Ratio Analysis of Next Plc

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Business Accounts – Assignment I


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
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A reason for this slight decline could be that there has been an increase in their short-term debt. In this case their current liabilities did actually increase.
As long as the current ratio, which takes inventories into account, is higher than 1, they do not experience any problems repaying their short-term liabilities. However, the quick ratio is smaller than 1 and has marginally decreased in 2011. Due to this Next Plc might have problems paying off their short-term liabilities if sales decreases in the next years.
In general though, they seem to have a rather good ability to generate cash and pay off their obligations.

The gearing ratio seems to be immensely high. This could be due their major savings. It seems that they are buying their own shares back perhaps in order to save up for projects like reorganisations or investments. It has decreased by half from 2010 to 2011 probably because they reduced their non-current liabilities. High gearing is supposed to be risky and also results in paying higher interests.
Their interest cover has risen by 2, possibly due to the fact that the interest figure has fallen by 1. This means they can pay off their interest roughly three times more than in the previous year. A possible reason for this could be a decline in interest.
In general, Next’s interest payments seem to be very safe. They are generating enough revenues to meet interest expenses.

Investors Ratios
Investor ratios
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