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Title: BTEC Business Level 3, Unit 2, M3/D2
Description: BTEC Business Level 3, Unit 2: Business Resources. M3 and D2 - these were achieved first time and I went on to achieve distinction across the whole unit. This is the second assignment and goes over the accounting rations and the financial state of Next PLC, as this was the business I covered in this unit.
Description: BTEC Business Level 3, Unit 2: Business Resources. M3 and D2 - these were achieved first time and I went on to achieve distinction across the whole unit. This is the second assignment and goes over the accounting rations and the financial state of Next PLC, as this was the business I covered in this unit.
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Unit 2: Business Resources
Report 2 – M3/D2
Accounting Ratios and Next’s Financial State
Using accounting ratios, Next PLC can determine and outline their financial state
...
The accounting ratio’s Next use include:
-
Current ratio/solvency
Acid test ratio
Gross profit percentage
Net profit percentage
Stock turnover (times)
Stock turnover (days)
Return on capital employment (ROCE)
Debtors collection
Asset turnover ratio
Current Ratio/Solvency
The current ratio/solvency outlines how many assets that Next PLC has compared to its
liabilities and whether they have the ability and finances to pay their expenses and to still have
money left for the business
...
07
...
A good current ratio is 2 as this means that for
every liability Next have, they have 2 assets to cover this
...
This can motivate Next to invest in further projects and assets to create more profit
and to boost their current ratio
...
This shows how well
Next can meet their liabilities without having to sell any stock
...
05
...
They need to reduce their liabilities or potentially invest in more
assets to bring their ratio closer to 1
...
Using the acid test ratio,
Next can see that they are not performing as efficiently as they could be because their acid
test ratio is too low
...
They
must make strategic decisions to invest wisely so that they cover their assets
...
Gross Profit Percentage
The gross profit percentage shows the gross profit as a percentage of Next’s turnover
...
Unit 2: Business Resources
Report 2 – M3/D2
Next’s gross profit percentage is 30
...
This means that for every £100 they take, they earn
£30
...
This is less than a third of their takings, which
although isn’t that great, it could be a lot worse as at least they are making a profit
...
The gross profit
percentage is useful to Next as it helps them establish what their profit margin is, before tax,
and can indicate if they are not making a profit and are making a loss, and must reduce
liabilities to change this
...
Next’s net profit percentage is 16
...
This means that for each £100 paid into next, £16
...
Whilst this isn’t a bad amount as it means they are making a
profit, Next must look to increase this profit in order to invest in more assets and to expand
their company, to help them perform better in future years
...
The net profit percentage
is useful to Next as they can see straight forward what profit they are making for each £100
taken, and they can use this to define their overall profits for the year, and will help them set
budgets for the following year
...
The stock
turnover in days outlines how many days in the year that Next replenish their stock
...
75 and their stock turnover in number of days is 1
...
This highlights that Next take just over a day to replenish their stock
...
This gives Next a positive reaction on the
performance of their company
...
They use this
by taking the net profit as a percentage of the capital employed by them
...
However, Next don’t outline their
capital employed and therefore this ratio cannot be calculated without this information
...
Unit 2: Business Resources
Report 2 – M3/D2
Debtors Collection
Debtors collection again cannot be calculated as Next do not provide information on their credit
or how many debtors they have
...
Asset Turnover Ratio
The asset turnover ratio is the ratio of the value of Next’s sales generated in relation to the
value of their assets
...
36, and their current asset turnover is 146
...
Next can
use this to evaluate their performance in regards to current and fixed assets
Title: BTEC Business Level 3, Unit 2, M3/D2
Description: BTEC Business Level 3, Unit 2: Business Resources. M3 and D2 - these were achieved first time and I went on to achieve distinction across the whole unit. This is the second assignment and goes over the accounting rations and the financial state of Next PLC, as this was the business I covered in this unit.
Description: BTEC Business Level 3, Unit 2: Business Resources. M3 and D2 - these were achieved first time and I went on to achieve distinction across the whole unit. This is the second assignment and goes over the accounting rations and the financial state of Next PLC, as this was the business I covered in this unit.