Impact of Working Capital Management on Profitability in Retail Industry: A Study on Next Plc

This report explores the impact of working capital management on profitability in the retail industry through a study on Next Plc. It covers different types of working capital management and their role in improving business performance. The report also provides insights on inventory management, managing expenses, and tracking business performance. The research methodology includes both qualitative and quantitative methods, with primary data collected through questionnaires and face-to-face interviews. The results show that inventory management is the most important role in managing working capital for profitability. The report concludes with recommendations for Next Plc to consider self-driving cars and drones for delivering goods and services to customers.

Latest trends within retail industry and its
impact of working capital management on
profitability

INTRODUCTION
The word retail industry is defined as a sector through which product are sale using
multiple channels or network for distributing the goods and service so that profit can be
enhanced. In today's world with the changing environment a lot of retail trend are innovated that
is social commerce, new approach of influencer marketings, use of drones, self driving cars and
online stores and many more. These all are the major changes that occur in retailing for
effectively enhancing the profit and the sales (Castaldo, Grosso and Premazzi, 2020). For this
research, Next plc. Is selected so that researcher can see the effect of working capital on the level
of profitability. Next plc is the British multinational clothing brand that was established in 1864.
the company's headquarter is in Leicester, United kingdom. The organisation is famous for
selling men, women clothes in UK and other part of the world. The topic of investigation is
crucial for both individuals and companies for offering all the appropriate detail data in relation
to the trends of retail. The present report would assist an organisation to acquire entire trends and
alter their working capital so that profitability can be increase. Therefore, this research subject is
greatly important for the existing as well as for the new ventures who all are planning to open
their business in the retail sector. The contribution in this research is that, have uses all my skills
and knowledge that is Data collection, management of time, apt decision making etc. to complete
each act or task of the project in more successful manner. It would also assure to provide all my
time for Successful closing of this project report. There are various fresh stages that are to be
followed in culmination of this research report. These are defined below in detail manner:
 Literature review: Literature review is the part that will help in gathering all the
secondary data by using various sources like books, journals, online sites etc.
 Research methodology: This section will include different types of methodologies that ca
be sources of data collection, Quantitative and qualitative research, strategy and choices.
 Result: This part will help in analysing the primary and secondary information through
various research analytics techniques.
 Conclusion: This activity will help to provide all the detail summary of the above steps in
short form.
 Recommendation: In this step various suggestion will be provide to improve the working
capital in retail industry.
Aim of reserch

To identify the role of (WCM) working capital management in improving business
performance and profitability within retail industry of UK: A study on Next Plc.
Research questions
 What is working capital management?
 Explain the different types of working capital management that is used within the
organisations?
 Discern the role of WCM in improving the business performance and profitability of
Next Plc?
Research objectives
 To develop basic understanding regarding the working capital management
 To identify the types of working capital management along with their use within an
organisation
 To determine the role of WCM in improving business performance and profitability of
Next Plc
LITERATURE REVIEW
According to Souiden, Ladhari and Chiadmi (2019), Working capital is defined as the
capital that is needed by the organisation for day to day and regular operation. Working capital
management refers to the the set of activities that are performed by the mangers so that resources
are utilise in more efficient manner for daily operating expenses. Working capital is get by
carrying out the variation between the current assets and current liabilities. Companies manges
their working capital to release the cash that was stuck in the balance sheet. Mangers evaluates
that capital so that sufficient t cash and cash equivalent can be maintained to meet the short time
obligations that occurs in the dynamic environment. Managing the working capital is very
important for the organisation so that they can create a healthy working surrounding for the
employee and can achieve their goals and objective on timely manner. There are four main
component of working capital these are Trade receivables, Trade payables, Inventory and Cash
and bank balance. In this accounting mangers track various ratio such as Working capital ratio,
inventory ratio and collection ratio (Cherubino and et. Al, 2019).

