Financial Reporting Advice for Investing in Next Plc: Analysis of Performance and Position Based on

You are an accountant within an accounting practice with several high wealth clients. One of these clients wishes to invest a significant amount of money in the ordinary shares of Next plc but does not understand the performance and position of thebusiness as shown in its Financial Statements for the year ended You have been asked to produce a report for the client limited to only the issues below, which the client has asked for advice on:

a) Calculate the ratios for profitability, liquidity, efficiency and gearing for the years 2020 and 2019.

b) Analyse the performance and position of Next plc based on the above ratios.

c) Discuss how accounting standards aid the reporting of useful information within Next plc annual reports for 2020.

Remember the client has come to you for advice on financial reporting issues and thus your report should be focused on this topic. Your report should only advise the client about the meaning of financial reporting figures and financial reporting standards used in producing these figures. The client will obtain advice from other advisors on issues such as alternative possible investments or the state of the economy, so yourreport should be restricted to financial reporting issues only.

a) above:

• Consider approximately 10 ratios spread across the areas of profitability, liquidity, efficiency and gearing.
• The calculation of ratios must be shown, not merely the result.
• Explanations of ratios are NOT required. However, if you make an adjustment to a figure used in a ratio to improve its relevance to Next then a brief narrative comment on this is sensible.
• You should use knowledge gathered from a range of academic sources to produce your ratios.

b) above:

• Do NOT consider other years or compare Next to the performance of competitors.
• There are NO MARKS for using analysis of others, rather only your own analysis of your own figures will gain marks. E.g.; the beginning of the annual reports for Next contains Key Performance Indicators and Chief Executive Officer analysis of performance but this is not relevant to your work as it is not based solely on your ratios in part a) and nor is it focused on explaining financial reporting standards.Academic authors, investment analysts and others may also have produced ananalysis of Next but again this will be no use to you, as again it will not be based solely on your ratios in part a) and nor is it focused on explaining financial reporting standards.

Stating that a ratio has improved or worsened attracts marks but not a pass mark.

• Listing generic causes of ratio changes unrelated to Next is worthy only of a basic pass mark.
• Identifying specific causes and effects of ratio changes for Next attracts a good mark.
• Precise analysis of issues in depth, placing ratios in context with one another and identifying which issues are significant and which are insignificant attracts an excellent mark.
• A comment which demonstrates an understanding of accounting standards.ie; show how accounting standards requirements have contributed to the ratio figures attracts an excellent mark.
• You should use knowledge gathered from a range of academic sources to enable your analysis.
• Discuss the Conceptual Framework requirements.
• Provide examples of your choice that show specific accounting standards following the principles of the Conceptual Framework.
• Identify specific examples of Next plc following accounting standards, which leads to useful information. These examples should support your discussion.

Task a) assessment criteria:

• Knowledge and understanding of financial reporting information contained in Statement of Profit and Loss and Other Comprehensive Income, together with Statement of Financial Position and Statement of Changes in Equity.
• Ability to identify and apply appropriate information within the calculation of financial ratios for the London Stock Exchange quoted public limited company stated within the assignment question.

Task b) assessment criteria:

• Knowledge and understanding of the financial reporting requirements for figures within a Statement of Profit and Loss and Other Comprehensive Income, together with Statement of Financial Position and Statement of Changes in Equity.
• Ability to analyse the financial performance and position of the London Stock Exchange quoted public limited company stated within the assignment question.

Task c) assessment criteria:

• Knowledge and understanding of the accounting standard stated within the assignment question and the Conceptual Framework.
• Ability to evaluate the compliance of the London Stock Exchange quoted public limited company financial reporting with the accounting standard stated within the assignment question and with the Conceptual Framework.