Evaluation of the Performance, Liquidity, and Financial Structure of Tesco

Evaluation of the performance
liquidity and financial structure of
Tesco

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
On the basis of accounting ratios, explaining performance and position of the company..........1
Limitations of accounting ratios .................................................................................................2
Factors affecting company...........................................................................................................2
CONCLUSION................................................................................................................................3
REFERENCE...................................................................................................................................4

INTRODUCTION
Financial ratios are used for ascertaining financial performance of the company. This
report will discuss about the position and performance of Tesco. Further it will shed light of
ratios limitations and factors which are affecting company.
MAIN BODY
On the basis of accounting ratios, explaining performance and position of the company.
On the basis of given ratios it is observed that gross profit margin in the year 2017 was
5.19, in 2018 it was 5.83 and in 2019 it was 6.38. so it can be said that performance of Tesco has
improved because there is increment in the gross profit margin (Jenke and Rabinow, 2017). The
percentage of return on total assets of the company is also more in 2019 as compared to 2017. so
it can be said that company is utilizing their assets properly and effectively in order to increase
their profitability. It is also representing increase in sales and reducing expenses. So it can be
said that sales of Tesco is also increasing. Return on capital employed (ROCE) is the ratio
means that organisation is properly using their capital which consists of both equity and debt. In
2017 it was 0.55, in 2018 it was 5.07 and in 2019 it was highest which is 5.90, it shows that
company is using its capital in proper manner. Current ratio of company is decreasing as it has
came from 0.79 to 0.61. it is found that current ratio of Tesco is not ideal as the ideal ratio is 2:1
and the current ratio of company is less than 1 which means that organisation does not have
enough short term assets to fulfil its current debt requirements (Rutkowska-Ziarko, Markowski
and Pyke, 2019).
Liquidity ratio of company is also decreasing which has came from 0.68 to 0.49. it shows
that company is not liquid which means that they are not able to pay its short term liabilities
effectively. By reviewing ratios it is also found that inventory days of company is decreasing
which is good sign for the company because it indicates that company is able to replace their
stock quickly. It means that sales of company is increasing, that is why they are able to replace
their stock quickly. Trade receivables of Tesco are fluctuating. In 2017 it was 3.20, in the year
2018 it was 2.86 and in 2019 it was 3.42. therefore company should have work on their credit
policy if they want to attain sustainability. Trade payable days of company hare also decreasing
from the previous year in 2018 it was 33.39 and in 2019 it was 32.84 which is good indicator for
Tesco (Tian and Yu, 2017). It shows that company is paying its suppliers, vendors etc. timely. In
this way they can able to maintain good relations with them. Gearing ratio means company's
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