As per the view of Wagoner and et. al (2018),There are so many types of working capital
that are managed by the organisation so that there profitability and performance can be
increased.
Gross working capital : It introduces to the amount that is invested in the current assets of the
company. This capital is invested by the company to obtained the cash quickly by converting the
assets (Bhattacharya, 2021).
Net working capital: There is a difference between the current assets and the current liabilities is
known as net working capital. Theses can be negative as well as positive. But for the
organisation it is very important to mange the positive net working capital so that liquidity can be
maintained for short time period.
Permanent working capital: It is also known as Fixed working capital. This type of capital is
hold by the company on permanent basis in the form of current assets so that they can cover the
current liabilities (Lind and et. Al, 2021).
Variable working capital: This type of working capital is invested for temporary time in the
organisation. It is also known as Fluctuating capital. This capital changes with the size, nature,
business cycle and many more (Le, 2019).
In the view of Rashid, Kausar and Shaheen (2020), Their are different role that is
performed by the manger of the Next Plc to mange the working capital to improve their
profitability and productivity some of them are as follow:
Inventory management: One of the role that is performed by them is managing the stock of the
company. Current assets includes the inventory which is the part of the working capital. Next
Plc mangers abilities to maintain the sock impact the profitability of the business. If Company
hold large inventory then their working capital will be low which affect the profit margin
(Bhattacharya, 2021).
Managing expenses: The another role that is played by them is managing the expenses so that
they can improve the cash flows within the Next plc. The mangers compare the expenses with
the cash flow so that estimate can be made between the revenue and the expenses. If the
expenses are high then proper plans are been made so that effectively capital can be utilised to
enhances the productivity and the profitability.
Tracking the business performance: Mangers of Next Plc track the performance by using various
data analytic tools so that decision can be made to increase the profit margin of the company

with proper utilising of working capital on operations (Fernández‐López, Rodeiro‐Pazos and
Rey‐Ares, 2020).

Research methodology
Research methodology is the systematic process of collecting, analysing and interpreting
the selected topic. There are various step in the research methodology to achieve the objective .
As per the requirement of the present project, qualitative as well as quantitative methods are
used by the researcher.
Quantitative methodology:
This is one of the easiest methodology to collect and analysis the data. In this the information
that is collected is in the form of numbers so that evaluation can be attained accurate. This
methodology is quite simpler to carry out all the research. This also help to gather the data from
wider respondent. The researcher has selected Questionnaire survey to carry out the
investigation. The sample size that is taken is 20 mangers of Next plc (Kumar, 2018).
Qualitative methodology:
This methodology helps the researcher to gain a detail understanding about the topic. In this type
a small section of respondent is chosen so that proper analysis can be made about their felling
and emotions at the time of collecting data. Some of the tools to collect the data is interviews,
observations and document analysis. In this the researcher has conducted the exploratory
interview of the mangers Next plc for about 20 minutes.(Novikov and Novikov, 2019).
Primary data:
A primary source of data collection means the data that is collected is fresh and is not used by
any one in before. It is also known as first hand data. There are so many ways to collect the
primary data some of the tools are surveys, interviews and experiments. Gathering this type of
data is quite expensive and time consuming. In this researcher has selected two technique to
collect data these are:
 Questionnaire
 Face to face interview.
Secondary data:
Secondary data is also known as second hand data. This type of data is already been collected by
someone else and is been used multiple time for the same topic. It is collected in the past and
used by different researcher. Collecting data is easy as the investigator get this from various
secondary sources. Some of the secondary sources are:
 Books

 Journals
 Articles
 Online sites
 Magazine
In order to evaluate the quantitative data that is collected through questionnaires, frequency
distribution analysis is applied as a technique, this tools does not take much time and facilitates
in getting the results. For analysing qualitative information, thematic analysis as a research
analytical tool is used. In this, themes of the research are made according to the research
questions (Snyder, 2019).

RESULTS/ DISCUSSION
This section will help the investigation in analysing and evaluating the data that is
gathered with the use of questionnaire vis frequency distribution:
Q1 What is working capital Frequency
a) Yes 15
b) No 5
Q2 What are the different types of working capital management that is
used within the organisations
Frequency
a) Permanent working capital 6
b) Variable working capital 4
c) Gross working capital 3
d) Net working capital 7
Q3 What is the role of WCM in improving the business performance and
profitability of Next Plc?
Frequency
Inventory management 10
Managing expenses 6
Tracking the business performance 4
Table 1: Working capital management
Q1 What is working capital Frequency
a) Yes 15
b) No 5

15
5
a) Yes
b) No
Interpretation: It is been interpreted that in Next plc 15out of 20 mangers exactly know
the meaning of working capital and importance of managing the working capital. The rest 5 says
that they some what know what is working capital but does not know the importance of
managing the capital.
Table 2: Different type of working capital
Q2 What are the different types of working capital management that is
used within the organisations
Frequency
a) Permanent working capital 6
b) Variable working capital 4
c) Gross working capital 3
d) Net working capital 7

