-current liabilities

     = 1797500 – 914800

     = 882700

 

Working Capital ratio for the year 2019 =   current assets-current liabilities

    =   2032200 – 1112500

    =   919700

Working Capital ratio for the year 2020 =   current assets-current liabilities

    =   1955400 – 949800

     =    1005600

Working Capital ratio for the year 2021 =   current assets-current liabilities

     =   2288600 – 1196800

Gross Profit margin Ratio

Next Plc’s percentage of sales revenue is analyzed for previous 4 years.

Profitability Ratio = ratio for the year 2018 = Gross Profit / Net Sales * 100

       = 1356200 / 4055500 * 100

= 33.44

Profitability Ratio =ratio for the year 2019 = Gross Profit / Net Sales * 100

       = 1474200 / 4167400 * 100

= 35.37

Profitability Ratio =ratio for the year 2020 = Gross Profit / Net Sales * 100

       = 1640500 / 4266200 * 100

=  38.45

Profitability Ratio= ratio for the year 2021 = Gross Profit / Net Sales * 100

       = 1247900 / 3534400 * 100

= 35.3

Return on Assets Ratio

Next plc’s ability to generate profit from their current assets is analyzed in this section.

Return on Assets Ratio for the year 2018 = Net Income / Assets * 100

           = 591800 / 2561500 * 100

                                                                         = 23.1

Return on Assets Ratio for the year 2019 = Net Income / Assets * 100

                                                                 = 590400 / 2811300 * 100

                                                                         = 21

Return on Assets Ratio for the year 2020 = Net Income / Assets * 100

                                                                 = 610200 / 3673300 * 100

                                                                         = 16.6

Return on Assets Ratio for the year 2021 = Net Income / Assets * 100

                                                                 = 286700/ 3758000 * 100

                                                            = 7.62

Inventory turnover Efficiency Ratio

Next Plc’s ability to manage its inventory for the last 4 years is checked in this section

Inventory turnover Efficiency Ratio for the year 2018 = Sales / Average Inventory

 = 4055500 / 490100

 = 8.27

Inventory turnover Efficiency Ratio for the year 2019 = Sales / Average Inventory

 = 4167400 / 502800

 = 8.28

Inventory turnover Efficiency Ratio for the year 2020 = Sales / Average Inventory

 = 4266200 / 527600

 = 8

Inventory turnover Efficiency Ratio for the year 2021 = Sales / Average Inventory

 = 3534400 / 536900

 = 6.58

 

PEST Analysis

Next Plc PEST analysis is a strategic method for analyzing the company’s macroenvironment. PEST refers to Political situations, Economic factors, Social relations, and Technological factors influencing Next Plc Company’s macroenvironment.

Political Factor 1. Political stabilization and the importance of the commerce department are important for the country’s economy

2. A risk involving military takeover.

3. Levels of fraud, specifically in the Consumption Services industry.

4. Authority organized programs and meddling in the business related to retails.

5. Government authorities monitor legislative structures and enforce outcomes based on those structures.

6. Preservation of property rights.

7. Tariffs and trade rules pertaining to Customer Experience.

8. Preferred business partners

9. Ecommerce antitrust legislation

10. Taxation, including tax ratios and subsidies

11. Pricing controls

12. Retailer business week restrictions

13. Wage laws, minimum wage, and living costs.

14. Employee perks that are required

15. Guidelines for safety aspects in the Customer Services industry.

16. Product labeling and related retail regulations

Economic Factor 1. The form of economic structure in various nations exists and methods to stabilize it.

2. Interference by the authorities inside the market economy and associated Service Offerings.

3. Currency values and the sustainability of the host nation’s currency

4. Financial sector efficiency

5. Reliability of facilities in the new retail

6. Competitive advantages of a hosting nation and the Consumption Services field in the specific nation

7. Professional skill base in the retail business.

8. The degree of knowledge in the economy of a specific country

9. Expenditure level of consumption

10. Unemployment levels.

11. Wage costs and economic output

12. Rate of growth in the economy.

13. Stage of the economic cycle

14. Interest rate

15. Inflation rate

Social Factor 1. Community characteristics and individual skills.

2. In the community, there is a class system, a hierarchy, and structures of power.

3. Educational qualification and includes in Next Plc company’s sector

4. The risk-taking mindset and the greater impact of the character of civilization.

5.  Some cultures promote entrepreneurship, while most prefer traditional strategies.

6. Perceptions Specialties in new design modeling.

Technological Factor 1. Rivals of Next Plc have recently made technical advances.

