Economic And Financial Ratios

Running head: ECONOMIC AND FINANCIAL RATIOS
ECONOMIC AND FINANCIAL RATIOS
Name of the Student
Name of the University
Author’s Note

ECONOMIC AND FINANCIAL RATIOS
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Executive Summary
The project aims at describing the factors of microeconomics and macroeconomics and its
impact on the business. In addition, the study also focuses on how economic links with business
and what factors cause the movement along the curve and shift along the curve. The project takes
example of Tesco plc., UK’s biggest supermarket, to show the importance of different financial
ratios in calculating companies performance for the last three years 2017, 2018 & 2019. It
focuses on the accounting ratios which adds to its benefits and shows how it affects the
profitability and liquidity of the business. The project concludes that the different financial ratios
contribute a significant role in this study. Lastly, the study includes some suggestions given to
the company regarding its inefficiency and improving its accounting ratios.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
A. Analysis of Economic Factors and their impacts on the Business.........................................3
B. Computation of Ratios of Tesco for each of the three years...................................................6
C. Accounting Ratios and their importance in Business...........................................................10
D. Recommendation......................................................................................................................10
E. Conclusion.................................................................................................................................11
References......................................................................................................................................13
Bibliography..................................................................................................................................15

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Introduction
Business and economics are related to each other and go hand in hand. Business is
dependent on economic factors such as price elasticity of demand, costs (fixed and variable) and
other factors that change demand. Business creates revenue through sales and producing goods
and services. The performance of the business effect the economy at a great extent and hence
both the elements are connected to each other.
The law of supply and demand establishes a relationship between consumer demand and
supplier production. A demand curve is downward sloping from left to right. Price and demand
have an inverse relation as if the price of the product falls its demand increases making the
demand curve shift rightward and vice-versa. Moreover, there exists a direct relationship
between price and supply of the product and is upward sloping from left to right.
Microeconomics and macroeconomics are two different branches of economy.
Microeconomics deals with an individual focusing on demand and supply and other forces
determining the level of price. Macroeconomic is the study of economy as a whole focusing on
inflation, aggregate demand and supply, unemployment and overall price level. Both these
factors have been discussed below in the report.
The report takes the example of Tesco plc., UK’s biggest supermarket, to show the
importance of different financial ratios in calculating the performance of the companies for the
last three financial years 2017, 2018 & 2019. The study also demonstrates how accounting ratios
create an impact on the business and its performance level.

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Discussion
A. Analysis of Economic Factors and their impacts on the Business
 Macroeconomic factors influence the economy as a whole such as inflation,
unemployment, GDP, and other public policies (Lee et al. 2018).
Explanation of the level of prices and output through this AS-AD model.
According to the (Murphy 2017) the AD curve is downward sloping derived from the IS-LM
model. It shows the equilibrium effect of the combinations of the level of price and output at
which the goods and services are produced. The rightward shift of the AD curve means that the
quantity demanded of real GDP has increased at the same price level. The Keynesian aggregate
supply curve shows that the AS curve is horizontally which means that the firm can produce
whatever amount of goods is demanded at a particular level of price.

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 Microeconomics factors study the behavior of an individual such as elasticity of
demand and supply, marginal utility and demand, diminishing supply and returns and
different market forms (Karl et al.2019).
The above figure shows a downward slopping demand curve has an inverse relation with
the price (Khemani 2017). If the price of the product falls, its demand increases making the
demand curve shift rightward. Moreover, there exists a direct relationship between the price and
supply of the product and is upward sloping from left to right.
 UK’s biggest supermarket, Tesco plc. is a multinational groceries and retailer of
merchandise. The company’s headquarter is situated in England, UK. As per (Tesco,
2019), the group sales of the company ‘TESCO’ continue to grow in 2018/19:
£56.9bn, 2017/18, at £51.0bn which was valued at £49.9 bn in 2016-17 (Tesco,
2018). Customer feedback continues to improve by 5 points in 2018-19 & 2017-18
and Group operating profit excluding exceptional items for the FY 2018-19 was
£2,206m, up 33.5% at constant rates of exchange. In FY 2017-18, it was valued at