6
4 3
7
a) Permanent working capital
b) Variable working capital
c) Gross working capital
d) Net working capital
Interpretation: In the graph it is being see that out of 20 respondent 7 know about the
net working capital management and the importance of calculating it, 6 is of permanent working
capital that is also known as fixed capital, 4 know about the importance of managing the variable
working capital in an organisation and the rest 3 is of the view that Gross working capital .
Table 3: Role of WCM in improving the business performance and profitability of Next Plc
Q3 What is the role of WCM in improving the business performance and
profitability of Next Plc?
Frequency
Inventory management 10
Managing expenses 6
Tracking the business performance 4

10
6
4
Inventory management
Managing expenses
Tracking the business per-
formance
Interpretation: There are various role that is performed by the mangers in the Next plc
so that they can increases there profit margin and the performance in the retail industry. 10
mangers had a view that inventory management is the most important role that is need to be play
effectively so that working capital can be managed in the direction of enhancing profit. 6
respondent had the view that managing expenses is the important role because through this only
cash flow can be track towards the profitability. Remaining 4 mangers had the opinion of
tracking the business performance for positive results.
Results on the basis of secondary data
Theme 1: working capital management
There are four components that is important in managing the working capital :
 Trade receivables
 Trade payables
 Cash and bank balance
 Inventory
Theme 2: Types of WCM
There are various kinds of working capital management:
 Gross working capital: Amount that is invested with in the current assets of the
organisation

 Net working capita: Current assets subtracted by current liabilities.
 Fixed working capital: Capital is hold by the company on permanent basis.
 Variable working capital: Working capital is invested for temporary time.
Theme 3: Role of working capital management.
Some of the role performed by the mangers are
 Inventory management
 Managing expenses
 Tracking the business performance

CONCLUSION
It has been determined that acquiring of trends are beneficial for the retail organisation in
managing the working capital management so that profitability can be increased. Utilization of
drones as well as self-driving cars are more effective for retail industry in enhancing of its
business efficiency along with increasing the profit. Some recommendations for further study is
investigator can consider interview as it does not take maximum time as well as provide sound
information.
RECOMMENDATION
 The first recommendation for Next plc is to consider self-driving car for delivering gods
and service directly to the customer. This would save the time and attract more buyers.
 Next Plc must adopt drone as one of the smart technologies because it will assist them to
raise their sales and directly help in enhancing the profit.

REFERENCES
Books and journals
Castaldo, S., Grosso, M. and Premazzi, K., 2020. Retail and channel marketing. Edward Elgar
Publishing.
Souiden, N., Ladhari, R. and Chiadmi, N.E., 2019. New trends in retailing and services.
Cherubino, P., and et. al, 2019. Consumer Behaviour through the Eyes of Neurophysiological
Measures: State-of-the-Art and Future Trends. Computational intelligence and
neuroscience.
Wagoner, K.G., and et. al, 2018. Trends in point-of-sale tobacco marketing around college
campuses: Opportunities for enhanced tobacco control efforts. Journal of American
College Health. 66(3). pp.145-154.
Bhattacharya, H., 2021. Working capital management: Strategies and techniques. PHI Learning
Pvt. Ltd..
Le, B., 2019. Working capital management and firm’s valuation, profitability and risk: Evidence
from a developing market. International Journal of Managerial Finance.
Lind, L., and et. al, 2021. Working capital models: a generic framework. International Journal
of Services and Operations Management. 39(2). pp.235-261.
Rashid, A., Kausar, S. and Shaheen, S., 2020. Working capital management effects on
investment-cash flow sensitivity. Asian Journal of Management Science and
Applications. 5(1). pp.56-74.
Bhattacharya, H., 2021. Working capital management: Strategies and techniques. PHI Learning
Pvt. Ltd..
Fernández‐López, S., Rodeiro‐Pazos, D. and Rey‐Ares, L., 2020. Effects of working capital
management on firms' profitability: evidence from cheese‐producing
companies. Agribusiness,.36(4). pp.770-791.
Kumar, R., 2018. Research methodology: A step-by-step guide for beginners. Sage.
Snyder, H., 2019. Literature review as a research methodology: An overview and
guidelines. Journal of business research,.104. pp.333-339.
Novikov, A.M. and Novikov, D.A., 2019. Research methodology: From philosophy of science to
research design. CRC Press.

APPENDIX
Q1 What is working capital management?
a) Yes
b) No
Q2 What are the different types of working capital management that is used within the
organisations?
a) Gross working capital
b) Net working capital
c) Fixed working capital
d) Variable working capital
Q3 What is the role of working capital management in improving the business performance
and profitability of Next Plc?
a) Inventory management
b) Managing expenses
c) Tracking the business performance