Financial Analysis of Tesco PLC

Running Head: FINANCIAL ANALYSIS 0
FINANCIAL ANALYSIS

FINANCIAL ANALYSIS 1
Introduction
Tesco PLC is the British multinational company dealing in the groceries and general
merchandise leader having its headquarters in Welwyn Garden City, Hertfordshire. The company
was founded in the year 1919 almost around 100 years ago. The key person that founded this
company was Jack Cohen. The company is listed on the London Stock Exchange and is currently
operating in United Kingdom, Ireland, India, Malaysia, Thailand, Czech Republic and Hungary.
A total of 6569 shops are there in the year 2018. Also currently the company is operating at the
revenue of 57491 million and earing the operating income of 1644 million. This will not only
provide the investors the future earnings but also the greater opportunities. Further this report
also determines the calculation of cost of equity using the CAPM model and using the DCF
model to calculate the intrinsic value of share and further compare it with the market value of
share at the current levels. Also the pros and cons of the company being listed on the stock
exchange is also analyzed as to whether there is a necessity to list the company on the stock
exchange or not (Frank and Shen, 2016).
Pros and cons of listing on stock exchange
Stock exchange listing procedure is the procedure where a privately owned organization is
transitioned into the publically owned company whose shares can be traded on stock exchange.
There are certain benefits of listing on stock exchange and the same are outlined below (Baker,
and Wurgler, 2015).
Advantages
The main benefit of the company being listed on the stock exchange is that it assists the firm in
enhancing the brand name and thereby adding the value to the company. As well as it can add

FINANCIAL ANALYSIS 2
the value by implementing the scheme of the option. A listing on the stock market acts as a key
driver in opening the doors for the company Tesco with ample amount of opportunities (Pham,
and Alenikov, 2018).
Potential capital Growth
The secondary benefit of the listing the company on the stock exchange is the procurement of the
additional resources to finance the business activities and its expansion plans. For instance, if the
company wants to fund the department of the research and development the new machinery must
be purchased and the new offices must be set up. Since the company is of the public nature the
extra feature is that the company can also issue the new shares to build the extra capital (Berger,
Chen and Li, 2018.
Institutional investment
In case of the public limited company the hassle of the negotiations are not carried together as a
burden to attract the institutional investment. Through listing on the stock exchange the exposure
is enlarged in terms of the market coverage. The network gets widened including the market
makers, buyers and the sellers, institutional traders and the mutual funds (Huizinga, Voget and
Wagner, 2018).
Enhanced corporate evaluation and profile
Listing on the stock exchange helps in elevating the position of the company in terms of the
competition and garners a great amount of the publicity and the goodwill of the firm. An
elevated profile of the company will almost enlarge and create more than the existing
opportunities. This adds the element of the trust and the credibility from the successful listing.

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In addition to this the company amplifies the awareness of the brands and the products and
makes the company smoother with regards to the liquidity and valuation of the company. This
projects the performance and the market perception of the said firm (Dutta and Nezlobin, 2017).
Profitable exit strategy
Going public is one of the many exit strategies for business owners as it delivers a set
mechanism for the companies to nurture themselves and expand the business. This strategy also
helps in improving the share price of the listed company and performance and selling of the same
(El Ghoul, Guedhami, Kim and Park, 2018).
Disadvantages
In response to the pros of the listing on the stock exchange there are certain drawbacks which the
company must be aware of.
Loss of control and exposed to takeovers
One of the critical demerits of the listing is that the business owners will have to have a share
with the investors and also the shareholder as well as the investors raises their voice in the
policies that are directly related with the operations of the company. The situation is such that the
CEO is also responsible to ensure the correct system of the check and balance (Eades and Eades,
2017).
Higher reporting requirements
If the company is becoming public the obligations and the reporting requirements have to be in
alignment of regulatory requirements in order to be somewhere near to corporate governance.
Since the listed companies are required to prepare the financial statements and publish reports