Financial Analysis of Tesco Plc Company

This assignment conducts a financial analysis on Tesco Plc Company using ratio analysis. It discusses the company's operations, goals, and financial performance. Recommendations for investment are provided.

Running head: ACCOUNTS AND FINANCE
Tesco Plc Company
Name of the Student:
Name of the University:
Author’s Note:

1TESCO PLC COMPANY
Executive Summary
The aim of the assignment is to conduct a financial analysis on the Tesco Plc Company and the
financial analysis of the company was conducted with the help of the ratio analysis of the
company. The operations and the goals of the company were discussed and the financial
performance of the company were discussed in four year trend period and the relevant result was
analyzed for recommending the performance of the company and recommending the company
from an investment perspective.

2TESCO PLC COMPANY
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
Ratio Analysis..............................................................................................................................3
Calculations.................................................................................................................................4
Gearing/Capital Structure Ratio..............................................................................................4
Profitability Ratio....................................................................................................................5
Liquidity Ratio.........................................................................................................................6
Conclusion/Recommendations........................................................................................................8
Reference.........................................................................................................................................9

3TESCO PLC COMPANY
Introduction
The Tesco Plc. Company operates as a British Multinational grocery Company and as a
general Merchandise Company. The company is located in Welwyn Garden City, England
United Kingdom. The company is the largest grocery and general merchandise company
measured in the terms of gross revenue produced by the company. The company is having its
presence in the major countries of the Europe and Asia and is also having a substantial amount of
market share in the United Kingdom. The company has a 28.4% of the market share in the
industry, which makes the company as the dominant and leading player in the market as
compared to other players in the Industry. The company has its presence in 12 countries on an
overall basis including the United Kingdom where its carries on its daily operating activities. The
Tesco Company has diversified areas of business primarily in the areas of retailing of books,
clothing, electronics, furniture, toys, petrol and other grocery and general merchandise items.
The future prospect of the company is primarily dependent on the financial performance of the
company and the strategies deployed by the company for the overall development of the
company (Wood, Wrigley and Coe 2016). The company has a wide range of portfolio of
products in order to diversify the revenue base of the company and give varied amount of
services and products
Discussion
Ratio Analysis
The application of ratio analysis is done in order to analyze the financial performance of
the company and the review of the financial informations presented by the company. The
application of ratio analysis helps in financial evaluation of the company and analysis of the

4TESCO PLC COMPANY
company. The benefit of ratio analysis is that it provides the operating and financial review of
the company. One of the key limitation of the ratio analysis is that it does not incorporate the
level of inflation in the calculation (Uechi et al. 2015). The qualitative aspect of the firm is also
ignored while evaluating the ratio analysis. The ratio analysis of the company was performed in
order to assess the liquidity of the company, profitability of the company and the capital structure
of the company. The trend period taken for the analysis was the four-year trend in which the
various aspect of the company was taken into consideration for the company (Vogel 2014).
Calculations
Gearing/Capital Structure Ratio
Gearing Ratio
The Gearing or the Capital Ratio shows the amount of debt to equity ratio for the
company or the exposure of the debt in comparison with the equity of the company. The
company has consistently reduced the debt of the company and considered more amount of
equity as a reliable capital source for the company (Omar et al. 2014).
Interest Coverage Ratio
The interest coverage ratio shows the amount of interest burden on the operating income
of the company. The company has consistently reduced the debt of the company thereby
Particulars 2015 2016 2017 2018
Debt 10520000 10623000 9330000 7032000
Equity 7071000 8626000 6438000 10480000
Workings (10520000/7071000)*100 (10623000/8626000)*100 (9330000/6438000)*100 (7032000/10480000)*100
Gearing Ratio (Debt to Equity Ratio) 149% 123% 145% 67%
Gearing/Capital Structure Ratio
Particulars 2015 2016 2017 2018
Earnings Before Interest and Tax -4807000 980000 1168000 1589000
Interest 626000 644000 622000 585000
Workings (-4807000/626000)*100 (980000/644000)*100 (1168000/622000)*100 (1589000/585000)*100
Interest Coverage Ratio -7.68 1.52 1.88 2.72
Gearing/Capital Structure Ratio

5TESCO PLC COMPANY
reducing the interest payment of the company. The higher the interest coverage ratio the better it
is for the company (Lakshmi, Martin and Venkatesan 2016).
Profitability Ratio
Return on Capital Employed
The return on capital employed for the company shows the return generated for the
capital employed by the shareholders of the company. The return on Capital employed for the
company has increased consistently for the company and the same has been due to the rising
profitability of the company. The increasing return on capital employed for the company shows
the wealth creation for the shareholders of the company thereby showing the growth of the
company in the long term and showing the overall development of the company (Enekwe 2015).
Gross Profit Margin Ratio
The gross profit margin shows the amount of operating profit or the gross profit for the
company on the total revenue generated by the company. The gross profit of the company has
shown a consistent improvement where the operating profit of the company has continuously
increased due to the rising revenue of the company (Vogel 2014).
Particulars 2015 2016 2017 2018
Operating Profit -4807000 980000 1168000 1589000
Capital Employed 7071000 8626000 6438000 10480000
Workings (-4807000/7071000)*100 (980000/8626000)*100 (1168000/6438000)*100 (1589000/10480000)*100
Return on capital employed (ROCE) ratio -68% 11% 18% 15%
Particulars 2015 2016 2017 2018
Gross Profit -2112000 2854000 2902000 3350000
Sales 62284000 54433000 55917000 57491000
Workings (-2112000/62284000)*100 (2854000/5433000)*100 (2902000/55917000)*100 (3350000/57491000)*100
Gross profit margin ratio -3.39% 5.24% 5.19% 5.83%

