Financial Statements of Tesco plc (2017-2020)

Get the financial statements of Tesco plc for the last three years (2017-2020) and analyze the company's performance through ratio analysis. Understand the trends in return on shareholders' funds, return on capital employed, net profit margin, and more. Discover the limitations of accounting ratios and conclude the company's performance.

Financial statements of Tesco plc for the last three
years 2017 to 2020

Contents
INTRODUCTION...........................................................................................................................3
INTERPRETATION OF RATIOS..................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Tesco Plc is world 's largest retailer. It is Number 1 in United Kingdom as well as as of
Aug 2020, it has market share of around 26.6 per cent in the United Kingdom in the
retail market. It's been in existence since year-1919. This expertise is definitely one
of corporation's greatest assets. It works in a variety of nations. It works in nations like United
Kingdom, India, China, the Hungary, Ireland and many others. Since around Aug. 2020, there
are approximately 6,800 Specialized cells called stores all over the globe. It provide services
to millions of consumers per week through its supermarkets and online shops (Tesco Plc: About
us. 2020). In year-2019, company's sales were worth £56.5 billion. Tesco Plc was in early days
of loyalty card business. In year-1994, Clubcard was launched. It's been used after then
as valuable advertising and sales tool. Many observers say that Clubcard had enabled the
organisation understand consumer behaviour and is increasing tremendously, especially in the
United Kingdom. Clubcard has about 17 million members in UK.
MAIN BODY
Interpretation of Ratios
Data selected for ratio analysis is as of 25/02/2017 to 24/02/2018 (2017-18), 24/02/2018 to
23/02/2019 (2018-19) and 23/02/2019 to 29/02/2020 (2019-2020) period. In this regard
following is ratio analysis of Tesco Plc, as follows:
 Return on Shareholders’ Funds: Company’s ratio was 12.39 in during 2017-18 which has
been reached to 11.27% during 2018-19 and declined to 9.91% during 2019-2020. There
is decline in ratio in 2019-20 due to outbreak of coronavirus. Overall declining trend in
this ratio indicates that company’s efficiency to generate return on the company’s
shareholder funds has been dropped (Adewuyi, 2016).
 Return on Capital Employed: ROCE is level of the net profits of the organization when it
is provided to the owners as worth. This measure helps shareholders to take an alternative
estimate of the performance of the organization and measures the productivity with
which company earns profit applying funds spent by shareholders. There is upward trend
in ROCE up to 23/02/2019 after that ratio has been dropped to 3.83. The decline in period
2019-20 is indicates that corporation’s ability to generate yield on aggregate capital
employed in business has been declined.

 Return on Total Assets: Return on overall asset ratio calculates how easily a business can
make a return on that investment into assets. In simple words, ROA demonstrates how
easily a business can turn the capital used to buy assets into sales income or gains. This
ratio also shown declining trend during 2019-20 but there was incremental trend in ratio
during last two period (from 2.89 to 3.41). This total decremental trend signifies that
company’s efficiency to effectively utilise their assets in attempt to generate sales has
been declined over the period (Guo and Wang, 2019).
 Net Profit Margin: Net profit ratio is actul percentage of income retained after all costs
have been extracted from revenues. The calculation indicates amount of profits that a
company will generate from its net profits. The net revenue component of calculation is
gross revenue excluding any sales expenses, like revenue allowances. This ratio depicts
overall net profitability of business. Tesco’s net profit margin was 2.26 as on 24/02/2018
which has been increased to 2.62 as of 23/02/2019 further this ratio has been dropped
slightly to 2.03 as of 29/02/2020. After corona pandemic this slight decrease is can not be
regarded as unfavourable trend. Overall profitability level of company has been moderate
during the said period.
 Gross margin: This margin ratio shows how much efficient company is to derive profits
through its core business operations. Tesco’s gross-margin ratio as of 29/02/2020 is
7.07% which was 6.48% and 5.83% as of 23/02/2019 and 24/02/2018 respectively
indicating overall upward trend in ratio. This upward trend despite Corona Pandemic
shows company’s unique position in market.
 Net Assets Turnover: This tests the effectiveness at which a business uses existing net
assets sum to achieve revenue. The equation of net asset turnover level is proportional to
the net profits divided by gross or average net assets of company. A business with a
higher net-asset turnover ratio performs more effectively than rivals with lower ratio.
This shows how efficiently company has utilised their net assets to generate sales.
Tesco’s Net-asset turnover was 2.24 and 2.25 respectively as of 24/02/2018 and
23/02/2019 respectively which has been declined to 1.88 as of 29/02/2020 indicating
overall decremental trend in ratio. This declining trend in ratio reflects that company’s
effectiveness to convert their net assets into sales has been declined over the said period
(JOSHI, 2018).

