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Interpretation of Financial Statements: Next Plc and Ted Baker Plc - Case Study Example

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The "Interpretation of Financial Statements: Next Plc and Ted Baker Plc" paper contains the financial statements which provide important financial information about business operations. With the help of this information, one can compute financial ratios relating to liquidity, profitability, gearing. …
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Interpretation of Financial Statements: Next Plc and Ted Baker Plc
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Download file to see previous pages Ted Baker reported a gross profit margin of 58% in 2009 and this increased to 61% in the following year whereas Next Plc reported a margin of 27% in 2009 and it increased to 29% in the immediate year. The gross profit margin of the former is more than double that of the latter; this implies that the management of Ted Baker has exercised efficient control over the operating costs. However, the operating profit margin of Next Plc is marginally higher than Ted Baker Plc. For 2010 the former reported an operating profit margin of 15% as compared to12% by Ted Baker Plc. This suggests that the management of Next Plc has succeeded in controlling the administrative expenses thereby pushing up this margin.

The investors are more interested in the return that the company is able to generate for its investors. Based on this parameter Next Plc has outperformed Ted Baker Plc as ROCE reported by Next is 56% and this has improved over the last year’s percentage of 45%. This is near twice the ROCE of 29% reported by Ted Baker Plc. From this, it can be inferred that the earnings generated by Next Plc are sufficient for paying off the debt and equity holders. In terms of ROE also Next Plc has beaten Ted Baker with the former reporting an ROE of 272% for 2010 as compared to 20% by Ted Baker. This is mainly because the equity base of Next Plc is quite low.

The non-current asset turnover ratio of Ted Baker for 2010 is 5.69. This has improved over the last year's figure of 4.87. Next Plc reported this ratio at 5.22 for 2010. Both companies have reduced their investment in the non-current assets in 2010. Despite this, the revenue of the company has moved up over the last year. This is a good sign as it implies that the company management is utilizing the asset base efficiently (Walker, 2008, p.186).

The inventory turnover ratio of Ted Baker Plc is 1.90. This has improved, albeit marginally, from 1.70 in the previous year. Compared to it this ratio is significantly high for Next Plc. In 2010 Next Plc reported an inventory turnover ratio of 7.80.  ...Download file to see next pagesRead More
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