Financial Accounting Report: Analysis of Tesco's Financials

This report presents a financial analysis of Tesco, an international company operating in the groceries and general merchandise sector. The report delves into various financial ratios, including liquidity, efficiency, profitability, and leverage ratios, to assess Tesco's financial health and performance. It examines the current and quick ratios to evaluate liquidity, average collection period and stock turnover to assess efficiency, gross profit margin and net profit margin to evaluate profitability, and debt ratio and debt-equity ratio to analyze leverage. The analysis covers the company's performance in 2016 and 2017, highlighting trends and providing recommendations for improvement. The report emphasizes the importance of financial statement analysis for stakeholders, including investors, to make informed decisions. The report concludes with a summary of findings and recommendations for Tesco to enhance its financial strategies and performance. The report aims to provide a comprehensive overview of Tesco's financial standing and offer insights into its operational effectiveness.

Running head: FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction................................................................................................................................3
Overview of the Company.........................................................................................................3
Financial Ratio of Company......................................................................................................3
Liquidity Ratio.......................................................................................................................4
Efficiency Ratio.....................................................................................................................5
Profitability Ratio...................................................................................................................7
Leverage Ratio.......................................................................................................................8
Recommendation to Company.................................................................................................10
Conclusion................................................................................................................................10
Reference And Bibliography....................................................................................................12

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Introduction
Each company should have valuation of company financial statement so that the user
get the required information easily of the business. Concern should show all the data of
business in the financial statement which will help them to carry all the business activities
properly in the business. Financial Accounting help the company in the preparation of
financial statement so it can able to have proper knowledge of the company activities.
Concern should follow all the accounting standard and also able to give proper disclosure so
that each company user is able to know better information of the organization financial
statement. The report show about the company Tesco and able to the show the financial
aspects of the company, it also show different ratio of the company so that the user is able to
have proper analysis of company financial information for the investment purpose.
Overview of the Company
The report show about the company Tesco which is an international company which
carry its business operation in groceries and general merchandise product in the company. It
is having is headquarter in Welwyn Graden City, Hertfordshire. The third main retailer in the
country and able to have consumer good all over the country.
Financial Ratio of Company
These are the ratio which show different aspects of company which help user to gain
proper knowledge in the company business. Company should record all their performance
which will help them to improve the strategy of business and carry its business objective
smoothly in the market. It show all the aspects from liquidity to leverage show this help the
business to gain all the material of the performance in the business activity.

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Liquidity Ratio
This ratio shows the liquidity position of the company as how the company manage
the short-term liability and how it able to pay all the obligation in regards of short liability in
the business. It shows the relation between current ratio and current liability in the business.
The ratio can be divided as Current Ratio and Quick Ratio.
Current Ratio
Current Ratio show about the business ability to pay its short term debt in regards of it
current asset in the company, it show about the liquidity position in the company
(Tescoplc.com 2019). The company should have proper amount of asset so that it can pay its
debt smoothly in business. Company should have proper liquidity than only it will able to
attract more number of investors in the business.
The above calculation show about the current ratio of the concern the ideal current ratio is 2
so if the concern is having more than 2 than it is said that the concern is having more liquidity
in the business, but if the concern is not having proper liquidity ratio so this can directly
affect the investor decision in the business (Tescoplc.com 2019). As per the above ratio it can
see that there is an decrease in current ratio which can affect the concern, the concern is not
able to maintain proper amount of liquidity so it should change its process of business which
will help the concern to gain more liquidity in concern business.
Quick Ratio

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This ratio show about the relation of company ability to pay it current liability with
regards of cash asset in the business. This ratio focus more upon the cash asset rather than
current asset so it does not involve the inventory as it is not an cash asset.
The ratio show about the liquidity position of concern as the business should have more than
2 quick ratio which will be signify that the company is able to carry all the business activity
which will help them to gain more amount of liquidity in the business (Tescoplc.com 2019).
As per the company is concern it is having very less amount of liquidity which is not a good
sig for the company as it should able to have proper amount of cash asset in the business.
Company should able to focus upon the overall business strategies which will help them to
have an increase in overall quick ratio in the company.
Efficiency Ratio
This ratio show about the efficiency of management in regards of use of asset, as how
the company is utilizing the asset to generate revenue in the business. Organization should
able to have proper resource utilization which will help them to gain more amount of revenue
in the business. This ratio can be divided as Average Collection Period and Stock Turnover
Ratio.
Average Collection Period
This ratio show how the concern is able to collect their money from the customers as
the concern should able to have proper amount of credit policy which will help the concern to
have proper amount of working cycle in the business (Tescoplc.com 2019). This should be

