(a) Analyse the financial performance and position of Next plc for the year ended 31st January 2015 compared to the previous year. (70 marks)

(b) “The conceptual framework states that qualitative characteristics are the attributes that make financial information useful to users. The two fundamental qualitative characteristics are relevance and faithful representation.” Explain briefly the fundamental qualitative characteristic of relevance and discuss, with reference to Next plc, how providing information on exceptional items enhances the relevance of financial statements. (20 marks)

c) Presentation (10 marks)

Total marks (100 marks)

Note: You must provide references and a bibliography for all your research material. (failure to do so means you will be unlikely to pass the assignment)

Notes for students

Your assignment should be no longer than 2000 words in total (excluding appendices, references and bibliography).

Ratios that should be calculated

/Return on Capital Employed (ROCE),
/Operating profit margin (including and excluding exceptional items),
/Net profit (before or after tax) including and excluding exceptional items Basic and Diluted EPS (these are shown on the income statement and will not need to be calculated)
/Asset turnover
/Current ratio
/Acid test ratio
/Receivables collection period
/Payables payment period
/Gearing Interest cover
/Price/earnings ratio
/Dividend cover
/Change in share price over the relevant period

In addition, in your discussion on profitability comment on the profitability of the different segments.

Read the following pages of the Next plc report for useful background information about the group and its financial performance:

Chairman’s statement (pg. 2)
Directors’ report (pg. 36-38)
Independent Auditor’s UK report (pg. 78)
Consolidated/Group financial statements and Segmental analysis (pg. 80-92): although it is not necessary to read every note in detail.
Additional information (pg. 35) & (pg. 114-121)
Marks will be allocated as follows:
(a) Ratios shown for 2 accounting periods for Next plc in a user friendly format (showing all your workings in an appendix). You will need to calculate profitability ratios (including and excluding exceptional items, where relevant), liquidity ratios, efficiency ratios; the gearing ratio and investment ratios. (25 marks)

Analysis of the financial performance and position (encompassing profitability, liquidity, efficiency, gearing and investment) of Next plc for the year ended in 31th January 2015 compared to the previous year. Your discussion should include an introduction to the group, an analysis of the segmental information provided in the annual report and an explanation of the impact of the exceptional items on financial performance. (45 marks)

(b) Brief explanation of the fundamental qualitative characteristics of relevance (from the conceptual framework for financial reporting issued by the IASB in September 2010 (6 marks)

Discussion (with reference to Next plc) on items within the ordinary course of business which are of such size, nature or incidence that they require separate disclosure in the financial statements in order for the financial statements to be relevant to users. (IAS 1) (14 marks)

(C) Presentation (10 marks)

(Total 100 marks)
Approach to assignment
Part (a)

1. You will need to have read Part 6 interpretation of Financial Accounting and Reporting by Barry Elliott and Jamie Elliot encompassing chapters 27 (EPS), 28 (Review of financial statements – 28.8 for peer review and 28.9 for example report) and 29 (Analysis of published financial statements) or its equivalent in Melville’s International Financial Reporting :a practical guide or the ACCA’s Financial Reporting. Additionally you should be familiar with segment reporting (Elliott Sections 4.4 and 29.4.1). Evidence of additional reading on the subject from the recommended list in your Module Study Guide or from your own Library research of periodical indexes will attract higher marks.

2. You will need to read the Next plc annual report including multi-year analysis together with relevant material on the Next plc website and press and/or financial analyst reports or commercial databases on the results for the year ended 31 January 2014.

3. A useful way of approaching your ratio analysis is adopting the pyramid approach (Elliott 17th edition p. 687) starting with return on capital employed (ROCE) and systematically analysing those ratios that impact on the profit and those that impact on the assets employed in the business. This approach will aid in providing a means of checking the accuracy of your ratio analysis. For example you can check all three ratios by ensuring that ROCE is equal to Profit Margin x Asset Turnover and confirm other ratios as you drill down further into profitability and working capital ratios. Receivables and Payables ratios should be calculated from the data provided in notes 17 and 19 of the accounts. Gearing ratios should be based on long term external borrowings. Note that presentational currency is in US dollars when calculating PE ratios. See shareholder information on the Next plc annual report for information on ordinary dividends needed to calculate dividend cover and changes in share price during the year. A columnar analysis that includes the increase or decrease in ratios over the prior year should be included with a referenced appendix showing your workings and source of the numbers used in calculating the ratios. The aim of this section of the assignment is to demonstrate your knowledge and understanding of ratio analysis as an analytical tool in the analysis of financial performance and in identifying key issues for further investigation or comment.

4. An important element of this assignment lies in the analysis of what changes in the ratios from one year to the next indicate about the financial performance of the company. Higher marks are awarded where specific reasons are identified that explain the underlying causes of changes in the ratios and where relevant comparison with hotel industry statistics is included in appropriate areas. The aim of this section is to evaluate your ability to critically review and interpret the results of your ratio analysis differentiating between changes in ratios that were caused by operational and business factors and changes that arise as a result of changes in accounting policies or accounting estimates. There is a limit to the amount of information and detail available from published financial statements and consequently, it is likely you will identify areas where further information would be required to come to valid conclusions.
Part (b)

5. For the second part of the assignment you will need to have read Elliott Chapter 10 Sections 10.5 and 10.6 with respect to Conceptual Framework for Financial Reporting and Chapter 3 section 3.14 or the equivalents in Melville or ACCA. Additionally you should have familiarised yourself with IAS 1 Presentation of Financial statements together with the Notes (1 & 2) on IAS 1 and exceptional items in the Week 2 folder of your course documents.

6. The most important section of Part (B) lies with your ability to identify and comment on items within the ordinary course of Next’s business which are of such size, nature or incidence that they require separate disclosure in the financial statements in order for the financial statements to be relevant to users.

Presentation and Referencing

7. Presentation of your report should be free of spelling and grammatical errors; referenced – according to the Harvard Referencing System; written to an academic standard using appropriate paragraph headings and citations in an expository form and from your own original perspective.

You MUST provide references for all your citations and a bibliography for all your research material not cited.

The Reference List is a list of information sources that have been referred to in your work. Use this term rather than Bibliography, which is a list of additional non-referred-to reading.

At the end of your work list the full references of all your sources. The list must:
• Include all your references
• Be in alphabetical order
• Be one list only; don’t separate out the references into types of references.
• Have each reference following the correct format. This depends on what kind of source it is. References for journal articles, books, websites etc. all have slightly different formats.

 

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