UNIVERSITY OF LEICESTER
DEPARTMENT OF MATHEMATICS
MSc ACTUARIAL SCIENCE
FINANCE AND FINANCIAL REPORTING
X-Ray Tesco PLC - Financial Analysis
Jessica Franco
STUDENT NUMBER: 149041918
May 2015
Executive Summary
The company Tesco PLC is currently the biggest retailer in the UK and it is one of the top five on the world stage by market share. At the time of writing (April 2015) the business giant faces a costly scandal for inconsistencies in its financial statements. This report aims to analyse the financial performance of Tesco during the last five years 2010-2014, compiling detailed yet concise information on the context of the company, an overview of its financial statements, careful ratio analysis and finally producing an
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Evaluation 14
Conclusions and recommendation 15
References 16
Appendix 18
Appendix A: Methods and data 18
Appendix B: Ratio Calculations 19
Introduction
The retail sector in the United Kingdom is essential for the economy, the company Tesco PLC currently corresponds to the biggest retailer in the UK (1) by revenue and it is one of the top five in the sector at the world level according to market capitalisation (2). Therefore, it would have been justifiable to consider Tesco as a safe investment. However, the company is now facing agency issues (3) which has concerned investors and has caused the company to lose 50% of its market share price.
This report will analyse the financial performance of Tesco PLC in order to gain an insight of the company’s financial health. To understand this, the CORE method of approach (Context, Overview, Ratios and Evaluation) will be employed.
Firstly, the Context of the company will be examined to see how macroeconomic conditions or external factors could have affected the performance of the company, for example, the financial crisis of 2008 or the current low (0%) inflation in the UK. Additionally, the internal financial perception within the company is studied from the financial annual report.
The second part of this work aims to give an Overview by use of a SWOT analysis of the company throughout the last five years 2010 - 2014, for this horizontal and trend analysis techniques are employed referring to key values presented
To achieve this report will be looked at in four main areas. Firstly, we will use financial ratios obtained from annual reports of 2008 and 2009 to analysis and appraise Morrison’s financial performance. This would be followed by a comparative analysis with Tesco, for the same period. In addition, a trend analysis will be done to show the pattern of Morrison’s financial performance over the years 2006 to 2009. Furthermore, a comparison will be made with industry average
Tesco Plc is a Public Limited Company who securities and shares are included in the stock exchange and list of different countries. In UK, companies like Tesco Plc are registered under the companies Act 1980 and its shared are offered to public in regards of limited liability. In addition, Tesco is associated with retail sector that carries out a majority business of the company and contribute their share in country’s economy to a huge scale. Apart from the retail sector, Tesco Plc faced tough competition all over the world from companies like Wal-Mart, Asda, Sainsbury, and others. Although, Tesco is not in dominating position in the current retail market in the UK, but the company is one of the biggest retail companies working in the UK, North America, Asia, Europe and other. The company
Tesco’s financial year represents the 52 weeks that ended 27 February 2007, which is prior to 53 weeks that ended 28 February 2009. In accordance with the International Financial Standards (FRS) were the consolidated financial statements prepared. The statements were also prepared in agreement with the Financial Reporting Interpretation Committee (IFRIC).
Yahoo! Finance (2012) describes Tesco PLC as a company that "operates stores that primarily offer food products, as well as general merchandise, clothing products, and electrical products." In addition to that, Tesco PLC is also involved in the provision of insurance, financial as well as banking (retail) services (Yahoo! Finance, 2012). Taking into consideration the number of branches it has in various parts of the world, Tesco PLC can be regarded one of the largest retailers around the globe. Having been established sometimes in the year 1919 by Jack Cohen, the company has surely come a long way (Tesco, 2012). The phenomenal growth of Tesco PLC over time can largely be attributed to both the unwavering vision of the founder and the selection of a competent team of managers to run the company's operations during its growth phase. Currently, the company top management team comprises of its CEO Andrew Clarke, its Chief Financial Officer Laurie Mcllwee and Tim
The primary objective of this report is to provide a financial performance analysis of Marks & Spencer group plc. This will be achieved by a detailed ratio analysis on financial data available in latest annual report of the company for the year ended March-2013. The attention during ratio analysis will be on horizontal and vertical analysis as well as the comparison of these ratios with the industry. Moreover, the report will also give a brief business analysis of the company.
Tesco operates in 14 different countries. Therefore its performance may be influenced by the local legislation and political factors. There are
Next, SWOT analysis has included in this report because it can help the company planning and make a good decision. The SWOT analysis had been written in the appendix. In The stakeholders, it included suppliers, government, shareholders, pressure group, media and customers. In the appendix, the
This assignment will analyse and compare the financial performance between NEXT and DEBENHAMS by examining their latest Annual Reports. In order to conclude and comment on these two businesses, appropriate ratios will be calculated through the figures in their business financial statements and the information regarding their industry and market conditions in Annual Reports will also be analysed.
In contrast, profit at Sainsbury’s for the period remained relatively level showing a small upward trend of 2.68% resulting in an above average ROCE – thus achieving their financial objective. Relative to Tesco their borrowing and thus long term liabilities is much lower whilst operating profit is up. Tesco’s Profits are clearly trending downwards and as such are reflected in the decline in the gross profit ratio from 8.30% in 2011 to 6.31% in 2013/14 and Operating Profit margin ratios from 6.25% in 2011 to 3.38% in 2013 (with partial recovery in 2014 to 4.14%) with asset turnover remaining relatively consistent however at 1.29% in 2011-2013.
Tesco is a British retail magnate trading at the London Securities Exchange. The company had several capital and quasi-capital transactions with providers of finance during the fiscal year 2008; had the effect of altering their capital structure and changing their Weighted Average Cost of Capital. During this financial year, Tesco was financed by retained profits, long and medium-term debts, capital market issues, commercial papers, bank borrowings and leases (Tesco PLC, 2012). The company generated £2611m cash from operating activities which helped finance their £3bn in capital expenditure, including £1899m profit which contributed towards retained earnings. The firm issued Medium-Term Notes (MTNs) worth £1213m which helped decrease the current MTNs, overdrafts and loans by £108m. Additionally, ordinary shares totaling £156m were released by the firm and entered into the sale-and-lease back leasing arrangements that released £454m from property, along with £650m after the balance sheet date. In addition, the firm returned value to shareholders by paying dividends of £467m and purchasing £490m of their own shares back.
As I have mentioned before, this research paper is being taken exclusively with the aim to evaluate the Tesco’s performance in both financial and business terms over a three years period. Since the financials will be compared with its three year
In this report I will be providing the UK’s largest supermarket, Tesco with advice on their performance. I have chosen to use two types of analytical models to review the company; I will be looking at the organisational structure of Tesco, as well as analysing their business and competitive strategy.
To the clients of this analysis, especially shareholders, they should hold their shares and not sell them, but must not extend their risk by buying more. For lenders, the loans already given should be enough and must put measures in place to make sure it’s been repaid even if it delays but no further loans must be given to Tesco, at least for now to limit any insolvency risk. The lenders may review the loan terms and the covenants.
Profits for Tesco’s operations in Europe, Asia and Ireland increased by 78% during the last fiscal year. The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. Tesco’s innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have also capitalized on this.
Tesco had achieved measurable success in the UK market which was highly regulated and competitive. Due to regulatory pressures, Tesco focused on its operations and capital investment within UK, which also led to opportunities in the international markets as they were a profitable business.