Analysis of Next PLC Next plc is a UK based retailer offering products in clothing, footwear, accessories and home products

distributing its products through three main channels: Next Retail, a chain of more than 500 stores; Next Directory, a home shopping catalogue and online Website with more than 2 million active customers, and international arm, Next International with more than 180 stores (Thomson Banker, 2010). 2010
Liquidity Ratio Acid Test/Quick Ratio Current Assets Inventories Current Liabilities

2009

1,041.2 309 758.1 0.97 713.5 1.06 1,041.2 758.1 713.5 1.50

1,073.6 318.7

Current Ratio Total Current Assets Total Current Liabilities

1.37

1,073.6

Cash Ratio Cash and Cash Equivalents Current Liabilities

107 +8.6 758.1 0.15 713.5 0.19

84.4+47.8

Gearing Ratios Long Term Debt to Equity Ratio Long term Loans Total Equity

520.9 133.6 3.90 140.6 4.04

567.8

Interest Cover Operating Profit + Finance Income Finance Cost

529.8 + 0.8 25.3 20.97 50.8 9.44

478.3+1.3

Profitability Ratios Gross Profit Margin Gross Profit X 100%

Revenue

996.9 29 % 3406.5 529.8 15.6 % 27.8% 3271.5 14.6%

908.5 3271.5 478.3

Operating Profit Margin Operating Profit Revenue X 100%

3406.5

01/30/10

01/24/09

Trade receivables collection period Inventory turnover Current ratio Acid test ratio Cash Ratio Non-current asset turnover Trade payable payment period Long-term debt to equity Interest Coverage Gross Profit Margin Operating Profit Margin ROCE ROE

56.80 7.30 1.37 0.97 0.15 5.22 27.88 390.34 18.76 29.13 16.04 79.03 184.78

58.61 7.04 1.54 1.09 0.19 4.76 33.28 362.99 9.71 27.77 15.64 54.65 ("Morning Star stock Report", 2010) 123.05 ("Thomsan Banker", 2010)

The above table shows selected ratios for Next Plc. Starting from liquidity ratios we find that that Next plc is sufficiently poised to meet its financial obligations. Liquidity ratios are indicators of whether a companys current assets will be sufficient to meet the companys obligations when they become due. Current ratio is more than 1 showing that current assets are more than current liabilities while acid test ratio has decreased for 2010 it is still quite close to 1 while for cash ratio although it is a very conservative way to look at the balance sheet it simply shows if Next can repay its short term debt from its cash and cash equivalents only. We will look at profitability of the company to determine its investment worthiness. Gross Profit and Operating profit margins have both improved from 2009 and considering that 2010 was not a particularly healthy year economically so Nexts performance is to be credited. These measures show that Next has grown despite recession and economic slump and so Next should continue to do well when economy recovers fully in 2011 and beyond. Further looking at ROCE and ROE we see that these two indicators are particularly good for 2010. ROCE reflects companys ability to earn a return on its capital while ROE relates net income to the amount invested by the shareholders. ROE indicates efficiency shareholders investment has been utilized. Efficiency ratios including Non-current asset turnover, Inventory turnover, Trade receivables collection period and Trade payables payment period all show improvement over 2009. Trade

payable payment period has decreased showing reveals Next has improved its ability to pay its bills and has reduced time period to pay its outstanding bills from 33 days to 27 days, also there has been a small improvement in Nexts ability to receive payment basically signifying Nexts effectiveness in extending credit as well as collecting debts. Improvement in non current asset turnover also is a healthy sign showing improved ability in using the investment in fixed assets to generate revenues. Inventory turnovers small improvement shows faster turnaround of inventory so better ability to generate revenues. Determining number of times inventory is sold during the year provides some measure of its liquidity and ability of company to convert inventories into cash quickly. If we were to distribute inventory turnover into 365 days of the year we find that inventory turnaround has reduced to 50 days in 2010 from around 52 in 2009. Gearing ratios Long-term debt to equity and Interest cover are both favorable. Long term debt to equity ratio has increased showing decrease in long term debt and further Interest covers increase shows improved ability of Next to meet its obligations.

(London Stock Exchange, 2010)

("Morning Star stock Report", 2010)

Finally looking at investment ratios P/E ratio, Dividend payout, Dividend cover, and Dividend yield shows increasing EPS and dividends over 2009. P/E ratio has improved from 7 to 10.4 and revenue per share has also climbed up. Slight improvement in dividend cover shows improved profits to be ploughed back into business. Also looking at EPS estimates for the future Next shows a healthy outlook with an analyst green signal and go ahead and buy rating. EPS estimates show EPS to grow from 177, currently to 248 by 2013, a more than 40% growth.

(Thomson Banker, 2010) Having analyzed Next plc we need to cross check the companys performance with Ted Baker to see if Next is really viable for investment. Ted Baker PLC (Ted Baker) is a United Kingdom-based designer brand company with wholesale and retail sales of menswear, women's wear, children wear and related accessories (Thomson Banker, 2010).

