Comparative Analysis of Next PLC, H&M, and Zara in Fashion Retail Case Study

Introduction

Profiling of Next PLC

Performance analysis of an organization could be a possible interpretation of financial reports and comparative analysis with competitors. Organization last financial year performance evaluate identify financial performance and projected possibilities of future growth. Next PLC is an organized online platform that operates business activities through B2C sales of fashion products. It is a British multinational organization that operated business in 34 different countries to continue progression in Business expansion. This foundation was established in 1864 and provided a long period of business experience to establish it as a proactive market player in this industry. Number of employees of Next PLC has been reported as 43,040 that provide a large number of manpower to operate a business.

Around 700 retail stores have been operated by Next PLC in the UK, which provides leverage in marketing of products. Progress of business activity this organization has reported total revenue 437.65 cores GBP in financial period 2022. Next PLC marketing strategy works through online promotion. B2B business operated by promotion of products and selling through different third party platforms that provide less percentage of cooper ability compared to B2C segment (Hosaka, 2019). Leadership of Next PLC targets to increase the B2Csegment to establish a particular brand image among customers. Product range of Next PLC considers various segments that attract youngsters being a consumer of this organization.

Profiling of H&M

H&M group is a Sweden-based multinational organization, which is operating business in the fashion industry by selling designer clothes to customers. Number of employees of this organization has been reported 107,375 that provide efficient flow of business growth in outlet business. H&M group performance is continuously growing by the B2C business segment because of the number of outlets continuously increased by management to operate sufficient growth in profitability. According to the report of H&M around 4,801 stores have been established in different countries that providing strong growth in the B2C business segment. During the period of coconuts H&M group converted focus on online business activity rather than outputs segment because of that provided external leverage in profitability growth and cost management in operational activities.

There are currently 107,375 people working for this company, who effectively support outlet business development. The B2C business segment of the H&M group's performance is continually improving as a result of management's ongoing expansion of the chain's retail locations in order to maintain an adequate level of profitability. The H&M group's leadership assesses business success using a steady stream of financial resources in increments of the number of outlets. Around 4,801 stores have been created in various nations, according to a report from H&M, which has led to significant growth in the B2C business sector. Since this provided external leverage for profitability growth and cost management in operational activities, the H&M Group switched its emphasis during the coconut period from the outputs sector to online business activity.

Profiling of Zara

Zara is a fashion retail organization of Spain that aggressively spans business in different countries by contractual agreement with domestic players. Business activity of Zara focuses on the majority customer segment to achieve sufficient revenue volume. Online business segment of Zara provides extra leverage in Business expansion by customer application with an online marketing strategy. Comparative analysis of Next PLC would be beneficiary to identify the current financial and nonfinancial position of Next PLC as future aspects. Foundation period of Zara is 1975 and provides information regarding a long period of business experience. Financial report analysis of three companies would identify the comparative position of Next PLC among those that actually provide risk and business opportunity for Next PLC. Additional information regarding business valuation and analysis would be effective for identification of percentage of market share. Zara is a Spanish fashion retail company that actively expands its business in other nations through contractual agreements with local rivals. For adequate revenue volume, Zara's business activities concentrate on the majority customer group. To determine the percentage of market share, more data on company valuation and analysis would be helpful.

Financial Analysis

Financial Performance Evaluation of Next PLC

Operating profit ratio of Next PLC has been calculated 19.47% and 12.56% in financial years 2022 and 2021. Number of employees of Next PLC has been reported as 43,040 that provide a large number of manpower to operate business. Continuous growth in operating profit indicates organizational B2B segment growth positive and financial resource management activity provides an advantage in the comparative market. Gross profit ratio has been calculated 42.63% and 35.31% in consecutive finance that indicate organizational growth in profitability increment is positive that would be beneficiary in future expansion of a business plan (finance.yahoo.com, 2023). Based on the goal of Next PLC regarding Business expansion has become effective by continuous progression of gross profit.

Current ratios explore 1.99 and 1.91 in FY 2021 and 2020 that indicate financial flexibility of Next PLC has been developed in the financial year 2021 by growth of current assets. Growth of current assets provides financial leverage to gain short term goals in business activity. Current debt also manageable by the current asset that indicates financial sustainability in this organism is positive.

