Financial Analysis and Valuation of Tesco plc

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUCTION...........................................................................................................................1
REPORT..........................................................................................................................................1
2.1 Financial Analysis.....................................................................................................................1
a) Financial analysis of the Tesco plc and comparison with that of the competitors.................1
b) Limitations of the ratio analysis..............................................................................................5
2.2 Company Valuation...................................................................................................................5
a) Calculating the value of Tesco plc using various methods.....................................................5
b) Critical evaluation of the valuation methodologies.................................................................6
2.3 Capital Structure........................................................................................................................7
a) Calculations of the cost of bond of convertible bonds............................................................7
b) Calculation of the Cost of Equity............................................................................................7
c) Calculation of the weighted average cost of capital (WACC) of company............................8
d) Evaluation of the difficulties faced by the enterprise in the calculation of WACC................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial management refers to planning, organising, controlling and directing financial
activities like procurement & utilisation of the funds of enterprise. This refers to the application
of the management principles over the financial resources of number of companies. Financial
management is essential for the business enterprise to ensure that all the monetary resources are
utilised effectively (Petrova, 2019). Present report is based on the concepts and principles of
financial management. It will cover analysis of the Tesco plc with that of the competitors for
analysing the financial performance of the business. it will also provide about the company
valuation with various techniques and the various methodologies. Study will also be providing
about the capital structure of the entity in different situations.
REPORT
2.1 Financial Analysis
a) Financial analysis of the Tesco plc and comparison with that of the competitors.
Tesco Competitors
Particulars Formula Tesco Morrison plc Sainsbury
Profitability Ratios
Return on
capital
employed
Net operating
profit/Employed
Capital 4.58% 3.97% 1.97%
Employed
Capital
Total assets –
Current liabilities 28367 9916 12124
Net operating
profit 1300 394 239
Return on
Equity
Net Income /
Shareholder's
Equity 8.16% 5.27% 2.59%
Net Income 1210 244 219
Shareholder's
Equity 14834 4631 8456
1

Gross profit
margin
Total Sales –
COGS/Total Sales 5.83% 3.42% 6.92%
COS 54141 17128 27000
Sales 57490 17735 29007
Operating
profit margin
Operating Income/
Net Sales 2.26% 2.22% 0.82%
Operating
income 1300 394 239
Revenues 57490 17735 29007
Assets
Turnover Sales / Net assets 387.56% 382.96% 343.03%
Sales 57490 17735 29007
Net assets 14834 4631 8456
Liquidity Ratios
Current assets 12668 1382 7589
Current
liabilities 20680 3295 11417
Inventory 2617 713 1929
Quick assets 10051 669 5660
Current ratio
Current assets /
current liabilities 0.61 0.42 0.66
Quick ratio
Current assets -
(stock + prepaid
expenses) 0.49 0.20 0.50
Efficiency Ratios
Inventory 2617 713 1929
Trade
Receivables 1640 347 661
Trade Payables 9354 3085 4444
Days 365 365 365
COS 54141 17128 27000
2