Financial Performance Analysis of Tesco: A Ratio Analysis

Financial accounting

TABLE OF CONTENT
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Analysation of the financial performance of Tesco in the last few year.....................................1
Limitations of ratio analysis........................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Financial accounting is that type of accounting which includes the method of documenting,
summarising and reporting the transaction which arising during the operations of business in a
given period of time. Financial accounting which is reflected in the books of the organization in
the accrual basis over the accounting on cash basis. In this project the chosen organization is
Tesco for which financial information on last three years. The evaluation liquidity and financial
structure of the business performance over the three years will be made.
MAIN BODY
Analysation of the financial performance of Tesco in the last few year
The financial performance of Tesco can be analysed by evaluating the different financial
ratios for the last three years.
Profitability ratio:
Profitability ratios are the ratios which shows how much profit Tesco is generating
through its sales and operations (Dlotko, Qiu and Rudkin, 2019). The return of shareholders fund
which increased in 2018 but has fallen since then shows that the company has been able to return
this percentage of the total equity through the shareholders fund. The return on capital employed
ratio of this company shows relation of the profit from the capital invested in the organization
which is also seem to fall in the year 2020. Return of assets is also a profitability ratio which
simply shows how effectively the organization is utilizing its assets for the generation of profit.
This ratio for this organization increased in 2019 to 3.41 but in the year of 2020, it again fell to
2.03 which is even lower that it was in 2018. This shows that the company is unable to utilize the
assets effectively. Profit margin ratio shows how much profit is generated by the company after
the deduction of all kinds of expenses from its revenue which has slightly decreased. The Gross
margin ratio of this organization also has increased which shows that the company is making
profit from the revenue after the deduction of the Cost of goods sold. The comparison between
the gross margin ratio and profit ratio shows that the indirect expenses of this organization has
increased due to which there is opposite trend in these ratios. The EBITDA ratio of this
organization show how much earning does the organization is able to generate before the
deduction of interest, taxes and depreciation (Ekmeil and Abumandil, 2020). This ratio also has
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