Financial Accounting: Analysis and Evaluation of Tesco's Performance and Limitations of Ratio Analysis

FINANCIAL ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Analysis and evaluate the performance, liquidity and financial structure...................................3
Limitations of using the accounting ratios...................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................7

INTRODUCTION
Financial accounting is demonstrated as the reporting in respect to financial transactions
entertain by the organisation. This report is based on the case study of Tesco Plc. The
organisation is established in the year 1919. Jack Cohen is the founder of the company.
Company is associated with the retail sector. Headquarter of the company is located in United
Kingdom. The aim of the report is to discuss the financial management practices associated with
the organisation. Henceforth, evaluation about the performance of the business house with
support of different ratios will be done in this report. Furthermore, limitations about the use of
ratios will also be stated in this project.
MAIN BODY
Analysis and evaluate the performance, liquidity and financial structure
Tesco Company is one of the fastest growing retail sector organisation at a global level.
Currently the organisation is catering its business practices at approximately 1919 locations at a
global level. The return on capital employed of the organisation is recorded as 9.91 in the year
2020, 11.27 in the year 2019 and 12.39 for the year 2018. The trend of the retrain on shareholder
fund is decreasing in nature. Return on capital employed is a profitability ratio demonstrated as
the revenue organisation has earned against the capital invested by the business house in
respective operations of company (Detthamrong, Chancharat and Vithessonthi, 2017). In context
to the Tesco Company equity capital is the overall value of finance that is invested by the owners
of company in business operations of the organisation. The return on capital employed for the
year 2020 is 3.83 whereas, the same return in the financial year 2019 is 5.90 whereas, for the
year 2018 the ratio is 5.07. This can be demonstrates the latest financial year the return become
very low in comparison to the earlier financial years. The low ratio is not a strong indicator for
the Tesco Company as it clearly demonstrate the low level of business oucme generated by the
organisation.
On the other hand return on togal asset is demonstrated as 2.51 for the year 2020, 3.41 in
the financial year 2019 and 2.89 for the year 2018. This ratio has faced fluctuating trend. In the
previous few years due to the covid pandemic the performance up and own has faced by the
organisation. Profitability margins of the Tesco Company can be seen as 2.03 in the year 2020,
2.62 in the year 2019 and 2.26 in the year 2018. The profitability is a true indicator about the
performance of the business entity in respective target market. Profitability of the Tesco