Bills receivable ratio of next is represented growth of 41.08 times in FY 2022. Account receivable ratio indicates organizational credit sales receipts cycle has been increased in financial year 2020 that influences negatively on cash balance (Asquith and Weiss, 2019). Inventory turnover ratio also indicates positive growth that influences effective revenue volume enhancement which is going to be considered as a growth of opportunity for business profitability. Account payable ratio increased by 2.85 in FY 2022 which influenced payment to creditors delayed due to imbalance factor in available cash balance.

P/E ratio indicates a positive influence factor in investment would be beneficiary for continuous growth of wealth of investors. Additional information has been identified through the P/E ratio as a long term aspect of investment in this organization would be beneficiary for investors. Current state of P/E ratio indicates the share price of this organization is overvalued due to that reason investment in this organization required additional information before investment.

Financial Performance Evaluation of H&M PLC

H&M PLC operating profit growth in financial year 2022 has been identified 6.01%, whereas GP margin growth rate has been calculated 2.76%. Those financial figures indicate Cost Management activity of this organization impacts positively in operating profit growth (Correa-Mejía and Lopera-Castaño, 2020). GP merging growth is positive and provides financial strength to progress new business proposals; however growth margin is comparatively less than Next PLC.

Financial year 2022 current ratio growth has been calculated 0.13 that influences positive in short term financial flexibility establishment that means H&M PLC has ability to achieve short term financial goals by sufficient balance in assets and liabilities (finance.yahoo.com, 2023). Continuous progression of business activity has been identified through both current assets that could be considered as a positive point of current financial position (Devi et al. 2020). Comparative analysis with Next PLC better growth in current ratio has been identified in H&M PLC that provide extra leverage in the comparative market.

Deficit of -12.98 in account receivable ratio indicates organizational cash receivable activity has taken a long time for cash collection that would be a season for imbalance in available cash balance. The inventory turnover ratio has increased by 0.01 times in FY 2022 that is a positive note for revenue growth (Husna and Satria, 2019). Bills payable ratio growth has been identified 108.17 in FY 2022 that present organization has consumed a long time period to pay credit purchase.

Comparative analysis based on P/E ratio H&M PLC equity price relevant to market performance that would be beneficial for investors to invest in this organization. Next PLC's equity price has been overvalued, which would be the reason for the risk in investment, whereas less risk oriented investors would be going to invest in H&M PLC rather than Next PLC.

Financial Performance Evaluation of Zara

The profitability ratios are evaluated by the “operating profit margin” and “Gross profit margin” while the growth rate is also identified as -1.25% respectively in both financial years. The growth of current ratio computed as -0.24 after finding out the position of current assets and current liability of Zara. The current ratio is 0.69 in FY 2021 that indicates the business is only able to generate cash only 0.69 in every year.

Risk Assessment

Much of this talk about risk assessment and risk reduction may seem very theoretical and disconnected from practical instruction. The major culprits here are the standards defining the concepts of risk appraisal and risk management. The majority of individuals never learn the language in which they are written (Omrani et al. 2019). The main objective is to identify potential dangers to the business and the methods that may be employed to control or manage them. Risk analysis seeks to discover any potential bad or unfavourable outcomes that could arise in an organization before starting any new substantial project or changing any essential organization's goal that might negatively affect the entity. The first step is to determine the threat.

Members of the team must gather all the supplies that will be needed in the projects, understand how they will come out, and identify any dangers that may develop. When a risk is discovered, it is crucial that you appreciate and estimate its scale, nature, and possibility of occurring, as well as the potential impact on the firm. Risk analysis aids in determining the likelihood that danger may materialize (Brooks and Oikonomou, 2018). As a result, the team must evaluate the risks that have been identified before deciding whether or not to accept them. The group will determine whether or not to press further with their idea.

Evaluation of the organization's past financial results identifies financial success and forecasted prospects for expansion. Next PLC has successfully achieved effective growth opportunities to provide an adequate flow in business growth. An organised online platform called Next PLC conducts commercial operations through B2C sales of apparel. In order to advance in corporate growth, a British multinational corporation operated in 34 different nations. The H&M group's leadership assesses company success using a steady stream of cash resources in increments of the number of outlets. Over 4,801 stores have been opened in various nations, according to a study from H&M, which has led to significant development in the B2C business sector.

