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Comparing two or more financial data points from a company's financial statements to discover whether there is a connection (or ratio) between them is known as a financial ratio analysis. It is most often used to compare companies and sectors across time in an impartial manner. To be fully grasped, it is necessary that the financial statements on which the ratios are based be created in accordance with the same set of accounting rules as the ratios themselves (Svynarenko et al., 2019). This technique guarantees that financial reports are always linked to the underlying general ledger accounts that they are derived from. Clothing and footwear are among the things available for purchase at the Next plc headquarters in Enderby, England. Marks & Spencer was surpassed by Next to become the leading clothes store in the United Kingdom in terms of sales between early 2012 and early 2014. The company has around 700 outlets globally, including 500 in the United Kingdom and 200 in Europe, Asia, and the Middle East. The company is publicly traded on the London Stock Exchange and is a constituent of the FTSE 100 Index.
The net profit margin is the amount of money that is left over after all expenditures have been removed from the amount of money that was sold. A corporation may benefit from all of its sales if it employs this statistic. The net profit margin of a company is thought to be a good indicator of the company's overall performance. Companies with high net profit margins are more likely to price their goods effectively and to keep their expenditures under control. As each company operates in a similar environment with similar consumers and incurs the same expenditures, it is necessary to do a comparison of their results with those of other firms in the same industry. The analysis of net profit margin and net profit margin ratio necessitates the use of a wide range of abilities (McCosker, 2021). These qualities might be put to use by anybody, from a lone owner to a seasoned CFO. As a result, the decision-making process takes the size and complexity of the organisation into consideration. The net profit margin of Next Plc is rather low. Despite the fact that the company's net profit is expected to increase in 2021, Covid is expected to have a negative impact on it in 2021. Because the expenses to the company are so little, they should go above and beyond to ensure that their responsibilities are met.
It is the most basic indicator of a company's profitability: how much money is left over after all of the expenses of manufacturing goods and providing services, as well as paying personnel, have been taken into account. It is a warning indicator that a firm's gross profit margin is declining because it is either not investing enough in its business or that something is wrong with the organisation. It is standard practise to represent gross profit margin as a percentage, which is calculated by dividing total revenue by the cost of the items or services provided. The gross profit is calculated by subtracting from the total revenue all expenses such as sales, administration, taxes, and other miscellaneous costs (Eisenberg, 2019). After all expenses have been deducted, a company's net income (also known as net income margin) is the amount of profit that remains. Certain additional expenditures, excluding debt payments and taxes, are included into operating margin projections to determine the overall margin. Because of the influence of Covid, the gross profit margin is growing, whereas the profit margin is decreasing in 2021. Sales at the firm also declined, which resulted in a fall in gross profit for the company. In order for the company to operate well under these circumstances, they must develop a plan.
The current ratio, as the name implies, assesses a company's capacity to repay short-term loans by using the company's current assets as collateral. The current ratio is a useful indicator of liquidity since short-term obligations are due within one year of the measurement. Because of the limited window of opportunity, it is critical that a corporation find a solution to its financial problems as soon as possible. Within a reasonable timeframe, it is possible to convert cash, cash equivalents, and marketable securities into cash with no difficulty (Guo and Wang, 2019). If a corporation has more current assets on hand than long-term, revenue-generating assets, it may be possible to pay down corporate debt without selling long-term, revenue-generating assets. In the near term, liquidity may be swiftly improved by turning marketable securities and cash equivalents into cash as soon as possible after purchase. Organizations with larger current assets are better positioned to meet their financial obligations when their current liabilities are due, and they may be able to do so without the need to sell long-term, revenue-generating assets in order to meet their obligations. Having a positive current ratio "demonstrates that the company is capable of paying off" its current obligations using all of the current assets that are presently available to the company. Good news for the organisation as well, and there are no issues to be concerned about at this time.
Leverage ratios are used to measure how much debt a firm has compared to its total assets. Debt-to-assets ratio is one of these ratios. An organisation is considered insolvent if its debt-to-assets ratio exceeds one. Having a debt-to-asset ratio lower than one indicates that the company has more assets than debt. A corporation with a high debt-to-assets ratio has a high degree of leverage (DoL) and may not have the financial flexibility of a company with more assets than debts. The debt-to-assets ratio of a corporation may provide insight into the company's financial structure and leverage (Ahmed, 2018). A company's ability to pay its debts becomes more and more reliant on its ability to borrow money. When interest rates rise, a firm with a lot of debt may find it difficult to pay its employees or acquire new equipment since it will have to make loan repayments instead. The debt to asset ratio is fluctuating for Next Plc as there are various activities affecting this. One of the reason is the effect of Covid due to which there was complete lockdown worldwide. This caused few problems for the business and that resulted in low financial position for different companies.
Return on assets is a long-term indicator of how lucrative a firm is in comparison to the total amount of its assets. The return on assets (ROA) metric is used by management and financial analysts to assess a company's profitability. Here is an example of return on investment (ROI) in action from the perspective of a fictitious widget maker. The company owns a variety of manufacturing factories, as well as the widget-making machinery and equipment that goes with them. Raw materials and unsold goods are also kept on hand at this plant, which is a common practise (Otekunrin et al., 2018). The availability of a substantial quantity of cash and financial equivalents for business objectives, as well as a diverse selection of distinctive widget designs, is unquestionably favourable. All of these components combine to form the widget manufacturer's assets. It is the difference between the revenue from widget sales and the expenditures for materials and labour that represents the company's net income. To calculate return on assets (ROA), divide the firm's net profit by the total assets of the company. The ratio on the table shows that there has been a reduction in the return on assets every year. This suggests that the management of Next Plc is not being able to increase the profits and revenue of the business with the help of the assets that are present on the business. The company needs to clearly understand and perform the necessary activities so that they come out of the problem very soon.
The financial ratio analysis of Next Plc is seen from the financial statement of the company from 2018 to 2021. This shows that there are few areas of concern for the business and they need to overcome this as soon as possible. The main reason for the reduction is the effect of Covid-19. The people now days do not like to go out in fear to get affected. The best way to reach them is to be active on social sites and mobile application. Through mobile application, the people can see the products sold by Next Plc and they can buy those items online directly from the company. These are necessary steps that needs to be taken by the management in order to revive from the situation they are currently in. These will help the organisation and its management so perform better and increase the statement of financial position and income statement. These are essential elements of finance for a company. The company should work properly so that the performance gets better and stronger. The report has provided a detailed analysis of the financial statement through the ratio analysis.
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