6TESCO PLC COMPANY
Operating Profit Ratio
The operating profit ratio for the company shows the operating margin of the company or
the income generated by the company before the payment of interest and taxes. The operating
profit of the company has shown a growth trend from the year 2015-2018 where the operating
profit of the company has increased consistently for the company. Maintain a growth trend in the
operating profit of the company is important and the company has maintained the same
(Cucchiella, D’Adamo and Gastaldi 2015).
Liquidity Ratio
The liquidity ratio for the company shows the net liquidity available with the company in
order to meet the current obligations of the company. The two common liquidity ratio analyzed
for the company was the current ratio and the quick or acid test ratio for the company (Blum and
Dacorogna 2014).
Current Ratio
The current ratio for the company shows the amount of current assets available with the
company to meet the current obligations of the company in contrast to the current liabilities of
the company. The Company has currently maintained and made possible effort for increasing the
Particulars 2015 2016 2017 2018
Earnings Before Income and Tax -4807000 980000 1168000 1589000
Sales 62284000 54433000 55917000 57491000
Workings (-4807000/62284000)*100 (980000/54433000)*100 (1168000/55917000)*100 (1589000/57491000)*100
Operating profit margin ratio -7.72% 1.80% 2.09% 2.76%

7TESCO PLC COMPANY
current ratio of the company thereby increasing the current assets of the company in respect to
the current liabilities of the company (Blum and Dacorogna 2014). The current ratio for the
company was around 0.60 times in the year 2015 and has consistently increased to around 0.71
times in the year 2018. However, the current assets of the company is still not consistent with the
current liabilities of the companies as the current liabilities of the company is much larger than
the current assets of the company (Riley et al. 2016).
Particulars 2015 2016 2017 2018
Liquidity Ratio
Current Assets 11958000 14828000 15417000 13726000
Current Liabilities 19810000 19714000 19405000 19238000
Workings (11958000/19810000) (14828000/19714000) (15417000/19405000) (13726000/19238000)
Current Ratio 0.60 0.75 0.79 0.71
Quick Ratio
The Quick Ratio or the Acid Test Ratio shows the net liquidity position of the company,
which is quite similar to the current ratio but does not cover inventory and short-term investment
into account. The quick ratio for the company is the amount available with the company in the
liquid assets such as cash and cash and cash equivalents. The Quick Ratio for the company has
been around 0.11 in the year 2015 and which has increased to around 0.17 times in the year 2018
thereby increasing in contrast to the current liabilities of the company (Wood, Wrigley and Coe
2016). The company should maintain a significant amount of liquid assets of the company in
contrast to the current liabilities of the company so that the current operations of the company
does not get hampered (Nesticò and Pipolo 2015).
Particulars 2015 2016 2017 2018
Cash 2165000 3082000 3821000 3282000
Accounts Receivable - - - -
Current Liabilities 19810000 19714000 19405000 19238000

8TESCO PLC COMPANY
Workings (2165000/19810000) (3082000/19714000) (3821000/19405000) (3282000/19238000)
Quick Ratio 0.11 0.16 0.20 0.17
Conclusion/Recommendations
The financial analysis of the company showed that the company had shown a consistent
performance in terms of increasing revenue and profitability for the company. The profitability
ratio indicates that the company has delivered consistent and increasing return for the
shareholders of the company. The increasing efficiency of the company in terms of profitability
and maintaining optimum debt for the company has made the future prospect of the company
financially viable. The company financial risk has also decreased over the trend period taken into
consideration for the company. However, the company should deploy various strategies for
maintaining the liquidity of the company thereby increasing the current ratio for the company.
The company should however deployed various management strategies and analyses various
market and business factors in which the company operates so that the operations of the
company runs smoothly.