Lower sales inventory

The Boards proposed Tom Hall as a non-executive director throughout the year to fill the seat of Peter Solway, who has served on our board for more than three months and will step down at the 20 May 2021 AGM. Constant investments and advancements are required to maintain sensitivity and prevent aging. The ongoing reliability and usability of IT systems are essential for a successful business. Our system ought to gather vast volumes of information, interpret it efficiently and precisely, and regulate stock.

Figure 1: Percentage of inventories

The Group Financial Statements' net worth is £536.9 million (up from £527.6 million in 2019). The Council reviewed a business paper summarizing the decisions made on inventory provisions, specifically taking into account COVID's impact on commerce and the danger of obsolescence. The government added additional categories for inventory replenishment in response to COVID-19 to account for fabric and apparel that went unsold the previous year but are anticipated to be in demand in 2021. When allowing for slow-moving, outdated, and products that might not be popular in the future season, inventory assessment requires judgment (Grover et al. 2018). The net worth of the Group Financial Statements is £536.9 million, an increase from £527.6 million in 2019. COVID's impact on commerce and the risk of obsolescence is especially considered in the Reach a conclusion business document, which outlines the decisions made regarding inventory provisions. To accommodate for fabric and clothes that remained unsold the previous year but are anticipated to be in demand in 2021, the management developed more locations for inventory replenishment in response to COVID-19. 

Poor audit procedure

An audit procedure consists of several steps, including inspection, examination, external validation, evaluation of achievement and computation, analytical tools, and inquiry. This technique uncovers appropriate and pertinent audit evidence. They must obey it since it will have a substantial impact on the accountants' conclusions. Following all company accounting policies, it is established all the way through the review and analysis process. The audit procedure is the process utilized to gather evidence. The internal audit includes both the threat assessment procedures and the sampling strategies that were used (Stevens et al. 2018). The planning needs of distinct organizations vary; therefore audit methods sometimes follow arbitrary rules. For the audit process to be implemented, the auditor should be extremely knowledgeable and competent (Balasubramanian et al. 2019). At that time, they also review the key business risks and the effectiveness of the effectiveness of internal control systems. At least twice a year, the Board and Audit Committee each assess the findings of the corporate compliance team (Fajaria and Isnalita, 2018). The External Auditor confronted management during the annual assessment process to consider both emerging and major risks while taking into account the business's increasing reliance on technology, stakeholder expectations, and weather awareness training rules and rags, the changing nature of business, the difficult and complicated contractual arrangements in the retail industry, and other external events.

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Some examiners won't be able to adhere to every claim made during the audit processes. When there are significant transactions occurring, it may be quite challenging for accountants to do a recalibration or essentially the same operation in many different organizations in order to spot inaccuracies or misleading assertions. Some organizations might not want to allow the auditors to undertake the objective review (Andersen et al. 2019. So, in certain instances, the auditor should disclose any managerial impediments. It may be difficult for some accountants to understand the precise logic behind this audit method, which makes it more difficult for auditors to do their jobs. Some of the issues that need to be resolved on a practical level are these.

Employee retention and data security

Companies must implement a thorough policy and procedure for protected information. Worker privacy regulations require businesses to protect employees' personal information while they are on the job. Employers are therefore required to have, implement, and demonstrate compliance with such information security as one definition of "accountability." As statutes of limitations permit the beginning of civil proceedings within that period, businesses should retain individual personal information for at least three decades (Kumar et al. 202. Any personal information on current or past employees that are no longer needed must be destroyed, and any information that is still required for legitimate reasons (such as for future employment rolls or for legal, accounting, or tax purposes) should be maintained.

Outside national borders, there are several international privacy regulations. As a result, it is crucial for a company to know whether privacy legislation applies to them based just on the homes, countries, places of employment, or any other relevant factors of its employees. An employer located in the US claims that laws from other countries do not apply to them. This is untrue since, for one, if they are managing data pertaining to EU residents, requirements like the GDPR also may apply in the US. Along with paying penalties, businesses may also be compelled to make changes to or rebuild their systems in order to prevent future violations and offer more mitigation services to the affected employees.

