Return on equity ratio calculates the measure of a company’s
profitability by revealing how much the profit the company generates including
the money shareholders have invested.
Looking at table 5, from 2013 to 2014, it shows that Next percentage
shows how much of the equity that they receive over the years is generated into
profit and from looking at their competitor Debenhams we can see that Next is
doing better in regard to the high percentage generated into profit. Looking at
different companies within the same sector we see that Debenhams is below the
average, whilst Next is above the average and this is overall positive. Refer
to Appendix E.
ROCE is a financial ratio that is used in order to measure the company’s
profitability and their efficiency within its capital employed. Looking at
table 5 it shows that both of the companies have a negative Return on capital
employed, a negative ratio means for Next 2016 that for every pound they made a
loss of around 4 pounds and for Debenhams 2016 it means that for every pound
they have made a loss of around 70 pence. This shows that both of those company
have a high debt and this is what is causing a high return on capital employed.
Table 4 displays that Next gearing ratio is low and so it is for their
competitors which means that both companies rely more on the availability of
equity in order to meet their operation. The average sector shows that the
overall sector average is also a negative which means that most of the sectors
within this industry try to rely on their equity in order to operate. Refer
to Appendix D.
It is one of the various ratios that are used in order to measure the
ability of a company in order to meet their long-term debts and the lower the
company’s solvency ratio the greater it is, the more likely a company will
default on its debt obligations.
The current ratio measures the business ability in paying their short
and long-term liabilities. The principles of it is that it takes 12 months to
convert assets and liabilities into cash. Over the year Next had its current
ratio over 1.4 and for Debenhams it is under the ratio 1 that it is covering
their liabilities, this means that Debenhams net working capital is negative as
it is below the ratio 1 and this would usually mean it is unhealthy for the
business. Looking at the overall sector average, Next is in a positive
situation and it is between the sector average, while Debenhams is below and
this could be due to them being able to generate cash easier than the other
sectors. Refer to Appendix C.
Quick Ratio is used to measure how well the company can meet their
short-term financial liabilities and it is also known as acid-test ratio.
Looking at table 3 Next quick ratio over the years the ratio has been going up
till 2016 and this could be due to an increase in inventory as there wasn’t a
huge change in the quick ratio but we can see that Next is doing better than
Debenhams as they are more financially secure on the company’s short term, but
Debenhams has a lower quick ratio which could lead to a concern for the
company. Looking at the average for the sector next is doing a lot better as it
is within the average. Refer to Appendix C.