2. The influence of innovation on services and product offerings.

3. The influence on the commerce industry in the terms of pricing structure.

4. The effect on the global value chain within the Consumer Services industry.

5. The rate at which technology spreads.

 

Table 1: PEST Analysis of NEXT Plc

Political Factor

Future strategy decisions necessitate a stable political context. The United Kingdom satisfies this condition since it is a member of the European Union. To meet Euro Zone standards, the authority must function under a defined political system that allows NEXT PLC to engage in a greater variety of economic operations (Anastasia and Onuora, 2019). The free action of goods is another advantage of the Eurozone. This streamlines NEXT’s capacity to promote its products across a number of European countries. No export restrictions that are preventing sales.

Political variables are crucial in analyzing the aspects that have the potential effect Next Plc’s future revenue in a certain region or sector. Next Plc prefers operation in retailers in to nations, releasing the company to certain versions of political situations and political structure concerns. To get the competitive advantage in such a competitive Retail operation across several regions, it is required to spread the risk exposures of the political atmosphere. Before establishing or service in the marketplace, Next Plc should carefully consider the aspects mentioned in the table.

Economic function

NEXT PLC’s initiatives in European countries are quite appealing. The British pound is now extremely powerful (Bianet al.2021). First, international expenditures in NEXT are very cheap, and secondly, it is difficult for international firms to set up shop in the United Kingdom. Nevertheless, for these considerations, many nations are hesitant to engage in commerce.

The consumer’s investment and cumulative funding’s within an economy are determined by macroenvironmental variables like the rate of inflation, rate of return on certain investments, interest payment, trade balance, and trade recession (Britchenkoet al.2018).

While microenvironmental variables such as competitiveness norms have an influence on the company’s business edge. Next Plc may anticipate the company’s future growth by using the country’s economic factors like rate of increase, inflation, and retail sector economic data like growth rate or retail sales, etc. The table has provided a brief description related to economic factors of Next plc.

Social Factors

The United Kingdom now has a population of 59.2 million inhabitants. In addition, over 64.9 million inhabitants are expected to live there by 2036, according to experts (Bryson et al.2017). This implies a bunch of new consumers for NEXT PLC, although the population is getting older.

The social system, on either side, has shifted considerably. The advancement of medical advances and the personality of existence results in an increase in life span. The number of births has decreased because of advancements in family planning and an increased percentage of professional women (Esser and Chalaczkiewicz, 2018). These factors are to blame for the decline in middle age people to be the target audience.

The practice and method of carrying out various duties in civilization have an impact on the character of an organization in an environment. Customers’ sharing views and feelings influence how Next Corporation designers analyze prospects in a certain market and create marketing messages for Retail industry shoppers.

Technological Factors

The digital era, as well as the advent of new technology, have unveiled a variety of potential profit-boosting opportunities for NEXT. Some companies in the United States now offer online ordering, allowing the buyer to exactly explain his requirements and measurements and have them transmitted to the production plant (Frølundet al.2018). Using this method, organizations can adapt to behavioral changes instantly.

To keep ahead of the competitors, Next Plc must do study and grasp contemporary technical developments. A close check must be maintained on 5G evaluation and recognizing its power to give corporate benefits through enhanced quality of operation, increased traffic, and increased reliability (Ivšinović and Pleteš, 2021).

Such technology breakthroughs have the potential to change the sector as well as the performance requirements of financial companies (Ikegami and Iijima, 2020). In addition, it is critical to examine the number of earnings and growth stability in the particular industry. Next plc also needs to consider the factors mentioned in the table to ensure business profit in the end.

SWOT Analysis

Internal Strength

● Product development requires a proven record of accomplishment for creating new goods.

● The company has made great efforts in developing a robust product offering throughout the generations. This advertising approach may be highly advantageous if the firm desires to expand into new markets depending upon the size.

● Next Plc has high profits, which gives the firm with resources to develop into new initiatives.

● The company has a large network of reliable manufacturers and distributors, permitting it to overcome any distributed generation limits.

● Over the centuries, Next Plc has built a trustworthy distribution platform that enables it to reach a large portion of its potential customers.

● Next Company has gained expertise in entering and prospering in new markets. This expansion has aided the corporation in exploring innovative income sources and minimizing its macroeconomic sensitivity in the locations in which it operates.

