Financial Accounting of Next Plc: Ratio Analysis and ESG Factors

Financial Accounting
1

Table of Contents
Introduction......................................................................................................................................3
Description and Purpose of ratios....................................................................................................3
ESG factors of Next Plc...................................................................................................................4
Recommendations............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
Appendix..........................................................................................................................................8
2

Introduction
Financial Accounting is referred as a branch of accounting that comprises of a process of
recording, analysing and summarising the reports. These transactions are a result of the business
operations that take place over a period of time (Lee, 2020).
Next plc is a UK based organisation that deals in apparels, footwear and home products.
The headquarters of Next Plc is situated at Enderby, England. The brand has nearly 700 stores
across the globe. The report revolves around the financial accounting of Next plc. The given
report will explore financial analysis of the given company through preparation of various
financial aspects of the company. Further, in the said report document several understandings are
being made in respect to analysing of each ration with ESG factors.
Description and Purpose of ratios
Ratio analysis is basically a comparison between the several line item data from the
organisation that is derived from the financial statements of the organisation. The ratio tends to
reveal the insight in context of profitability, liquidity, operational efficiency and solvency. The
concept revolves around the quantitative interpretation of the financial performance of the
organisation. The profitability and liquidity ratios have been calculated based upon the last five
years' financial statements.
Profitability ratio
The profitability ratios are the classification on the basis of the financial metrics that are helpful
in assessing the ability of the business in order to generate earnings of the organisation in context
to revenue, operating costs, balance sheets etc. The several profitability ratios have been
discussed below.
 Gross Profit ratio- The gross profit ratio tends to measure the profitability of the
organisation while accounting for cost of goods sold (Porter, 2019).
Gross Profit ratio = Gross profit/ Sales * 100
Interpretation- The gross profit ratio has been witnessed at a higher pace in 202 as the
cost of goods had fallen in comparison to the 2021. The cost of goods sold have also reduced
which has shown an increase in the gross profit of the organisation for the year of 2021. The
ratio has been increasing at a positive rate which further fell in the year 2021.
3

 Operating profit Margin- Operating profit margin is referred as the percentage of the
sales left after covering the cost of goods sold along with the operating expenses
(Demerjian, 2017).
Operating profit Margin= Operating Profit/ sales *100
Analysis- The operating profit margin of the year 2017 has been higher by 15% which is
considered as positive. Focussing upon the operating profit for the several years, It was better in
the year 2020 as it was high which states that Next Plc was earning enough money in order to
handle the business operation costs. It has been analysed that the ratio was consistent till 2020
but there has been a decline in the year 2021.
Liquidity ratio
 Current ratio- The current ratio is calculated in order to measure the ability of the
organisation for paying off its current liabilities within an year with the total current
assets. The higher is the ratio, the higher is the liquidity position of the organisation.
4