TESCO PLC'S FINANCIAL APPRAISAL

Tesco Plc's Financial Appraisal



Tesco Plc's Financial Appraisal

Introduction

It is very important to comprehend and analyze the companies' annual report and therefore their financial situation especially from the shareholders, investors and employees point of view. To achieve this aim there is a financial technique called ratio. Financial ratios provide a quick and relatively simple means of examining the financial health of a business. A ratio simply relates one figure appearing in the financial statements to some other figure appearing in the financial statement Ratios can be divided in different group and each group can, at the same time, be sub-divided. The main categories are profitability, liquidity, capital gearing, investor and efficiency & effectiveness ratios. In this paper we analyzed the Tesco Plc's Financial Appraisal.

ANALYZING TESCO PLC REPORT

PROFITABILITY RATIOS

Return on Capital Employed

ROCE =  Profit before interest and taxation  x 100

                Capital employed + long-term loans

2010

1,823 x 100 = 14.75%

12358

 

2009

1541_ x 100 = 14.52 %

10608

 This ratio did not have an important change between those years, as it can be seen the EBIT in 2010 was higher than 2009, this helped to increase slightly the returns of money invested to the company, of course this is due to the increase in sales, which had a good impact in the final EBIT. On the other hand a company average in the UK should achieve between 20 to 30 per cent to exhibit a good performance, and TESCO was not even close to achieving this average.

Return on Odinary Shareholder's Fund (ROSF) or Return on Equity

ROSF = Net profit after taxation and interest  x 100

              Capital employed

 

2010

1,102 x 100 = 13,79%

7,990

 

2009

946 x 100 = 14,52 %

6,559

                                                                                           

It was a decrease in 2010 on this ratio, probably this is due to an increase in the fixed assets, that is because the company is growing. Eventhough the ratio shows that TESCO has not a very strong performing during the last two years.

Gross Profit Margin

Gross profit margin =  Gross profit  x 100

                                     turnover

2010

2,409_ x 100 = 7,81 %

30,814

 

2009

1,997_ x 100 = 7,68 %

26,004

 

 

The GPM's indexes showed above of the years 2009 and 2010, indicate TESCO has already established a well procedure in its trading, due to the similarity of the ratios between both years, which means a strong constitution of the company. TESCO has been performing this ratio above seven percent; therefore it is evident that the company has a good control of its turnovers.

Net Profit Margin

Net profit =  Profit before interest & taxation

                                    Turnover

2010

1,823_ x 100 = 5,91%

30,814

 

2009

1,541_ x 100 = 5,92 %

26,004

 

 

 

This ratio indicates TESCO has an effective control over its expenses and possessions, such as rents and premises, which means a good managing over sales and overheads. Also the sales increase in the last years which shows a good performance of the company.

LIQUIDITY RATIOS

Current Ratio

 Current ratio = ________Currrent assets__________

               Creditors falling due within one year

 

2010

 

3,139  = 0,55:1

5,618

 

2009

 

2,440 = 0,45:1

5,372

 

Despite most of the UK's companies operates with a ratio about two, supermarkets normally operates with a ratio of ...