Limited statistical measurement

Zara dominates the Indicted Group, an exporter of fashion shows with eight brands, and brings in by far the most money for the business. In 2021, the Inditex Group's revenues rose by 36% to £23.08. Despite the fact that Zara is nonetheless one of the most recognized fast fashion firms, its worth has been dropping recently. With 547 outlets, Spain actually has the most stores, including either Zara Kids or Polo Home locations. China has 229 outlets, while France comes in third with 145 stores. The most recent information on the number of Zara stores internationally for 2021 indicates that the firm has 68 outlets in the United Kingdom.

The primary analysis uses data from correction factors. Examples of observations at the neutral level include eye form, yes or no responses to a survey, and favoured breakfast cereal. Even things having numbers linked to them, like the serial number on the back of a football shirt, are just symbolic because they're used to "identify" certain players (Giese et al. 2019). The nominal measurement scale is the least accurate of the four approaches for characterizing data. Conceptual refers to something that is "in name only," making it simpler to remember the emphasis of this stage. Numeric variables provide a strong focus on names, groups, and labels.

Business Valuation And Analysis

Valuation of Next Plc

The warehouse investment, which totals £447 million over five years, pays for a significant expansion meant to increase internet accessibility. As a consequence of this business case study, our capacity for virtual storage will increase from around 80% to the year that ends in January 2020. But, we began our web marketing in June and as a result, both the credit and cash client base significantly improved. By the conclusion of the year, we had 8.4 million online users, an increase of +28% from the previous year and +40% from the two years prior. Taking into account the increasing participation of cash and major consumers the feasibility of each customer category must be explained. This is mostly attributable to the completion of four large store re-sites (costing £18 million), which are anticipated to open in the spring of 2021, and four NEXT Plc (costing £8 million).

In order to generate enough cash flow, businesses must reduce the loan conditions of creditors who have a beneficial influence on their capacity to swiftly boost their financial strength. To regain the financial flexibility lost as a result of the account receivable time period, the FIFO approach of inventory management, which is successful in retaining fewer items, will be used. Organizations must shorten the credit terms of creditors who have a beneficial impact on their ability to quickly increase their financial strength in order to produce a suitable cash flow. Accounts receivable time period limits the financial mobility of Next PLC, which will recover by implementing the FIFO approach in inventory management, which is successful in retaining less items.

Figure 2: Active customers of Next Plc

The rise of our clientele over the preceding two years is seen in the graph below. Growth for active13 UK credit and cash clients is depicted in blue, and foreign consumers are displayed in red. To the right of the final bar is a 2-year growth for each sector. This accounts for £67m (14%) of total revenues, compared to £25m (6%) the previous year. We projected sales to reach above £110 million as of January 2022, an increase of +64% from the prior year. The firm expects this area of our operations to continue seeing rapid development. The table below displays the profit of each consumer segment as a proportion of online sales (Canhoto and Clear, 2020). The first column just shows an organization's online financial success; the second adds the financial gain from credit customers to show the company's prospective profit from credit. The investment for the growth of retail space cost £300 million, which was £5 million higher than the previous year. 

Valuation of Zara

A few years ago, Zara stated that all of its stores will be environmentally friendly and sustainable by the year 2020. In addition to completing the objective one year early, the firm has succeeded in making all brands under the Inditex umbrella eco-friendly. By 2023, when it hopes to stop sending any waste to landfills, Zara will only be utilizing sustainable cotton at all times, according to company data. The company's commitment to the environment is further demonstrated by the use of only approved sources in the production of its paper goods and wooden furniture. However, some of Zara's competitors do have more patrons in the UK, such as Primark (11.1 million female consumers) and H&M. (7 million). The two brands with the largest sales volume are John Lewis and Sainsbury's, with £1.4 billion in revenues and £1.3 billion in net revenues. One of the most well-known stores for men's clothing is Zara, but there are a few others that are far more well-known.

