Compare Next Plc's Financial Performance Against That Of Burberry Group

This report will compare Next PLC’s financial performance against that of Burberry Group PLCs in the year of 2017. This will be done using liquidity ratios, financial ratios and efficiency ratios. In 2017 Next made a profit after tax of 635.3 Million Pounds compared to that of Burberry’s which was 287.7 after tax. Whilst it Next may be making more gross profit this does not always suggest that it is doing better. Therefore, with the use of analytical ratios we can contrast the successes and failures of these two companies.

In 2017 Next had an ROSF of 124.45% this meant that for every £1 of shareholders fund the company has generated £1.24 profit. Whilst this is often a very good return, it is significantly lower than that of 2016 which was

Therefore, the Ratio is significantly higher because the profit of next is significantly higher. The GPM of Burberry is 69.89 compared to that of Next which is 33.84. Both companies had a slight reduction of about 1% from 2016. However, what this shows is that per item Burberry makes a lot more money. Whereas as we already know Next focuses more on quantity sold than on the Margin per item whereas Burberry having handmade all their clothes makes a lot more money on each item. As well as this people are willing to pay much more for the brand and famous tartan of Burberry than the Next logo. For the Operating Profit Next has a higher ratio than Burberry. This contradicts the Gross profit margin because usually the two are linked due to the usage of the Gross Profit figure. This is most likely because as was mentioned in the first paragraph, Burberry employ more employees per item made than Next do and next manufacture a lot of their products in Newly industrialising companies whereas Burberry make most of their clothes in a factory in York. Next have a higher Operating Profit Margin because they have a certain number of products that are constant that they never have to change around those items whereas Burberry works more closely along world fashion so almost every year it changes which

Whilst Burberry has a much longer turnover period than Next (figures are 60.74 for Next and 222 for Burberry). Burberry has a higher Inventory than Next (by £50 million) however the values are significantly different. This is since Burberry is very closely related to the fashion industry therefore they hold stock for a longer period because they have much higher ticket items. Next on the other hand sell more low-ticket items therefore have a slightly lower inventory and a much higher inventory turnover because they get rid of items as fashion trends change whereas Burberry change from year to year because they have their own fashion seasons. In terms of Trade Receivables, Next have a much higher Trade receivable than Burberry by more than 70 days, this is worse for Next because it means they have a worse cash flow because they collect debt slower than Burberry. With Trade Payables, Burberry has a much longer payable period than Next. Despite this Next has much larger Trade Payables than Burberry however they also have a much larger cost of Sales. Finally, the Working Capital Cycle is the efficiency ratio. Both companies have a relatively high value for this therefore neither of them are ridiculously efficient however Next do have a better ratio than Burberry meaning they spend less time getting trade receivables when they have sold all of their