● An intense competitive organization has evolved from efficient development and career initiatives (McGuinness, 2019). Next Plc engages extensively in worker training and skills, resulting in a company that is not just well skilled but also eager to accomplish.

● Because of its professional relationship marketing with users across all disciplines, the business has been successful in achieving an excellent standard of consumption pleasure among existing clients as well as trademark knowledge awareness and ownership between potential consumers.

Weakness

● Average collection period is significant in contrast to competitors, necessitating the corporation obtaining more cash to invest in the infrastructure. These may have had an impact on Next Plc’s continuous production.

● Next Plc’s income statement and Net Participation percent are significantly low.

● Financial planning is unproductive and not efficient. The inventory turnover and retained earnings percentage compared to the present scenario implies that the NEXT plc firm has possibilities to make better utilization of its funding than it is presently generating.

● Additional expenditure on cutting-edge technologies is necessary. Next Company must employ more technologies to standardize processes out across the company, given the extent of expansion and the several places through which the company aims at increasing. Nowadays, technological advancement is not catching pace with both corporate goals.

● In order to maintain competitiveness, it is just not especially skilled at forecasting product prices, culminating in an increased number of lost opportunities.

● Another of the explanations Next Plc’s average collection period is higher than the industry average’ and because the firm is not very good at forecasting the business, therefore it stores more merchandise both inside and outside the networks.

● The synchronization of organizations with separate work situations has not proven efficient at all (Melnychenko, 2020). As indicated earlier, Next Holding Company excels at describing small to medium companies; it has faced issues to merge organizations with dynamic office environments.

● Expenditures are fewer than those of the businesses with great growth potential companies. Actually spent more on Research & development activities than the industry average, Next Company will not be able to participate in terms of inventiveness with the business’s best rivals. It looks to be a sophisticated corporation anxious to produce products with market-proven functionalities.

External Opportunity

● The proposed taxation structure will have a substantial influence on how workers operate, creating new opportunities for existing organizations such as Next Corporation to gain profits.

● A currency depreciation improves market liquidity and enables Next Company consumers to acquire money at a lower cost of capital.

● The economy’s development will dilute rivals’ capabilities, helping Next Corporation to increase its competitiveness in contrast to its competitors.

● Changing customer behaviors may open up more opportunities for Next Company (Oliver, 2018). It is indeed a fantastic opportunity for the organization to establish additional revenue streams all while branching towards new items.

Threats

● Developing inventions created by a competitor or global market tinkerer may represent a serious threat to the industry in the coming years.

● The accountability legislation of multiple countries differs, and Next Corporation might be susceptible to a range of responsibilities if rules in the event of marketplaces alter.

● The unavailability of suitable employees in huge international marketplaces implementing Next Plc’s capacity to continue continuous shareholder returns in these nations.

● The firm has already manufactured numerous products over the generations, although they are typically in line with the progress of other rivals (Pathirana, 2020). Furthermore, the innovation of digital products is erratic, resulting in sales fluctuations throughout duration.

● Increasing client ordering patterns via digital platforms may put the describing the physical connection acquisition infrastructure under strain.

 

Table 2: SWOT Analysis of NEXT plc

Strength

Next Company, being one of the greatest firms in its sector, boasts a variety of characteristics that assist it to thrive in competitiveness (Šarić, 2018). These benefits not only help it stay ahead of the competition in existing markets, but also help it enter new industries. The NEXT Trademarks are intended for the higher tiers of the general market.

Its marketing features include a one-of-a-kind style, quality Product, and competitive pricing. The foundation to this success is because NEXT manufactures and sells it is customized, one-of-a-kind products through its own branded version (Yeboah, 2019). As one of the largest retail firms, businesses use their extensive industry experience to identify changes in customer preferences and perceptions. NEXT is highly responsive to competition challenges by creating things with its own trademark.

Amongst the most growing markets is engineering (Uzochukwuet al.2021). In an economy whereby money decides successfulness, suppleness, and so, therefore, potential savings, are crucial.

Weakness

Next Plc’s vulnerabilities are the areas in which it can grow. Management is primarily about decision-making, and shortcomings are areas where a company may employ Risk assessment to reinforce and grow its significant advantage and operational stance. Consequently, numerous customers are often obliged to purchase at NEXT PLC’s competitor’s stores.