Company QuoteSymbol Last Price Close Price 52 Wk High Price 52 Wk Low Price Volatility Current P/E Ratio Last Yr. P/E Ratio P/E High 5Yr Avg P/E Low 5Yr Avg P/E Frcst FYR1 Current Price/Book Last Yr. Price/Book Current Price/Cash Last Yr Price/Cash Price/Cash 5YR Avg Div Yld

Next PLC NXT-LN 32.497 36.96 28.43 23.98 11.69 8.14 13.24 8.53 9.73 15.11 -34.87 7.27 5.75 7.49 3.646

TED Baker PLC TBK-LN 10.121 10.62 6.87 25.45 19.17 13.3 18.33 12.57 15.5 3.87 3.62 10.62 8.56 10.26 2.837

Company QuoteSymbol Sales Per Share Earnings Per Share Dividends Per Share Book Value Per Share Cash Flow Per Share COGS Per Share Gross Income Per Share Oper Exps Per Share Oper Inc Per Share EBIT Per Share Int Exp Per Share EBT Per Share Taxes Per Share

Next PLC NXT-LN 24.34 2.25 0.79 1.15 3.17 16.71 7.63 3.82 3.81 3.55 0.37 3.18 0.93

TED Baker PLC TBK-LN 5.17 0.43 0.24 2.16 0.72 1.94 3.23 2.77 0.46 0.61 0.01 0.6 0.17

(Thomson Banker, 2010) Next is performing well in almost all fronts with higher price, EPS and dividend yield. P/E for Ted is higher but that ratio is overshadowed but better performance on almost all other fronts by Next PLC. Comparison of ratios shows higher profitability margins on Next versus Ted while Ted shows a major problem in turning its inventory. Next is also showing a higher operating profit margin while gross profit margin is higher for Ted.

Company QuoteSymbol Last Fiscal Yr End Date Profitability Ratios Return on Per Share Return on Assets Gross Profit Margin Operating Profit Margin Asset Utilization Ratios Asset Turnover Inventory Turnover Leverage Ratios Total Debt to Common Equity Dividend Payout Cash Dividend Coverage Ratio Liquidity Ratios Quick Ratio Current Ratio Accounts Receivable Days Inventories Days Held Gross Profit Margin Operating Profit Margin

Next PLC NXT-LN 1/24/2009 261.65 19.78 27.77 15.64

TED Baker PLC TBK-LN 1/31/2009 21.11 14.46 58.54 8.86

1.84 7.04

1.6 1.72

440.65 35.22 4

0 55.45 3.05

0.93 1.54 56.77 51.82 27.77 15.64

0.7 1.93 32.22 212.2 58.54 8.86

(Thomson Banker, 2010)

(Thomson Banker, 2010)

Similarly looking at analyst estimates standing alone Ted also has a positive outlook with EPS forecasted to grow from 32.6 currently to 51.14 by 2013 (an extraordinary 57% growth). Standing alone Ted would be a good buy, however in comparison with Next Ted would be a secondary choice as Next promises better return because of its higher magnitude share price.

Next PLC Sales and Profitability

3,450 3,400 3,350 3,300 3,250 3,200 3,150 3,100 3,050 3,000 2,950 2006 2007 Revenue m 2008 2009 2010

40

35

30

25

20

15

10

50 0

(Next Plc corporate website, 2010)

Profit after tax m

Next revenues have been consistently growing except for 2009 and similar growth can be seen in the profitability. Latest trading statement from Next PLC reiterates that profit forecasts for years ending January 2011 would be met and further profit would range between 540m to 555m representing a healthy more than 7% growth over last year and EPS is expected to increase by around 15% over last year. This forecast further increases suitability of Next PLC as investment option (Next PLC Trading Statement, 2011). Looking at the financial ratios and company outlooks, Next Plc promises to be a better buy, though possibly in coming years Ted Baker might also be growing significantly. The decision in favour of Next is because of the base magnitude of share price so the growth would increase the base line improving Next share price and EPS and thus a smaller percentage increase than Ted would reflect in a larger magnitude result hence Reiner should go for Next PLCs shares.

Which part(s) of questions did you find difficult to answer and which did you find easier? Why did you think that was? Some ratios were straight forward while other like ROCE and ROE were trickier. Analysis of ratio results was however the difficult part, as both of the companies standing alone were good buys but it required more thorough analysis to separate one more promising company for investment.

What are your strengths and/or weaknesses that you have identified? What have you learned from this work?

Strengths were ability to find sources for getting required information, however finding the correct number for analysis through ratios was the tricky part. My learning was that numbers alone do not mean anything in isolation. Number have to be considered in accordance with base facts for good or bad number have to be considered in relation with the respective environment for high percentage might not be necessarily a healthy sign if the base magnitude is small compared to otherwise smaller percentage increase if the base magnitude is higher.

How effectively did your group work together on this work? Would you prefer group or individual work? Why?

Group work has its definite advantage. Groups allow division of work and if the work division can be made in accordance with the respective members strengths than the group function can be synergized, however if the group members strengths are not fully exploited than group work can actually lead to disjointed slowed down work with much duplication of efforts. Group work can be useful for some work if group members strengths can be appropriately mapped on the work. It will also be useful if the work is divisible into appropriate pieces matching group members forte and expertise.

References Next Group plc 2011 [WWW] http://banker.thomsonib.com/ta/ (8th January, 2011) (2011) Next Group PLC Website [www] http://www.nextplc.co.uk/nextplc/financialinfo/reportsresults/2010/2011-01-05/2011-0105a.pdf (8th January, 2011) (2011). Next Group PLC Website [www] http://www.nextplc.co.uk/nextplc/financialinfo/financialsummary/ (8th January, 2011) (2011) Next PLC Morning Star Stock Report [www] http://tools.morningstar.co.uk/uk/stockreport/ (8th January, 2011) (2011) Next PLC NEXT PLC ORD 10P - Fundamentals - London Stock Exchange [www] http://www.londonstockexchange.com/exchange/prices/stocks/summary/fundamentals.html? fourWayKey=GB0032089863GBGBXSET1 (8th January, 2011)