Financial Performance of Tesco Analysis
Added on 2021-02-20
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Finance.Table of Contents
INTRODUCTION...........................................................................................................................3TASK...............................................................................................................................................32.1 Analysis of financial performance of Tesco compared to its competitor Morrisons:..........32.2 Company Valuation:.............................................................................................................62.3 Capital Structure..................................................................................................................10CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................14
INTRODUCTIONFinance is a life line for a business organisation as it provides funds to such company forsmoothly running its operations effectively and efficiently. It is concerned with art of moneymanagement by allocating assets and liabilities in right direction in conducting business(Buchner and et.al., 2014). For understanding of such topic, company named TESCO Plc ischosen which is engaged in providing groceries items through general merchandise retailbusiness and UK based multinational company. This report provides evaluation of financialstatements of above mentioned company by making comparison with another competitor namedMorrisons. Information about the capital structure is also provided in such report along withvaluation of such company's shares.TASK2.1 Analysis of financial performance of Tesco compared to its competitor Morrisons:A. Analysis of statement of financial position: Tesco has reported in year 2018 total assets amounting GBP 44862 million whereascompany's total liabilities are GBP 34382 millions. While on other hand Morrisons has reportedassets of GBP 9667 million and overall liabilities amounting GBP 5122 million in year 2018.Which indicates that Tesco has is performing at larger scale as compare to it's competitorMorrisons. Tesco has wide range of resources and gaining competitive advantages (Aboutfinancial statement of Tesco. 2019). Tesco has shareholder's fund amounting GBP 10480 millionwhile Morrisons has reported shareholder's fund of GBP 4545 million indicating that Tesco'sfunding structure is more efficient as compare to Morrisons. Tesco's current assets are GBP13726 millions and current liabilities are GBP 19238 million. On other hand Morrisons currentassets are of GBP 1278 millions and current liabilities are of GBP 3081.B. Analysis of Income Statements: Tesco's revenue in year 2018 as per reported income statement is GBP 57491 millionwhereas Morrisons has reported overall revenue of GBP 17262 million in year 2018, it indicatesthat Tesco is mre efficient to generate revenue as comparison of it's competitor. Operatingincome of Tesco is 1564 million in year 2018 whereas GBP 439 million showing that Tesco hasmore efficient in providing operating income. Tesco's net profit is 1206 million in year 2018while Morrison's net profit in year 2018 is GBP 311 million (About financial statement of
Morrisons. 2019). From above figures it is clear that Tesco is ahead in all the profitabilitymeasurements in comparison of competitors. C. Ratio Analysis: It is a common but significant analysis method which provides a clearcomparison between two business entities performance in all context like liquidity criteria,solvency criteria, profitability criteria etc (Tresch, R. W., 2014). In this context following areratios calculated along with comparative analysis of Tesco Plc and Morrison Plc, as follows:Liquidity Criteria: In order to evaluate whether company has enough cash or liquid funds topay out its all existing current obligations, consideration of such criteria is important. Followingis current ratio which exhibits company's current liquidity position as follows of respectivecompanies: Current Ratio = All Current Assets / All Current LiabilitiesYearMorrison PlcTesco PlcCurrent Assets 127813726Current Liabilities308119238Current Ratio0.41480038950.7134837301In retail sector effective 2:1 is considered as effective current ratio. Both companies havecurrent ratio below the industry standards. However, Tesco's current ratio is 0.71 which is morethan Morrison's current ratio of 0.41. A higher ratio of Tesco indicates that company is morecapable to pay out its short time period liabilities using its current-assets as compare tocompetitor. Profitability Criteria: This criteria specifies overall portability level of business entities. Foranalysing such criteria net profit and operating profit margins are used (Addison, 2017).Following are the ratios of Tesco and Morrison, as discussed below:Net Profit Margin: This ratios provide specification about organisation's net income generationefficiencies. Net income implies to net amount of revenue after deducting all direct and indirectexpenditures. Net Profit Margin= Net Profit/ Turnover *100Morrison PlcTesco PlcNet Profit 3111206Turnover1726257491Net Profit Margin1.80164523232.0977196431Tesco's margin of net profit is 2.10 % whereas Morrison's net profit margin is 1.80 %indicates that Tesco is more efficient to generate net income in retail market as comparison tocompetitive firm Morrison Plc.
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