This shortcoming stems from a lack of differentiated products (Uzochukwuet al.2018). For example, NEXT Corporation is unconcerned about the danger of not manufacturing active wear. In actuality, NEXT PLC’s regular customers must go to their competitors to purchase active wear. This provides rivals with a possibility to influence NEXT customers of both the merits of competing products.

Second, increasing client visitation is an excellent strategy to improve sales since surfers shopping for a certain product will frequently purchase much more than this product. A person who is solely specialized in sportswear, for instance, may also purchase a present.

Contrary to this, the person is aware that NEXT does not offer sports gear, one will take their investment somewhere else. This is why he must be brought into the retail shop.

Opportunity

The world is opening up new scopes for each organization. The uniqueness of NEXT plc has brought them greater scope for their products and quality of lifestyle that they might face during their difficult times.

NEXT Companies must pay attentive reference to occurrences of sociological rethinking in order to make a profitable income. More and more people seem to become familiar with the benefits of wilderness. Producing polyester flannel and environmentally safe energy wealth is a wonderful opportunity to enhance NEXT’s politically progressive status while also increasing lengthy revenue. In marketing, the phrase “uniqueness” is significant.

Thus according to national polls, the average shape has changed. People are now becoming longer and accumulating heavier. Because of their capacity to adapt to these events, consumers believe that NEXT Company is actively listening to them. Customers value a healthier life than their ancestors do, and incorporating athleticism into NEXT plc’s distinctive identity would promote the firm even more.

Threats

Organizations who use “Guerrilla Attacks” represent the biggest threat to NEXT Company. This suggests that inexpensive retailers, super big supermarkets located outside of the geographical location as NEXT Corporation, sell identical things.

These items will only be short – term in nature. For example, marketers may sell a capsule collection at anaffordable rate for a while before switching on. Tesco sells Levi’s 2 501 styles of denim for £ 30, which is £20 less than the Upscale cost. Consumers are making the choice to buy low products over relatively high, relatively high items.

This assault technique achieves a considerable percentage of the criterion. The biggest issue with this technology is that it does not enable any structured form, and dealing with comparable high excellent commodities at such cheap rates would require a concerted effort.

Conclusion

As earlier mentioned, NEXT plc is a well-established company with little market volatility, permitting it to accept a riskier kind of investment. In this case, a line of credit could be the best alternative because, regardless of the fact that it involves the disbursement of an essential input, it is much less costly to construct than equity participation, does not dissolve current stockholders’ assets, and does not provide the lender with a specific claim on the company’s expected profits.

Furthermore, financial advantage will give a tax incentive since equity expenditures will be deducted from the next plc’s taxation. At present, this is already 19.6 %, much lower compared to the United Kingdom’s standard of 20 percent. In particular, loan repayments would need monthly bills, and the interest coverage dropped from 21.9 in 2017.

Although this is adequate to cover the loan, a limit in retained earnings may make it increasingly challenging the company to get finance, diminishing its prospective dependability.   The NEXT plc must sell longer-term assets with interest rates change risk than short-term bonds in order to mitigate the impact of additional rate rise over the next years.

Though this would need frequent refinance for the company, the benefit will be greater financial flexibility. Additionally, a credit with an interest expense of LIBOR could be constructed. The advantage of using LIBOR is that this is based on the number of funds that institutional factors.

This suggests that the cost would be less subject to fluctuations in other places around the world, providing a way to find and coordinate transactions with other businesses that utilize the same pricing.

The fashion industry is dealing with a cultural change, as a squeeze on real wages has culminated in a 0.3 percent drop in garment consumption. Furthermore, the Pounds has been depreciatedbecause of Europe’s departure from Eu. And the NEXT plc’s desire to return to its main product line needs considerable investment. This can be handled by adopting priority debt; a sort of financing that is superior to ownership but subservient to bank loans.

The advantage of using premium funding for a large firm would be that the borrowing might be extended to achieve a fairer interest rate whenever the unsecured kind of funding is allocated to a large bank. Additionally, established and established enterprises would benefit from enhanced credibility in an organization supported by a premium lender. Although premium creditors may demand a stake in the firm, this is determined at the outset, avoiding the ambiguity that characterizes common shares.

Additionally, the principal and interest are reimbursed during the maturity term, which has a minor impact on earnings in the years preceding retiring, allowing the company to operate at maximum capacity with minimal interference to day-to-day activities. Next plc’s current dividend strategy is to pay an increasing dividend to tempt shareholders only with the prospect of growth prospects.

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