 Fixed Assets Turnover: This ratio-level describe corporation’s efficiencies to utilise their
overall fixed assets into sales. Tesco’s ratio has been declined to 1.65 as of 29/02/2020
which was 1.76 and 1.85 respectively as of 23/02/2019 and 24/02/2018. This aggregate
declining pattern in ratio exhibits Tesco’s efficiency to convert their fixed-assets into
sales has been slightly reduced.
 Interest Cover ratio: The interest-cover ratio calculates the amount of times a business
will make interest charges on its liabilities with earnings prior to interests and taxes.
Tesco’s interest cover ratios are 2.06, 4.12 and 3.06 respectively as of 29/02/2020,
23/02/2019 and 24/02/2018 respectively showing total declining trend. This total
decrease in ratio is not favourable sign this shows that company’s debt burden has been
increased.
 Stock Turnover: Tesco’s stock turnover ratios are 25.40, 24.42 and 26.62 respectively as
of 24/02/2018, 23/0/2019 and 29/02/2020 exhibiting overall incremental trend in ratio.
This up-lining trend in ratio shows that company Tesco’s efficiencies to convert their
stock into sales has been increased over the period which is also a reason of increase in
gross margin of company (ANTREAS, 2017).
 Debtors Turnover: Tesco’s debtors-turnover ratios are 123.37 as of 24/02/2018 which has
been reached to 106.87 as of 23/02/2019 and 130.83 as of 29/02/2020 displaying
aggregate upward trend. This incremental trend in ratio signifies that company’s
efficiency to convert credit sales into cash has been increased (Khan, 2020).
 Debtor Collection Period: Tesco’s average days to collect cash from debtors are 2.79 as
of 29/02/2020 which were 3.42 and 2.96 as of 23/02/2019 and 24/02/2018 respectively.
Company has reported overall decrease in debtor collection days which signifies that
Tesco’s effectiveness to collect cash form its debtor has been improved.
 Creditors Payment: Tesco’s creditor pavement days are 34.89, 32.84 and 31.44 days
respectively as of 24/02/2018, 23/02/2019 and 23/02/2020 reflecting decaling pattern in
ratio. This trend describes that corporation’s effectiveness to make-payments to its trade-
payables has been improved over stated period (Domański and Łabenda, 2020).
 Current Ratio: Company’s current ratio has been increased over the three year it was
reported at .71 as of 24/02/2018, at .61 as of 23/02/2019 and .73 as of 29/02/2020. This

overall improved trend in current ratio is indication that company’s short-term liquidity
position has been increased over that period (Škretović, Novićević, and Pavićević, 2020).
 Liquidity Ratio; This is also regarded as debt to equity ratio indicating overall liquidity
position of company. Tesco’s liquidity ratio are .60 as of 24/02/2018, 0.49 as of
23/02/2019 and 0.60 as of 29/02/2020. There is no perfect trend in ratio but company has
maintained their liquidity position during three years.
 Asset Cover: Tesco’s asset cover ratio are 4.44 and 5.47 respectively as of 24/02/2018
and 23/02/2019 which has been declined to 3.11 as of 29/02/2020 this is indication that
now takes less times to cover its debts.
 Gearing: Gearing ratio is measure of a corporation 's fiscal risk. When a corporation has
so much debts, it can drops into financial hardship (MARAZZI, 2017). The
higher gearing ratio exhibits a significant debt-to-equity ratio, whereas lower gearing
ratio shows reverse. Company’s Gearing ratio are 222.91, 161.26 and 233.35 respectively
as of 29/02/2020, 23/02/2019 and 24/02/2018 showing aggregate decrease in trend.
Overall analysis shows that company’s performance slightly dropped due to economic
slowdown owing to corona pandemic during period 2019-20 but during 2018-19 and 2017-18
company reported consistent favourable growth in all the ratios which is indication that company
will attain their past performance growth.
Highlight any limitations in the use of accounting ratios:
 The corporation can amend its financial reports at year ending to modify its proportions.
Then the proportions can be used to manipulate accounts.
 Ratios disregard inflation-related price shifts. Often ratios are estimated dependent on
historic values and disregard price volatility over time. The right finance scenario is not
expressed.
 The company's qualitative parameters are totally overlooked by accounting proportions.
They take just the financial aspects into account (quantitative)
 No uniform threshold terms are available for ratio. Thus businesses will use multiple ratio
calculations. One illustration of this is Current Ratio, which takes into account all current
liability, while others override current obligations while determining current ratio
 Consequently, accounting proportions do not fix any of firm 's financial concerns. They
are way to the ending and not the reasonable way through.

CONCLUSION
Form above study this has been analysed that Tesco’s performance during recent past 3
years is quite satisfactory, although there is slight decline in ratio due to corona pandemic in year
2019-2020 but this is temporary. Company’s past performance pattern shows that company will
retain their position in market as well as will achieve growth in performance. Company’s all
ratios has reported favourable trend in till 2018-2019 which is a clear proof that company is
capable to achieve growth in performance.

REFERENCES
Books and Journals:
Adewuyi, A.W.A.W., 2016. Ratio Analysis of Tesco Plc Financial Performance between 2010
and 2014 in Comparison to Both Sainsbury and Morrisons. Open Journal of
Accounting, 5(03), p.45.
Guo, L. and Wang, Z., 2019. Ratio analysis of J Sainsbury plc financial performance between
2015 and 2018 in comparison with Tesco and Morrisons. American Journal of
Industrial and Business Management, 9(2), pp.325-341.
JOSHI, A.K., 2018. A STUDY ON RATIO ANALYSIS OF COLGATE PALMOLIVE INDIA LTD
FOR A PERIOD OF FIVE YEARS (Doctoral dissertation, JAIN UNIVERSITY).
ANTREAS, D., 2017. Ratio and Frontier Analysis for Assessing Corporate Performance:
Evidence from the Grocery Industry in the UK. Decision Science, 44, p.177.
Domański, R. and Łabenda, M., 2020. Omnichannel of private label grocery products in Tesco
and Carrefour retail chains on the Polish market. Ekonomski Vjesnik, 33(1), pp.191-202.
MARAZZI, I., 2017. Feasibility analysis of the potential to improve the Iveco Daily payload in
the Tesco. com operation.
Škretović, N., Novićević, R., Đurović, S. and Pavićević, Đ., 2020, May. FINANCIAL
ANALYSIS IMPLICATIONS FROM CORPORATE MANAGEMENT BASIS.
In EASTERN EUROPEAN CONFERENCE OF MANAGEMENT AND
ECONOMICS (p. 99).
Khan, M., 2020. Financial Performance Analysis of Crystal Martin Apparel Bangladesh Limited.
Online:
Tesco Plc: About us. 2020. [Online]. Available through: <https://www.tescoplc.com/about>