Question:
This is the guide for the follow-up reflection note, which accounts for 25% of the overall assessment of this module. Your case company is Next PLC listed on the London Stock Exchange.
You are assessed based on your writing skills, the extent to which you understand the materials, and critical Assessment of the case firm’s upside potentials and downside risks and the recent trading conditions via DuPont analysis.
Good discussion should include relevant readings, critical reflection, as well as the analytic evidence to support your arguments and assessment. It is recommended that you also incorporate any opportunities and challenges that affect the case firm in your assessment.
The overall word count is 1,500 words. You are also required to provide full disclosure of the necessary numerical demonstration and analyses in an appendix. Please do not go over the wordcount. Tables, diagrams, references, and appendix are not part of wordcount. Finally, the standard University penalty applies in this assessment. Please refer to your student handbook.
Task:
So far, you have had some ideas of Next’s recent operating outcomes from your first reflection note. This follow-up reflection note requires you to critically evaluate Next’s operating strengths and weaknesses and financial risk based on 5 factor DuPont model introduced in the module. Your analysis should cover the accounting period from the year ended January 2019 to the year ended January 2022, bearing in mind that there was an accounting standard revision (IFRS 16) in 2019 fiscal year. The ratios involving the balance sheet items should be based on the average balance sheet amounts for the relevant analysis.
The report must include the analysis of the following aspects:
1. Analyse the extent to which Next’s (1) working capital contributes to and (2) Capex supports its core operations in order to maintain its competitive positioning. You must analyse and evaluate the case firm’s working capital policies and growth strategy
[40 marks]
2. Summarise Next’s operating strengths and how it manages and/or overcomes challenges. You must connect the summary of the case firm’s operating outcomes from the first assignment to the above working capital management and/or Capex plans with relevant well-edited tables, diagrams, and/or graphs. Please pay attention to self-plagiarism, which is also a serious academic misconduct.
[15 marks]
3. Evaluate Next’s financial risk. The analysis should incorporate free cash flows (FCF).
[10 marks]
4. A concluding remark [5 marks]
5. Demonstration of technical calculations in Appendix of the report. Do not attach excel files with your assignment PDF file.
[20 marks]
6. Presentation, citations, and references. Particularly, all relevant figures and indicators in the main body of the report should be nicely edited. Do not copy and paste from the original sources.
[10 marks]
Note: The students are assessed based on writing skills, ability to conduct independent research, and
the extent to which the materials covered in the module up to the submission date are adequately
applied. Good discussion should include relevant readings as well as the analytic evidence to support
your arguments and assessment.
1. You must demonstrate the understanding of the information provided by financial
statement.
2. You must demonstrate an adequate level of readings in articulating the key points required by the assignment guide.
3. You must demonstrate sound technical skills based on DuPont analysis.
4. You must demonstrate the ability to conduct the basic research independently regarding the case firm’s operating performance, using legitimate sources of information, such as news media and the databases in the University library
5. You must demonstrate the ability to use Excel and Word.
6. The assignment must be well presented and well-edited. It is ideal to provide table, graphs, diagrams
2nd assignment briefing notes
Dear all
Please find the 2nd assignment briefing notes.
Dos:
1. Full technical demonstration of common-size BS, key figures, working capital and its composition, operating cycle, CCC, and Capex portfolio and its composition as the minimum
a. Theoretical understanding – strategic accounting equation emphasising working capital for operations and identification of capex portfolio
b. Theoretical understanding of working capital policies
c. Theoretical and empirical comprehension of capital structure
d. A glossary is encouraged – for clarity in the definitions and formulas – make sure the definitions (and language) and formulas are adequate.
2. Working capital turnover from the operation’s points of view (3 key items and operating working capital) & fixed assets turnover
a. Operating cycle and CCC
b. Interpretations of operating cycle and CCC – the extent to which the case firm manages its inventory (Retail and online Next Label UK) and receivable (Finance segment);
c. Interpretations of fixed assets turnover, taking care of Capex portfolio composition, and the factors influencing Capex turnover discussed in the class
d. Watch the case firm’s webcasts (management has some discussions related to its Capex programme) – watch all relevant years.
2. Understanding capital structure, the financing choice of the case firm. The case firm issues bonds – so it has crediting ratings to complement your financial risk assessment.
3. Read the news articles and use the databases recommended adequately. I read the reports from the link where the assignments provide. One FT article may interest you https://www.ft.com/content/fa4840da-4866-493e-9065-c57a6682b721
4. Follow the instructions
5. The report should have an adequate allocation of the wordcount to the analysis – description of data is not analysis (please read the learning objectives in the week 1 module introduction)
6. Read the marking criteria if you did not do so for your 1st assignment. It is in the assessment. I also put it in the data file
7. Review all the material – both asynchronous and f2f (lecture captures), guided readings, homework, and exercises
8. Analysis should be neutral and objective. Avoid using subjective expressions.
Don’ts,
1. Poorly presented data – markers cannot see the figures or indicators immediately
2. Poor understanding of the theoretical framework + inadequate use of accounting language
3. Performing irrelevant and ill-defined indicators and misusing them
4. a large number of descriptions, assertations, and conjectures without supporting evidence (data).
5. Poor structure and organisation (do not submit the draft). Always go over the assignment again.
6. Large tables and graphs in the main body
7. Bulletin points
8. Poorly defined indicators
9. Taking data from databases without checking – always check your data even if the data is provided by the module!
10. Use Investopedia or Wikipedia – said this in week 1.
FFMA Assignment 2: Notes
• Calculate Free Cash Flow for NEXT: It is not mentioned in annual reports
Glossary
Term Formula
Operating Margin or EBIT Margin (Operating Profit / Total Revenue) * 100
Operating Working Capital Operating Current Assets – Operating Current Liabilities
Operating Working Capital Turnover Total Revenue / Operating Working Capital
Current Ratio Current Assets / Current Liabilities
Quick/Liquid Ratio (Current Assets – Inventories) / Current Liabilities
Capital Expenditure Portfolio Turnover Total Revenue / Capital Expenditure
Capital Expenditure Portfolio Property, Plant and Equipment + Intangible Assets + Right of Use Assets + Associates, Joint Ventures and Other Investments
Purchases Cost of Sales + Change in Inventory
Inventory Holding Period (Inventories / Cost of Sales) * 365
Receivables Collection Period (Customer and other Receivables / Total Revenue) * 365
Payables Payment Period (Trade and other payables / Purchases) *365
Cash Conversion Cycle Inventory Holding Period + Receivable Collection Period – Payables Payment Period
Receivables Turnover Ratio Total Revenue / Customer and other Receivables
Inventory Turnover Ratio Total Revenue / Inventories
Interest Cover Profit Before Tax / Operating Profit
Tax Burden Profit for the period / Profit before Tax
Net Debt Total Debt – Cash and short-term deposits
Shareholder’s Equity Total Equity
Return on Equity Profit for the period / Shareholder’s Equity
Capital Employed Net Debt + Shareholder’s Equity
ROCE Check EBIT Margin * Operating Asset Turnover
ROE Check Operating Asset Turnover * Leverage * EBIT Margin * Tax Burden * Interest Cover
Operating Asset Turnover Total Revenue / Capital Employed
Gearing Ratio Net Debt / Shareholder’s Equity
Leverage Capital Employed / Shareholder’s Equity
Return on Capital Employed Operating Profit / Capital Employed
