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Business accounting - Essay Example

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This essay analyzes the economic environment worldwide, that is ever changing taking into mind the recessions the world has experienced particularly the latest downturn of 2008/2009. Considering Europe in which one of the strongest economies is going through bad times…
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Download file to see previous pages This essay discusses that the company, if considered from an angle of investing is quite stable and rewarding but its position in the capital market, London Stock Exchange, in this case, is a little bit skeptical. This is because of its abnormal Price to Earnings Ratio in 2011 of more than 890 times which has decreased from a massive 1043 times in the previous year. This means that the company’s share is trading at 890 times its earnings which depict Next as a very expensive share but in contrast to the previous year, its share has gone through a discount with a reduced P/E ratio. The normal practice in the market is of buying shares with a P/E ratio of maximum 20 times but in this case, speculation seems to have happened in the market.
The company, on an overall basis, is quite stable and it has formulated, planned and implemented quite efficient and effective policies to retain its competitiveness in the market domestically as well as internationally. The company’s new growth opportunities are encouraging and if this pace is consistently attained in the future, the company can perform even better and expand effectively. But the company has to prepare for even deteriorating times to come ahead with adverse situations ranging from inflation, rising interest rates, a weakening Euro and fluctuations in other currencies, increasing competition and switching customer preferences and demand. Overall, the company is a good choice to be invested in, taking into account its considerable dividend payout ratio....
Liquidity Analysis Talking about liquidity, the company is performing fine but in contrast to the previous year, it has lacked in some areas. The current and quick ratios have decreased by 0.092 and 0.127 from 2010 to 2011 showing a decrease in liquidity and this is mainly because of a larger increase in current liabilities compared to current assets. Moreover, inventories have increased from a considerable 19.19% from ?309 million to ?368.3 million in 2011, mainly due to the company’s policy of fulfilling market demand and solving out supplier constraints by buying stocks way earlier than required. Though the cash available before share and bond buybacks is a considerable ?92 million, the company has less cash liquidity available in 2011 with a decrease of more than 60% in the cash and cash equivalents balance and the cash ratio falling from 9.83% to only 3.66%. This might obstruct the company in opening and extending new stores and repurchasing more shares in the upcoming year, which has been forecasted at aggressive levels. However, this cash balance can increase in the following year with the rise in the trend of cash customers relative to credit customers or account holders especially in the case of Next Directory; this will in turn definitely decrease the level of accounts receivable and bad debts ( 2011). The manner of collection of receivables and payments to creditors has remained almost the same from 2010 to 2011. But as the inventories have risen, the inventory conversion period has escalated from 47 days to 55 days, which has in turn helped in increasing the cash conversion cycle from 30 to 42 days. ...Download file to see next pagesRead More
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