Figure 3: LABEL Drivers of Growth

 For instance, 10 million men shop at Primark in the United Kingdom. Zara is the 22nd most well-liked apparel brand in the UK. The retailer's statistics were the subject of a poll in 2021, and the results showed that demand for Zara was expected to climb by an astonishing 36.7%. The sole company, JD Sports, expected a 41% rise in demand. Zara has a bigger Black Friday following than stores like The North Face, Matalan, River Island, Zara, and H&M. From a value of little over £11 billion in 2018, Zara's trademark value climbed to £13.7 billion in 2019. Only time will be able to determine if this decline truly represents a viral sickness malfunction or the decline of Zara fashion. Zara is one of the most significant businesses in the world and one of the leading retailers of fast fashion. The brand is still significant, but its value has been declining. Its brand is worth about £9.8 billion.

Valuation of H&M Group

Develop long-lasting, value-generating connections with our clients by including them in a variety of activities. More than 114 million people are members of H&M's customer loyalty program, which continues to draw customers from an expanding number of regions and offers increasingly individualized goods and digital services for inspiration and a positive customer experience. About 70 retail locations and 20 manufacturing markets are where H&M can be found. It is crucial for us to always operate ethically, honestly, and responsibly in all aspects of our organization, from dealing with suppliers to conducting business with clients. By following sound buying procedures and working closely with our suppliers, our products.

Figure 4: Sales via Third-Party Websites

The board is ultimately responsible for the organization and administration of the firm, and the CEO is held accountable for the management of the company that is now underway and is responsible for providing ongoing input to the board, according to the commission's rule of procedure. In charge of monitoring and management is the CEO, board, auditing committee, and shareholders. The business has reviewed the internal control report for the fiscal year beginning on December 1, 2019, and ending on November 30, 2020. The responsibility for ensuring that the governance report is produced in accordance with the Swedish Quarterly Accounting Act falls on the board chairman. It is our responsibility to offer an assessment of the governance practices report that is based on our investigation. 

Conclusion

Financial reports analysis helps to conclude that Next PLC performance continuously going in the last 2 years provides leverage in business expansion. Focusing on the B2C segment through online marketing activity would be effective in business growth with a cost management policy. Conclusive factors of turnover activity compared with competitors provide information regarding effective growth opportunity has been achieved by Next PLC to provide sufficient flow in business growth. The P/E ratio of Next PLC indicates over valuation of market capital due to the floating price of equity is highly expensive for investors that contain highly risk factors for investors. Requirement of investment would be essential to achieve short term and long term business goals where Next PLC could face challenges in financial resource Management.

Analysis of financial reports enables one to draw the conclusion that Next PLC's performance has been consistent over the past two years, providing leverage for company growth. With a cost-management strategy, concentrating on the B2C market through online marketing activities would be beneficial for company growth. Next PLC has successfully achieved effective growth opportunities to provide an adequate flow in business growth, as evidenced by the conclusive factor of turnover activity compared with rivals. The P/E ratio for Next PLC shows that the market capitalization has been overvalued as a result of the extremely expensive and risky floating price of equity for investors. Investment would be required in order to accomplish both short-term and long-term company objectives, and Next PLC may have trouble managing its financial resources.

Recommendation

• Growth of gross profit is positive compared to the operating profit that needs to be developed by cost management policies implementation. Mass production of products is going to reduce the average cost of production. Applicable mass production would be helpful to maintain effective supply chain management in a comparative market that also helps to grab a mass number of customers.
• Growth of time period in organizational activity would be beneficiary for conducted account payable influence as lack of availability of cash. To establish sufficient flow of cash, organizations need to reduce credit period for creditors that influence positively to grow organizational financial strength in a short time period. Account receivable time period reduces flexibility of Next PLC financial movement that is going to recover by implementation of FIFO method in inventory management that would be effective in holding less quantity of products.
• P/E ratio indicates over valuation of the organization that needs to be considered by leadership management to attract new investors because future Business expansion plans depend on availability of financial resources. Positive approach by leadership would be beneficiary to pay out sufficient dividends to shareholders. Approaching continuous progression in business activity would be beneficiary conducting growth of financial resources for investor’s creation that is going to influence new investors for father investment.
• Growing organizational activity would benefit from conducted account payable impact as well as a cash shortage. Organizations must shorten the credit terms of creditors who have a positive impact on their ability to quickly increase their financial strength in order to create a sufficient cash flow. The FIFO technique of inventory management, which is effective in holding fewer products, will be implemented to recover the financial flexibility lost due to the account receivable time period.

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