Financial Accounting Ratios and Annual Reports: A Case Study of Tesco PLC

AC4052QA FINANCIAL
ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Explaining liquidity & financial structure of by using accounting ratios and annual reports.....1
Explaining 5 limitations in use of accounting ratios found in analysis and including movement
in company's share price.........................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Financial accounting is concerned with documenting, summarizing and reporting
business transaction that are arising due to operational practices of firm. It helps the organization
to get the accurate outcomes of business transaction so that proper decision can be taken. In the
current era, there is higher level of competition which need to be overcome by applying
accurate financial problems to gain competitive advantages. The current report is based on
TESCO PLC which operates in retail industry by offering consumer goods & services through
utilizing multiple channel. Present will comprise comparison of ratios and interpretation in
order to assess organizational performance. Current report will involve five limitations of using
accounting ratios for analyzing & evaluation of company's performance.
MAIN BODY
Explaining liquidity & financial structure of by using accounting ratios and annual reports
From the evaluation of profitability statement it can be articulated that from the year
2017 to 2020 is fluctuating. Return on capital employed in the 2017 to 2018 & 2019 it has in
increased which is positive sign but declined in current year 2020 that require major changes. In
the case of gross profitability the outcome for the specified ratio is continuously increasing. The
ideal gross profit ratio is considered to be 10% which is higher than current performance of
TESCO PLC. Return on shareholders fund play significant role in making company capable of
attracting larger investors for accomplishing objectives of higher return. In the year 2017 it was
2.25% which has enhanced in the year 2020 to 9.91 but faced downward sloping growth as
compared to 2018 & 2019. On the basis of profitability part of TESCO it can be identified that
TESCO PLC should pay attention to make larger improvements.
Operational ratio is used to asses the efficiency of company so that optimum utilization
of resources exerted by company or not can be assessed. Net & fixed assets turnover ratio for
the specified years in fluctuating situation. (Pratt and Peters, 2017). Stock turnover ratio
provides assistance in attaining information regarding TESCO's effectiveness in replacing its
inventory by making sale. As compared to the year 2017 inventory turnover is increasing from
24.30 to 26.62 times which is reflecting stable liquidity position of enterprise. Debtors collection
period provides assistance in the evaluating that how company is collecting payments from its
customers who have purchased goods on credit. On the basis of derived outcome it can be stated
that has declined in 2020 as per the performance of 2017 which is favorable indicator of
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