The large expansion has generated 6. 31 times their value in sales in 2002 and 4. 94 times their value in sales in 2000. At the meanwhile, the net current assets also earned more sales in 2001. we can see this point in the following details. The stock turnover in 2002 is 9 days quicker than in 2001 and 8 days quicker than in 2000. This is a good news. We can see Next plc tried to minimize stock needed to run their business. They did so to minimize interest charges on the money tied up in stocks, to save the cost of the extensive storage and to reduce the risk of clothes of going out of fashion.
Another good sign is a falling 8 days' debt collection. It is an indication that Next plc will have an effective financial control and on the other hand, it also maybe the result of the falling 6-day payment which indicates that Next plc must pay back quicker to suppliers in 2002 than in 2001. We can also notice that in 2000, there are no debts. Although it maybe mean the company has a powerful control over their finance, in fact, as a matter of policy, It is not a good strategic to undue pressure on customers under the competitive market.
On the other side, it also shows that maybe Next plc. has a desperate need for cash. So in 2001, the company gave 51 generous debtors' collection days in order to give themselves a competitive edge. From the whole view, improved performance has been achieved as a result of the increasing in sales. While the gross profit margin slightly decreased about 1% in 2001 due to the increasing cost of sales during the past three years, such as the increased depreciation due to the purchase of the fixed assets which spent from i?? 59. 7 million in 2001 to i?? 71. 4 million in 2002.
However the gross profit margin was rather stable comparing the large scale of expansion. It is a positive sign in light of new store openings featuring many "sale" and many discounted items to attract customers such as the Choice Discount Stores. The increase in operating profit margin is especially noteworthy since it occurred during an expansionary period. The remained profit for the year 2002 also improved in spite of the increase of the tax expenses due to the increased profit and the increases of the dividend paid. Next plc trades from over 330 stores in UK and Eire and 49 stores overseas.
The operation in UK, rest of Europe, North America, Middle East and Asia is quite well during the past three years. The turnover and operating profit is continually increasing. But the operation in Australasia is quite confused. Both the turnover and the operating profit have the downward trend during the past three years and in 2002 the operating profit has a negative i?? 0. 2 million. Maybe Next plc will give more attention to it. From the view of the business sector, Next brand accounted for 92% of fiscal 2002 revenues; Ventura, 5%, next franchise, 1% and other activities, 2%.
All of sectors have an upward trend during the past three years, especially the operation of Ventura, which operating profit increased 276. 67% in 2001 and kept going 15. 04% in 2002. The increased operating profit is a good sign of the better customer services. Investment potential Earnings per share (EPS), price/earnings ratio (P/E ratio) and dividend cover are the core ratios that shareholders are interested in to the companies. EPS reflects the actual earnings available to shareholders. In Next plc, the EPS increases gradually by 33% over the past three years, from 38.
4p in 2000, 46. 8p in 2001 and 58. 4p in 2002. The increasing rate is due to the keep-going increasing earnings for shareholders with the contrary keep-going decreasing number of shares. Because the company's strategy is aimed to maximize the shareholders' funds by purchase its own shares in the open market. We can see that in January 2000 there were 365,100 ordinary shares while in January 2001, there were 336,500 ordinary shares and a further drop in 2002 to 326,800 ordinary shares. It gives the final result of the steady growth in the EPS.
Under this strategic planning, to a large extent the EPS will grow continuously in the future which shareholders and potential investors are pleased to see its performance. Comparing with Newlook plc, a similar retail company which EPS is 19. 80p calculated at the end of year 2002, Next plc has a much higher EPS, 58. 10p at the same time. It shows that the actual earnings available to the shareholders of Newlook plc is less than the shareholders' in the Next plc. Shareholders will be more inclined to Next plc. (see appendix 3) Not only the EPS but also the P/E ratio reflects the ordinary activities of the business.
The P/E ratio indicates the market confidence in the shares of the company. In the past three years, the P/E ratio is lower in 2001 than in 2000 before went up in 2002. The decrease in the P/E ratio in 2001 indicates maybe a lack of confidence in the company's ability to maintain earnings in 2002. But it was cleared in 2002 that earnings increased 20. 43%, much higher than the maintain level. The sharp increased P/E is due to the share price which was bid up sharply in 2002 because of the repurchasing of the shares of his own company.
Apart from the internal influence, the changes in the P/E ratio could also be affected by macro factors. It could be due to the level of the stock market or the market policy to react cautiously to the Next plc's good year. Compare with the Newlook plc, its P/E ratio is 11. 24 calculated at the end of 2002 comparing with 14. 02 of Next plc. By contrast, both companies are well confident but Next plc is better. On the other hand, the P/E relative which P/E of the company compares with the P/E of the market as a whole, using the historical P/E on the basis of the FTSE all-share PER, is 81.