9TESCO PLC COMPANY
Reference
Blum, P. and Dacorogna, M., 2014. DFA‐Dynamic Financial Analysis. Wiley StatsRef: Statistics
Reference Online.
Blum, P. and Dacorogna, M., 2014. DFA‐Dynamic Financial Analysis. Wiley StatsRef: Statistics
Reference Online.
Cucchiella, F., D’Adamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy
decisions in the renewable energy sector. Clean Technologies and Environmental Policy, 17(4),
pp.887-904.
Enekwe, C.I., 2015. The relationship between financial ratio analysis and corporate profitability:
a study of selected quoted oil and gas companies in Nigeria. European Journal of Accounting,
Auditing and Finance Research, 3(2), pp.17-34.
Lakshmi, T.M., Martin, A. and Venkatesan, V.P., 2016. A genetic bankrupt ratio analysis tool
using a genetic algorithm to identify influencing financial ratios. IEEE Transactions on
Evolutionary Computation, 20(1), pp.38-51.
Nesticò, A. and Pipolo, O., 2015. A protocol for sustainable building interventions: financial
analysis and environmental effects. International Journal of Business Intelligence and Data
Mining, 10(3), pp.199-212.
Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case
examination using Beneish Model and ratio analysis. International Journal of Trade, Economics
and Finance, 5(2), p.184.

10TESCO PLC COMPANY
Riley, E.B., Fieldston, E.S., Xanthopoulos, M.S., Beck, S.E., Menello, M.K., Matthews, E. and
Marcus, C.L., 2016. Financial analysis of an intensive pediatric continuous positive airway
pressure program. Sleep, 40(2), p.zsw051.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance
ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421,
pp.488-509.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge
University Press.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge
University Press.
Wood, S., Wrigley, N. and Coe, N.M., 2016. Capital discipline and financial market relations in
retail globalization: insights from the case of Tesco plc. Journal of Economic Geography, 17(1),
pp.31-57.

11TESCO PLC COMPANY
Appendix
Particulars 2015-02 2016-02 2017-02 2018-02
Revenue 62284000 54433000 55917000 57491000
Cost of revenue 64396000 51579000 53015000 54141000
Gross profit -2112000 2854000 2902000 3350000
Operating expenses
Sales, General and administrative 2695000 1874000 1734000 1761000
Other operating expenses
Total operating expenses 2695000 1874000 1734000 1761000
Operating income -4807000 980000 1168000 1589000
Interest Expense 626000 644000 622000 585000
Other income (expense) -943000 -174000 -401000 294000
Income before income taxes -6376000 162000 145000 1298000
Provision for income taxes -657000 -54000 87000 306000
Minority interest -25000 -9000 -14000 2000
Other income -25000 -9000 -14000 2000
Net income from continuing operations -5719000 216000 58000 992000
Net income from discontinuing ops -47000 -87000 -112000 216000
Other 25000 9000 14000 -2000
Net income -5741000 138000 -40000 1206000
Net income -5741000 138000 -40000 1206000
Earnings per share
Basic -2.12 0.05 -0.01 0.44
Diluted -2.12 0.05 -0.01 0.44
Weighted average shares outstanding
Basic 2702333 2708667 2716000 2721667
Diluted 2702333 2717333 2722667 2730667
EBITDA -4198000 2140000 2071000 3178000
TESCO PLC INCOME STATEMENT

12TESCO PLC COMPANY
Particulars 2015-02 2016-02 2017-02 2018-02
Assets
Current assets
Cash
Cash and cash equivalents 2165000 3082000 3821000 3282000
Short-term investments 593000 3463000 3011000 1097000
Total cash 2758000 6545000 6832000 4379000
Inventories 2957000 2430000 2301000 2263000
Prepaid expenses 352000 319000
Other current assets 5891000 5534000 6284000 7084000
Total current assets 11958000 14828000 15417000 13726000
Non-current assets
Property, plant and equipment
Land 25161000 22557000 22690000 23453000
Fixtures and equipment 10918000 10468000 10681000 10909000
Other properties 712000
Property and equipment, at cost 36791000 33025000 33371000 34362000
Accumulated Depreciation -1.6E+07 -1.5E+07 -1.5E+07 -1.6E+07
Property, plant and equipment, net 20440000 17900000 18108000 18521000
Goodwill 2288000 1827000 1792000 1796000
Intangible assets 1483000 1047000 925000 865000
Deferred income taxes 514000 49000 707000 117000
Other long-term assets 7531000 8253000 8904000 9837000
Total non-current assets 32256000 29076000 30436000 31136000
Total assets 44214000 43904000 45853000 44862000
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 1998000 2815000 2549000 1467000
Capital leases 10000 11000 11000 12000
Accounts payable 5076000 4545000 8875000 8996000
Taxes payable 461000 807000 613000 335000
Other current liabilities 12265000 11536000 7357000 8428000
Total current liabilities 19810000 19714000 19405000 19238000
Non-current liabilities
Long-term debt 10520000 10623000 9330000 7032000
Capital leases 131000 88000 103000 110000
Deferred taxes liabilities 199000 135000 88000 91000
Pensions and other benefits 4842000 3175000 6621000 3282000
Minority interest -10000 -24000 -22000
Other long-term liabilities 1641000 1553000 3892000 4651000
Total non-current liabilities 17333000 15564000 20010000 15144000
Total liabilities 37143000 35278000 39415000 34382000
Stockholders' equity
Common stock 406000 407000 409000 410000
Additional paid-in capital 5094000 5095000 5096000 5107000
Retained earnings 1985000 3265000 332000 4228000
TESCO PLC BALANCE SHEET