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Interpretatiion of Next Plc’s accounts.

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Introduction

INTERPRETATIION OF NEXT PLC'S ACCOUNTS This report focuses on financial analysis of Next plc. Next plc's principle activities are high street retailing, home shopping and customer services management. This report has been prepared on the basis of year 2002 and year 2001's annual report of Next plc. As following, the report analyses Next plc's financial position based on the financial statements and its notes to accounts by using concerned ratios and specific points, such as taxation, trends, and future perspectives. Financial status, cash flow and liquidity In year 2003, both the current ratio and the acid ratio of New look plc looks better than the NEXT.(appendix1) For the current ratio, next is 0.89 and new look is 1.26 in 2003.But that doesn't mean that Next is facing the solvency troubles. In the 2002, next's current ratio is 1.62, however at same time, new look only 1.04. While next's figure somewhat become weaker than new look in 2003. The drop of both the current ratio and the acid test in 2003 indicates the declining solvency of Next plc in the short run. This is quite considerable and we can see the reason from the cash flow statement. The cash flow in 2003 is negative for next, but net cash �314.9 million get from operating activities during 2003 is not bad comparing cash �363.8 million get from operating activities during 2002. The main reason of the negative cash flow of the year 2003 is due to the big amount of company shares purchased for cancellation. Due to Next's financial strategy which aim to raise the long-term EPS, Next buy back its own shares at cost of �391.8m during 2003. However in 2002, that is only cost �53.8m. That is the major reason cause the liquidity problem. Another problem maybe due to borrow too much additional short-term debt for both of the buyback of shares and other expansion activities. ...read more.

Middle

Monsoon plc's current ratio and acid test are very similar with Next plc. But the days debtor with Monsoon is alarming low. It indicates that Monsoon plc has a powerful control over the finance. On the other hand, it is not wise to keep the days debtor so low in the competitive market. The days creditor is very similar in two companies, but the stock turnover 86 days with Monsoon plc is quite higher. This is maybe not a good sign, because the slower stock turnover is, the easier the clothes is out of fashion. Maybe Monsoon plc's strategy is to keep high prices and delays markdowns and concentrate on improving margin. While the Next plc emphasizes on improving sales and keep their prices rather lower comparing with Monsoon plc, especially in Next plc's discounted stores such as Choice Discount Store. The gross profit and the ROCE of Monsoon plc is quite higher, especially the gross profit margin with Monsoon is double than the gross profit margin with Next plc. But they have almost the same net profit margin. This is because Monsoon plc have a vastly more costly administration fee. Both of the two companies have different financial strategy. We can see that Monsoon plc with a dividend cover ratio 2.55 comparing with Next plc 2.1, they have emphasized on the expansion of the selling spaces especially in international investment. While the directors of Next plc have emphasized to use the accumulated cash to for purchasing of his own shares in order to increasing share price as well as expanded selling spaces which concentrated in UK stores. The comparing higher increased share price of Next plc is an attractive point to shareholders. Above all, these two companies are different in their financial position but they are both good performers. Monsoon plc seems a more retailer comparing with the Next plc and seems to have problems of controlling administrative costs as well as working capital but better performed comparing with Next plc. ...read more.

Conclusion

Interest Paid Note A P.45.line1+2 86.5 1.3 64.6 2.3 33 2.4 19 Dividend Cover Profit Available For Distribution Dividend P.37.line8 P.37.line9 55.5 17.4 39.3 14 20.6 12.2 20 EPS Earnings*100 NO. Of Shares P.37.line8 P.47.line1 55.5*100 198.8 39.3*100 198.7 20.6*100 198.7 21 P/E Ratio Share Price EPS Note C P47. line1 311 27.9 311 19.8 311 10.4 22 Dividend yield Dividend per share*100% Share Price P.37.line 14 Note C 8.75*100% 311 7.0*100% 311 6.1*100% 311 Note A: the number of the PBIT we used is the number of Operating Profit (P.25.line2) plus the interest receivable during the accounting year(P.33.line5). eg. in year2002, that is 63.7 + 0.9=64.6, in FY2001, i.e. 31.6+1.4=33 Note B: the number of the capital Employed we used is the number of the Shareholders' funds (P26. line19) plus the number of the Long Term Liabilities (P19.line12&line13). Eg, in year2002, that is 85.5+20.6+3.4=109.5 in FY2001 i.e. 60.1+32+4.8=96.9 Note C: the share price is calculated based on the P/E ratio(11.16) and EPS(27.90) which from the www.ft.com 28/11/2003 Symbol:NEW Note D: all the reference is based on the Annual Report of 2003 Appendix 3: New Look plc share price information: Fundamentals 52 Wk High Date 340.00p 27/10/2003 52 Wk Low Date 200.50p 15/01/2003 Dividend 6.00 Div Date 25/06/2003 Market Cap 625 M GBP Div Yield - P/E Ratio 11.16 EPS 27.90p Source: www.ft.com 28/11/2003 Country: UK; Symbol: NEW Appendix 4: Horizontal trend between 2001 and 2002 for New Look plc Years items % change 2002 �m 2001 �m Turnover +24.61% 585.4 469.8 Operating profit +101.6% 63.7 31.6 Net interest receivable -35.71% 0.9 1.4 Profit on ordinary activities before taxation +103.6% 62.3 30.6 Taxation on profit on ordinary activities +95.24% 20.5 10.5 Profit on ordinary activities after taxation +107.9% 41.8 20.1 Dividends +14.75% 14.0 12.2 Profit for the year transferred to reserves +201.2% 25.3 8.4 Earnings per share +90.38% 19.8p 10.4p Dividend per share +14.75 7.0p 6.1p ?? ?? ?? ?? Financial Statement Analysis for NEXT plc and New Look plc Page 1 of 19 ...read more.

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