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managed by the concern properly so that it will able to gain more amount of revenue in the
business.
The above calculation show about the average collection period of concern so this help to
know how the concern is able to collect money from the debtor and able to utilize the same in
the business. As per the above it can see that in 2017 concern has an increase in the collection
period so this show that the concern is giving more days of credit to the concern debtor so
that it can able to have more amount of sale in the business. This will decrease the overall
working capital in the business as well as it will also affect working cycle of the concern.
Stock Turnover Ratio
This ratio show the concern is able to utilize the inventory in the business so that the
concern is able to have proper amount of control on the inventory of the business, the concern
should have proper amount of focus on the management on the inventory as it does not have
any excess amount of inventory which will block the concern capital as well as it will stop
the concern to have proper amount of revenue in the business.
The above ratio show about the stock turnover as it should not be very high and also not very
low so the concern should able to have proper amount of moderate on the inventory of the
concern (Tescoplc.com 2019). As per the concern ratio is consider in 2016 it was 21.02 but in
2017 it became 23.04 so this signify that the concern is able to have to have an increase in the

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ratio which is not a good sign as this indicate that the concern is having an excess amount of
stock which can slow the concern working capital, this also affect the concern ability to pay
its debt as the stock will able to hold some part of concern cash in the business.
Profitability Ratio
This ratio show about the concern ability to earn profit in the business as each concern
carry their business activities so that it can earn more amount of revenue in the business so
this should be consider a very important part for the investor to take into consideration while
thinking for investment in the concern business (Tescoplc.com 2019). Concern should able to
earn proper amount of profit so that it can able to carry its business operation and also able to
expand their operation business effectively. This ratio is divided into two parts as gross profit
margin and net profit margin.
Gross Profit Margin
This show about the concern ability to earn profit in their initial business, as the
concern should able to earn good amount of profit in the starting stage so that it will able to
have more amount of business in the market.
This show about the gross profit margin of the concern as it shown by deduction cost of good
with the sales amount in the business. The more amount of profit the concern earn the more
good financial position the concern is able to have so the investor has to check this profit
aspect before investing in the concern. As per the concern ratio is concern it is having similar
amount of profit in last two year so this signify that the concern is able to earn profit but not
able to increase its revenue in the business. Concern should change their marketing strategy

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so that it can earn more amount of revenue as it will able to gather more number of customers
in the business.
Net Profit Margin
This is the profit which the concern is able to earn after paying all the expenses of the
concern business, this is the amount of money which the concern is able to pay to the owners
of the concern. The financial user is also able to analysis this properly because they are the
one who able to get more amount of money in the concern business.
This is the ratio which the concern should have proper as this will help them to gain more
amount of investment in concern business. As per the above ratio it can see that concern is
not able to have proper amount of ratio in the business which is not good sign as this show
that the concern is not able to pay proper amount of return to the financial user
(Tescoplc.com 2019). This show that the concern is not having proper amount of revenue in
the business as well it is not able to control the customer easily. The concern should make
proper strategies so that this will help the concern to gain more amount of business in the
concern.
Leverage Ratio
This ratio show about the composition of concern capital in business, as this show
how the concern is able to finance its business activity whether it is using more amount of
debt in the business or not. The concern should have proper composition of debt in business,
as concern can able to carry its business activity smoothly in business. This ratio is divided as
Debt ratio and Debt-Equity ratio.

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Debt Ratio
This ratio show how the concern is able to finance their asset in the business, it check
the total debt with the total asset of concern, this guide the user about how the concern is
having debt in regards of the asset of the business. This ratio should be less so this signify
that the concern having more amount of asset in compare to its debt, but if the ratio is more
than it denote about the concern having more amount of debt in compare of total asset in the
business.
The above calculation show about the debt ratio of the concern as in 2016 it was 0.81 but in
2017 it is 0.86 which show an increase in the ratio, which is not good as the concern is having
more increase in the debt in compare to the asset of the business so this should be consider by
the concern financial user before taking any investment decision in the business. The concern
should have proper strategies so that it can have proper ratio in the business.
Debt-Equity Ratio
This ratio show the composition of debt and equity in the business. The concern
should have a proper composition of debt and equity that will help the concern to gain proper
amount of business activities. As if the concern is having more amount of debt than this will
affect the concern financial position and also it will make the concern insolvent, it is because
their will be more amount finance cost in the business.

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The above ratio show the concern composition of debt and equity, as in 2016 concern has
2.02 but in 2017 it became 3.12 which show that there is an rise in ratio. The concern has an
increase in the debt due to which the overall ratio has increase so the concern should control
over the debt in the business and how the concern is controlling the debt in the business.
Recommendation to Company
The company should able to know about the financial ratio so this should able to
consider the company performance in the business. It should able to expand its business
operation which will increase the overall revenue as well as it will help them to gain a brand
value in the business.
It should also able to diversify their resource which will increase the operation of
business and the company should add more product which will arise more customers in the
business and help them to gain more amount of revenue in the business.
Conclusion
The report conclude about the accounting in the business as each company should
able to manage their financial reports properly. Financial Accounting guide about the
different norms which the company have to follow in preparation of financial statement of the
business. The company should prepare all the financial statement properly so that the user is
able to give more amount of information about the company financial activity. The report
conclude about the company Tesco which carry its business in departmental store, this show
about the financial ratio which show how the company is able to perform their business

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activity. It take into consideration all the aspects such as liquidity ratio, leverage ratio,
profitability ratio and efficiency ratio.

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Reference And Bibliography
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