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tesco ratio analysis Free essay! Download now

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tesco ratio analysis

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tesco ratio analysis

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CONTENTS

INTRODUCTION...........................................................................................................................3
1. REVIEW OF TESCO’S FINANCIAL FUNDAMENTALS OVER THE LAST 5 YEARS.........................4
1.1 Income statement trends..................................................................................................4
1.2 Balance sheet trends……………………………………………………………………………………………………..5
2. RATIO ANALYSIS OF TESCO......................................................................................................6
2.1 Profitability Ratios..............................................................................................................6
2.2 Efficiency Ratios……………………………………………………………………………………………………………..6
2.3 Liquidity Ratios....................................................................................................................7
2.4 Financial Gearing Ratios.....................................................................................................7
2.5 Investment Ratios……………………………………………………………………………………………………………8
3. BENCHMARK THE PERFORMANCE OF TESCO……………………………………………………………………….8
EVALUATION & CONCLUSION…………………………………………………………………………………………………11
REFERENCES…………………………………………………………………………………………………………………………….12
APPENDICES…………………………………………………………………………………………………………………………….13
APPENDIX 1 (TESCO’S FINANCIAL FUNDAMENTALS)……………………………………………………..13
APPENDIX 2 (MORRISONS’S FINANCIAL FUNDAMENTALS)……………………………………………15
APPENDIX 3 (SAINSBURY’S FINANCIAL FUNDAMENTALS)………………………………………….….20
APPENDIX 4 (TESCO’S HORIZONTAL ANALYSIS)……………………………………………………………..25




Introduction
Tesco Plc is a leading UK grocery chain that operates in 13 countries across Asia, Europe and the United States. In order to evaluate Tesco’s financial positions in the market, vertical and ratio analyses will be implemented. In addition, this report will benchmark two main competitors of the company, namely Morrisons and Sainsbury’s. Finally, in conclusion, it will provide some recommendation for future investors and for those who are considering future employment in the company.
1. Review of Tesco’s financial fundamentals over the last 5 years.
In order to examine Tesco’s performance, vertical analysis of the financial fundamentals for 2006-2010 will be implemented.
1.1 Income statement trends
Table 1:
% change P&L account
2006/07
2007/08
2008/09
2009/10
Sales
8.08%
10.92%
13.95%
5.59%
Cost of sales
8.17%
10.83%
13.84%
5.21%
Gross profit
14.37%
4.82%
15.29%
10.08%
Expenses
8.27%
10.47%
14.48%
5.80%
Operating profit
16.14%
5.40%
13.54%
9.09%
Finance income
-21.05%
107.78%
-37.97%
128.45%
Finance cost
-10.4%
15.7%
91.2%
21.13%
Tax
18.95%
-12.8%
17.8%
6.6%
Retained profits
20.49%
12.16%
0.38%
9.26%
Source: Tesco PLC Annual Report and Financial Statements 2007/10
Sales are the main measures for business growth. Tesco’s revenue has increased by 7.14% per year for the last 5 years. The slowing GDP growth and the deteriorating consumer confidence, which are a result of the recent economic downturn, are the main reasons for the recent slowdown in the company’s rate of growth. However, the absolute level of sales has still increased.
Notwithstanding the challenging economic environment, Tesco managed to maintain strong margins due to significant investments in new stores and lower prices, better pay rates and effective cost management. The lowest operating and gross profits figures were registered in 2007/2008 as a result of £89m investment in US and integration cost from market acquisitions in Czech Republic, Poland and Malaysia (Tesco PLC Annual Report and Financial Statements 2008).
The most significant figure in 2009 is the increased amount of finance costs, from £250m to £478m, or by 91.2%. It was a result of the increased average net debt level slinked to acquisitions and foreign exchange movements, higher coupon rates on commercial paper and unfavourable changes in the non-cash IFRS elements of the interest charge (Tesco PLC Annual Report and Financial Statements 2009). This considerably affected retained profits and a slight increase by 0.38% was registered.
Finally, in 2010 there was a significant increase of the finance income by 128.45%, resulting in growth of the retained profits by 9.26% due to the consolidation of Tesco Bank.
1.2 Balance sheet trends
Table 2:
 
2006/07
2007/08
2008/09
2009/10
Current assets
16.76%
37.67%
122.94%
-16.23%
Inventories
31.90%
25.84%
9.84%
2.25%
Trade receivables
20.96%
21.50%
37.15%
5.01%
Non-current assets
8.51%
17.96%
34.45%
6.77%
Current liabilities
9.69%
25.90%
75.78%
-11.23%
Non-current liabilities
8.62%
31.48%
87.75%
2.06%
Shareholder's funds/Equity
11.93%
12.59%
9.18%
12.97%
Source: Tesco ...

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