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Financial Management and Analysis

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Added on  2022-12-16

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This report provides an insight into the financial position and performance of Tesco plc. It includes ratio analysis, calculation of payback period and NPV, and recommendations for improvement.

Financial Management and Analysis

   Added on 2022-12-16

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FINANCIAL MANAGEMENT
AND ANALYSIS
Financial Management and Analysis_1
TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
TASK 2............................................................................................................................................8
TASK 3..........................................................................................................................................11
TASK 4..........................................................................................................................................12
Task 5.............................................................................................................................................14
CONCLUSION..............................................................................................................................17
REFERENCES..............................................................................................................................19
Financial Management and Analysis_2
INTRODUCTION
Financial management is an important aspect of accounting which is focussed
towards the effectively running of the business. It manages the financial resources of
the organization. It undertakes various functions such as planning, directing, controlling
of the monetary aspects of the business. In this report, Tesco plc is taken as an
organization which is the largest retail organization in UK. This report provides an
insight into the financial position and performance of the organization and also states
about the problems identified. It involves undertaking investment related decisions,
valuation of right issues and along with it valuation of the organization using various
approaches.
TASK 1
1) Calculating ratios of Tesco company to know financial health condition
Liquidity Ratio
Current Ratio
Particulars Formula 2018 2019
Current Assets 13600 12570
Current liabilities 19233 20680
Current Ratio Current Assets/Current
liabilities
13600/19233
0.70 times
12570/20680
0.60 times
It can be analysed that Tesco current ratio is not much effective to pay short term
obligations. The calculated ratio for the year 2018 and 2019 is 0.70 & 0.60 times
respectively. Ideal ratio is considered to be 1 which ensures proper utilization of current
assets (Nalurita, 2017).
Quick Ratio
Particulars Formula 2018 2019
Liquid Assets 11336 9953
Current liabilities 19233 20680
Quick Ratio Liquid Assets/Liquid 11336/19233 9953/20680
Financial Management and Analysis_3
Assets 0.58
0.48
Tesco has quick liquidity in ratio of 0.58 & 0.48 for period of 2018 and 2019
respectively. This is calculated to identify company's liquidity position through cash
availability to deal with short term liabilities. The change has occurred in downward
direction that need to be improved.
Profitability Ratios
Gross Profit ratio
Particulars Formula 2018 2019
Gross profit 3352 4144
Revenue 57493 63911
Gross Profit ratio Gross
profit/Revenue*100
3352/57493*100
5.83%
4144/63911*100
6.48%
It is calculated to analysing company's profit left after deducting cost of goods sold. The
current ratio for company is 5.83% and 6.48% for 2018 & 2019 years respectively.
When it is 65% it is said to be financial healthy company (Satryo, Rokhmania qand
Diptyana, 2017).
Operating profit Ratio
Particulars Formula 2018 2019
Operating profit 1839 2153
Sales 57493 63911
Operating profit
Ratio
Operating
profit/Sales*100
1839/57493*100
3.19%
2153/63911*100
3.36%
This profitability ratio makes able to evaluate that firm is generating enough
profits from its operation after paying cost associated with it. The ratio for Tesco
company in 2018 and 2019 are 3.19% & 3.36% respectively. The ideal margin is 15%
which is more than current commutated ratios therefore organization need to make
changes in way of functioning.
Financial Management and Analysis_4
Net profit ratio
Particulars Formula 2018 2019
Net profit 1210 1320
Sales 57493 63911
Net profit ratio Net profit/Sales*100 1210/57493*100
2.10%
1320/63911*100
2.06%
The respective ratio for Tesco in year 2018 and 2019 is 2.10% and 2.06% that is
lower than perceived ideal ratio that is 10%. Tesco require to modify its net profit
margins so that better profitability can be obtained.
Efficiency Ratio
Inventory Turnover ratio
Particulars Formula 2018 2019
COGS 54141 59767
Inventory 2264 2617
Inventory
Turnover ratio
COGS/Inventory 54141/2264
23.19
59767/2617
22.83
It is done to assess that how much inventory is sold and consumed which need
to be between 5-10 for having healthy working of organization. The present ratio of
specified business is 23.19 and 22.83 for years 2018 & 2019 that is showing downward
trend. It is more than ideal that is significant competitive advantage of company (Parvez,
2020). It can be perceived from this by analyst that firm is having good demand in
market therefore inventory turnover ratio is high.
Total Assets Turnover Ratio
Particulars Formula 2018 2019
Revenue 57493 63911
Total Assets 44884 49047
Total Assets Revenue/Total 57493/44884 63911/49047
Financial Management and Analysis_5
Turnover Ratio Assets 1.28 1.30
This helps firm to examine its efficiency of using assets for generating revenue.
Mentioned firm has 1.28 in 2018 and 1.30 for 2019 which lower than perfect figure of
2.5. There are various improvement area that firm need to concentrate for proper
utilization of resources (Iskandar, 2020).
Receivable Turnover Ratio
Particulars Formula 2018 2019
Sales 57493 63911
Receivable 1504 1640
Receivable
Turnover Ratio
Sales/ Receivables 57493/1504
38.22
63911/1640
38.97
Average receivable ratio is 7.8 for any kind of industry. Tesco has 38.22 as well
38.97 for period of 2018 and 2019. It is reflecting signification of not having good
financial condition of organization (Guerard, Saxena and Gultekin, 2021).
Capital Structure Ratio
Debt Equity Ratio
Particulars Formula 2018 2019
Total Debt 34404 34213
Shareholders equity 10480 14834
Debt Equity Ratio Total Debt
/Shareholders equity
34404/10480
3.28
34213/14834
2.30
This compares firm's total liability to its equity to evaluate how leverage a
company is using. Optimal ratio tend to vary from sectors but it should not be above 2.
The current company has ratio of 3.28 in year 2018 and for 2019 it is 2.30. Tesco need
to take serious actions for improvement of strategic decision-making.
Dividend Coverage Ratio
Particulars Formula 2018 2019
Financial Management and Analysis_6

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