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Added on 2022-12-16

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.

Added on 2022-12-16

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FINANCIAL MANAGEMENT

AND ANALYSIS

AND ANALYSIS

TABLE OF CONTENTS

INTRODUCTION...........................................................................................................................3

TASK 1............................................................................................................................................3

TASK 2............................................................................................................................................8

TASK 3..........................................................................................................................................11

TASK 4..........................................................................................................................................12

Task 5.............................................................................................................................................14

CONCLUSION..............................................................................................................................17

REFERENCES..............................................................................................................................19

INTRODUCTION...........................................................................................................................3

TASK 1............................................................................................................................................3

TASK 2............................................................................................................................................8

TASK 3..........................................................................................................................................11

TASK 4..........................................................................................................................................12

Task 5.............................................................................................................................................14

CONCLUSION..............................................................................................................................17

REFERENCES..............................................................................................................................19

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 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

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.

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.

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

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

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

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

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