Business report:Comparison of two companies in clothing and homeware retail business

Performance Analysis of Next Plc

Introduction

Next is a UK based company , and deals in retailing of fashion wears foot wears , and home products . The other group companies are Next Sourcing and Ventura . The company focuses on promoting its products with focus on newness , quality , and the product of choice of those who want use them . As per Annual Report 2007 of the company , the main objectivity of the company is attaining sustainable growth in earning per share of the company . The company has already achieved this objective with declared EPS

(basic ) of 146 .1p for the year 2007 . The company also intend to its gross and net margins by better sourcing , cost control and efficient management of stock levels . But the company is very highly geared . That means shareholders are always at risk of playing with effect of highly geared financial structure . With this background of Next Plc , an initiative is undertaken in this write up to analyze the performance of Next Plc . in comparison with financial data and other information of Laura Ashley , another company in the same industry . The purpose is to provide detailed information to the potential investors of Next Plc

Profitability

The company 's profit and loss statement will probably leave you clueless because income , expenses ' and other categories lump together valuable financial information . Resolving this mysterious phenomenon requires delving more deeply into the numbers (The Harry Plack , April 24 , 1998 . That is why ratio analysis helps a lot in solving this mystery . Profitability of an entity can be assessed by working out `Gross Margin Ratio , `Operating Profit Margin , Return on

Gross margin measures the profit earned by the company on sales compared with cost of sales . It is the profit before deducting overheads or other operational expenses

Operating profit margin is calculated by comparing earning before interest and taxes (EBIT ) to sales . Operating profit margin shows how successful a company 's management has been in generating income from the operation of business (Ben McClure

Return on generating profits with its available assets (Lawrence J . Gitman

Return on Equity is a measure of how well a company used reinvested earnings to generate additional earnings , equal to a fiscal year 's after- tax income (after stock dividend but before common stock dividends ) divide by book value (Investors Words . com

These profitability ratios in case of Next Plc and Laura Ashley as calculated in the schedule here in this write up are as under

Next Plc . Laura Ashley

Gross Profit Margin 27 .76 45 .29

Operating Profit Margin 15 .45 5 .16

Return on Return on Equity 1 .75 0 .13

of ? 73 .5m included in operational expenses , which is almost 72 .13 of gross profits . Whereas 44 .48 of its gross profit

In case of Next Plc assets are being very effectively utilized as compared Laura Ashley . ROA of Next Plc . is 0 .21 as compared to a meager 0 .06 of Laura Ashley . Return on that assets of Laura might not useable as per...