Assignment on Accounting and finance - Next Plc And Hennes & Mauritz Company
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Added on 2020-01-28
Assignment on Accounting and finance - Next Plc And Hennes & Mauritz Company
Added on 2020-01-28
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ACCOUNTING ANDFINANCE1 | P a g e
Table of ContentsINTRODUCTION......................................................................................................................1Financial performance analysis..................................................................................................1Analyse the performance and financial position...................................................................1Preparation of Charts.............................................................................................................3Recommendation to Hennes & Mauritz................................................................................6Limitation of ratio analysis....................................................................................................7CAPITAL INVESTMENT APPRAISAL TECHNIQUES........................................................7Cash inflow............................................................................................................................7Payback period......................................................................................................................8Net present value...................................................................................................................9Accounting rate of return (ARR).........................................................................................10Limitations of investment appraisal techniques..................................................................10CONCLUSION........................................................................................................................10REFERENCES.........................................................................................................................122 | P a g e
Illustration IndexIllustration 1: Gross profit ratio of Next PLC............................................................................3Illustration 2: Gross profit ratio of H & M business..................................................................4Illustration 3: Net profit of Next PLC........................................................................................4Illustration 4: Net profit margin Of H & M................................................................................5Illustration 5: Current ratio and quick ratio of Next PLC..........................................................5Illustration 6: Current ratio and quick ratio of H & M...............................................................63 | P a g e
INTRODUCTIONAccounting and finance plays a significant role in every organization to take qualifieddecisions. Asol Ltd. is a large fashion retailer company considering to purchase shares ineither Next PLC or Hennes & Maurtiz Company. In this report, financial analysis has beendone for both theses two cloth retailing company that are listed on London Stock Exchange.Through making financial as well as non financial analysis, the CFO of Asol Ltd. will be ableto take appropriate investment decisions. In addition to it, capital budgeting tools also will beapplied to take long term investment decisions for Hilltop Limited. FINANCIAL PERFORMANCE ANALYSISAnalyse the performance and financial positionAnalysing the business performance through financial ratios is explained here: Gross profit ratio: The excess of total business revenues over the total cost of goodssold is known as gross profit margin (Kaplan and Atkinson, 2015). The gross profit ratio ofNext PLC business shows an increasing trend. In the year 2011, the gross margin was 29.27%get increased to 33.59% in the year 2015. However, the gross profit ratio of H & M businessshows an declining trend as it get decreased from 62.93% to 58.81% respectively. The ratioindicates that Next PLC is generating greater gross profitability for the business implies thatthe business is performing better as compare to the H & M. Net profit ratio: Net profit is the difference between gross margin and total of indirectbusiness expenses. It represents the net operational results of the business operations (Ward,2012). The net profit margin of H & M business shows a decreasing trend. In the year 2010,the net profit margin was 17.22% get decreased to 13.19% in the year 2014. However, the netprofit margin of Next PLC business gets increase from 11.93% to 15.87% in the year 2015. Itimplies that Next PLC is earning higher net profits indicate better business performance. Operating profit ratio: In H & M Company, the operating margin gets declined from22.73% to 16.90% in the year 2014. However, in Next PLC the ratio get increased from17.19% to 20.62%. Thus, it can be said that Next PLC Company is generating higher theoperating profit from its operating functions. Return on equity: Hennes and Mauritz business is earning return on equity of 41.27%while return on equity for Next PLC business is 208.75%. It indicates that Next PLC businessis getting larger amount of profitability on its equity. Thus, the performance of Next PLCCompany is quite better than Hennes and Mauritz (Gadoiu, n.d).4 | P a g e
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