TESCO

Ratio Analysis of Tesco

Table of Content

Introduction1

Ratio Analysis of Tesco Plc1

Net and Gross Gearing Ratio1

Dividend Cover2

Interest cover ratio2

Current Ratio2

Quick Ratio3

Operating margin3

Profit margin4

Return on Equity4

Pre-tax margin5

Dividend per Share (DPS) growth5

Dividend Cover6

Retention Ratio6

Price to Earning P/E6

Price to Book P/B7

Cash flow per share7

CAPEX PS7

Day of Sale outstanding8

Number of days of payables8

Ratio Analysis vs. Chairman Statement8

Ratio Analysis vs. Share Price9

Conclusion9

References10

Ratio Analysis of Tesco

Introduction

Tesco is the largest British retail chain, which also has international exposure in different markets. It has stores in 14 countries across Asia, Europe and North America; currently Tesco is a market leader in UK, Malaysia and Thailand. It is among the third largest retailer in the world by its revenue, 2012 revenue figure was around £ 64.54 billion. Current listed on London Stock Exchange (LSE) and it is the 15th largest company on LSE, with £ 24.4 billion of market capitalization. Apart from retail chain business, Tesco diverse its business in internet service, financial service, telecommunication, electronic, furniture etc. Currently Tesco is struggling to maintain its market share in UK market because of intense competition from its competitor like Asda, Sainsbury's, Morrison's and etc.

Ratio Analysis of Tesco Plc

Financial Health

 

2011

2012

Net Gearing

%

52.3

53.13

Gross Gearing

%

66.98

66.1

Dividend Cover

x

2.14

2.21

Interest Cover

x

6.35

7.42

Quick Ratio

r

0.5

0.48

Current Ratio

r

0.68

0.67

Net and Gross Gearing Ratio

Both of the ratios are reflecting satisfactory result for over the past two years. There had been no major improvement in those figures; thus we may drive this conclusion that Tesco is facing some slowdown in its business operation and not considering any option to invest in other opportunities. By comparing the difference between net and gross gearing ratio over two years, we can clearly see that business prefers to invest in cash and short term securities over in its own business operation.

Dividend Cover

For last five year, Tesco plc maintained its dividend cover ratio above 2 times. In 2012 dividend cover ratio is 2.21 times as compare to 2011, which was 2.14 times. There is a slight improvement in the ratio, mainly due company decision to reduce the dividend growth rate below 10 percent, and in 2012 dividend growth rate was 8.8 percent compared to last year 10.18 percent.

Interest cover ratio

Looking at the financial of Tesco plc, it is very clear that borrowing is very limited to the business daily operations rather than for expending the current operation. From 2011 to 2012 Tesco interest payable remain constant, and no new borrowing was made, despite  ultra cheap borrowing cost in UK. Interest coverage ratio has been improved from last year, due to volume metric growth in Tesco's revenue. Interest obligation falls from 483 million to 417 million, mainly because of Tesco less reliance on interest bearing instrument to finance its daily operations. On the other hand, the EBIT improved by 207 million, which also help the company to magnify its interest coverage ratio.

Current Ratio

Current ratio figure for Tesco slightly deteriorated in 2012, from 0.68 times 2011 to 0.67 times in 2012, mainly because of large figures in accounts payable, current portion of long term debt and other liabilities in 2012. Whereas on the current assets side Tesco high inventory, which increased about £ 450 million within two years, and the investment in the short term investment  which increased from £ 3046 million to £ 3455 ...