Strategic Financial Management: Analysis of Next Plc.

Strategic Financial
management

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Identifying reasons for the financial performance.......................................................................1
Assessing significant developments within Next and the wider Retail sector............................4
Assessing challenges and opportunities for the company’s foreseeable future...........................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Strategic financial management is the branch of study which focuses on usage of financial
information of an organisation in order to develop valid polices and strategies of the effective
operations and growth in market. The process of strategy formulation is conducted by using
various financial tools (Ahammed, 2018). The main aim of this report is to build an
understanding about tools which can be used in strategic financial planning and management by
an organisation. For this purpose, the organisation which has been selected is Next Plc. This
company is a large scale multi national retailer which has its headquarters in United Kingdom.
The operations of this company are spread across United Kingdom, Asia and Europe and this
company is listed at London stock exchange (Overview of Next Plc, 2020).
In this report, the reasons behind the financial position of Next Plc. will be analysed by
using the financial tool of ratio analysis. Furthermore, in this report developments within this
company will be assessed along with the opportunities and challenges that company can face in
future.
MAIN BODY
Identifying reasons for the financial performance
Financial performance of an organisation is reflected in its financial statements that include
income statement, balance sheet and cash flow statement (Fernie and Sparks, 2018). Using the
financial summary and annual reports of Next Plc., the ratio analysis of this company are
conducted for the year 2013, 2015, 2015 and 2019. The selection of these years will help in
fulfilling the aim which is to identify and assess the significant financial developments in Next
Plc. along with analysis of the reasons of these developments.
Ratio analysis is a strategic financial tool which is used to check and interpret the liquidity,
efficiency, solvency and profitability of an economic entity. The ratios will be will be used in
this analysis are net profit, gross profit, current ratio, debt equity and fixed asset turnover ratio.
Net profit – The first ratio which is selected for analysis is net profit ratio. This ratio helps
in ascertaining the profit making ability of an organisation. Considering the summary statistics of
Next Plc., the net profit before taxation has been considered instead of using net profit after
taxation.
1

Net profit ratio
2013 2014 2015 2019
Formula Net profit / Net sales
Sales revenue 3563 3740 4000 3917
Profit Before Tax 667 695 795 723
Result 18.72% 18.58% 19.88% 18.46%
The above results shows that the profit making ability of Next Plc. in each year is quite
effective as it is able to procure minimum of 18% profit against the total revenue that has been
gained by this company. Next Plc.’s profits are increasing every year and instead of BREXIT
issues when every company was facing losses, Next Plc. managed to gain net profit ratio of
18.46% in 2019. The reason behind this constant development in profit is the enhancing product
range strategy of Next Plc. This company constantly acquires more and more licenses to sell
different products in the stores. For example, in 2016, Next Plc. enters license agreement to sell
children wear products. Similar to this, Next Plc. continuously increase their product range due
to which they have increasing profits development every year.
Current ratio – Another ratio which is used to analyse the financial developments in
Next Plc. is current ratio that helps in evaluating the liquidity position of an organisation (Jin and
Cedrola, 2016). As Next Plc. operates in a retail industry, the ideal ratio for this company is 2:1.
Current ratio
2013 2014 2015 2019
Formula Current assets / Current liabilities
Current assets 1208 1468 1616 2032
Current
liabilities 816 834 886 1112
Result 1.480392 1.760192 1.823928 1.827338
The above analysis reflects the efficient liquidity position of Next Plc. The current ratio
of this company is constantly increasing and the reason behind this financial development is the
capability of gaining multiple inventory stock in every year which is used pay off all short term
debts. The current ratio of this company is showing an increasing trend as in 2013 (Annual
report of Next Plc, 2013), this ratio was 1.48:1 which increased gradually and reflected to be
2