Comprehensive Financial Analysis Report: Tesco Plc Performance

This report presents a comprehensive financial analysis of Tesco Plc, examining its performance across various key financial ratios from 2015 to 2019. The analysis delves into liquidity, profitability, leverage, efficiency, and market potential ratios, providing insights into Tesco's financial health and operational effectiveness. The report evaluates the company's ability to manage its short-term obligations, generate profits, utilize its assets, and meet shareholder expectations. Findings reveal that while Tesco maintains a strong capital structure with low debt, its liquidity and profitability margins are relatively weak, and its market potential ratios indicate areas for improvement. The report concludes with recommendations for Tesco to enhance its financial performance, including improving liquidity, increasing operational efficiency, and optimizing shareholder returns. This analysis is valuable for understanding Tesco's financial position and making informed investment or business decisions.

Running Head: FINANCIAL ANALYSIS
FINANCIAL ANALYSIS
Name of the Student
Name of the University
Author Note

1FINANCIAL ANALYSIS
Table of Contents
Introduction................................................................................................................................2
Overview of Company...........................................................................................................2
Discussion..................................................................................................................................2
Financial Analysis..................................................................................................................2
Conclusion..................................................................................................................................9
Reference..................................................................................................................................11

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Introduction
Analysis of the financial statement is considered important because it helps in
providing the meaningful information to the stakeholders in order to take the decisions. It
allows for identifying the relationship that exists between the different elements of financial
statements by the process of evaluating the businesses, budgets, projects as well as other
finance related entities in order to determine their suitability and their performance. It helps
in assessing the efficiency, financial strength, profitability as well as liquidity position of the
company. Hence, under this assignment discussion will be based on the financial analysis of
Tesco Plc.
Overview of Company
Tesco Plc or Tesco is the general merchandise retailer as well as British multinational
groceries, having headquartered in England, United Kingdom. It is being considered as the
third largest retailer around the world, which is being measured by the gross revenues and the
ninth-largest retailer around the world that is being measured by the revenues. Hence, Tesco
is the retail company, which is engaged in business of retailing as well as its associated
activities in retail and retail insurance and banking services. The brands of the company
include Everyday Value, Finest, Technika and Chokablok. Hence, the company offers wide
ranges of the products of personal banking, personal savings and loans, credit cards and
principally mortgages (Tesco plc. 2019).
Discussion
Financial Analysis
Liquidity Ratio
It is class of the financial metrics that are being used for determining the ability of the
debtor for paying off the current obligation of debt without raising the external capital.

3FINANCIAL ANALYSIS
Liquidity means the ability for converting the assets into the cash cheaply as well as quickly.
The ratios of liquidity are the most useful when it is being used in the comparative form. In
general, if the liquidity ratio is higher, then it shows that the company is liquid and it has
better coverage of the outstanding debts. The information that is being generated by the ratio
is helpful for comparing the strategic positioning of the company in relation to their
competitors while establishing the benchmark goals (Abdul-Baki, Uthman and Sannia 2014).
The current ratio of the company for the year 2015-2019 shows that the over the
years, the liquidity position of the company has been decreased. However, the highest current
ratio of the company was in the year 2016 that was 0.81, which shows that on that particular
year the company was having good position for meeting the short-term liability. Moreover,
liquidity position is very less and has not improved over the years. Further, over the years,
quick ratio of the company have been reduced, which means that with the most liquid assets,
the company is not able to meet its short-term obligations. In addition, the working capital
ratio shows that over the years, the ratio has been reduced that is not the good sign, it means
non-ability of the company for meeting its short-term liability. Lastly, times interest earned
ratio shows that from the year 2015-2019, the most favorable ratio was in the year 2019,
which means that the company has the ability for meeting its interest expenses
(Tescoplc.com. 2019).

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Liquidity Ratio 2019 2018 2017 2016 2015
Current Ratio
Current Assets 12,570.00 13,600.00 15,073.00 14,448.00 11,819.00
Current Liabilities 20,680.00 19,233.00 19,234.00 17,866.00 19,805.00
Result 0.61 0.71 0.78 0.81 0.60
Quick Ratio
Cash & Cash Equivalents 2,916.00 4,059.00 3,821.00 3,082.00 2,165.00
Accounts Receivables 1,640.00 1,504.00 1,475.00 1,406.00 2,121.00
Short-Term Investments 390.00 1,029.00 2,727.00 3,463.00 593.00
Current Liabilities 20,680.00 19,233.00 19,234.00 17,866.00 19,805.00
Result 0.24 0.34 0.42 0.45 0.25
Working Capital Ratio
Current Assets 12,570.00 13,600.00 15,073.00 14,448.00 11,819.00
Current Liabilities 20,680.00 19,233.00 19,234.00 17,866.00 19,805.00
Result 0.61 0.71 0.78 0.81 0.60
Times Interest Earned Ratio
Earning Before Interest & Taxes 1,674.00 1,300.00 145.00 202.00 6,376.00-
Interest Expenses 306.00 328.00 522.00 426.00 613.00
Result 5.47 3.96 0.28 0.47 10.40-
Tesco Plc
Figure 1: Liquidity Ratio
Profitability Ratio
It is the class of the financial metrics that are being used for assessing the ability of
the business for generating the earnings that are relative to the revenue, its operating costs,
assets as well as shareholders equity by using data at the particular point of time. It helps in
showing how well the companies use their assets for generating the profit as well as value for
the shareholders. The higher ratio is considered more favorable (Robinson et al. 2015).
The gross profit margin of the company shows that from the year 2015 to 2019, the
gross profit margin has been improved but it is on consistent level. This shows the profit of
the company after paying off the cost of the goods sold, which is almost consistent.
Moreover, the net profit margin of the company shows that it is very less. The company is not

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able to cover its expenses and cost of goods sold (Kanapickienė and Grundienė 2015).
Further, the return on assets ratio of the company shows that over the years, ROA has been
increased but at very less rate. This means that the company is not able to utilize its assets for
getting return from it. Lastly, return on equity ratio of the company shows that over the years
ROE has been improved but at less rate. The maximum ROE was in the year 2018, which has
been reduced by 3% in the year 2019. This means that the company is not able to generate
good return from the shareholder’s equity (Abdul-Baki, Uthman and Sannia 2014).
Profitability Ratio 2019 2018 2017 2016 2015
Gross Profit Margin
Gross Profit 4,144.00 3,352.00 2,902.00 2,844.00 2,112.00-
Net Sales 63,911.00 57,493.00 55,917.00 53,933.00 62,284.00
Result 6% 6% 5% 5% -3%
Net Profit Margin
Net Profit 1,320.00 1,210.00 58.00 256.00 5,766.00-
Net Sales 63,911.00 57,493.00 55,917.00 53,933.00 62,284.00
Result 2% 2% 0% 0% -9%
Return on Assets
Net Income 1,320.00 1,210.00 58.00 256.00 5,766.00-
Total Assets 49,047.00 44,884.00 45,853.00 43,904.00 44,214.00
Result 3% 3% 0% 1% -13%
Return on Equity
Net Income 1,320.00 1,210.00 58.00 256.00 5,766.00-
Sharesholders Equity 14,834.00 10,480.00 6,414.00 8,616.00 7,071.00
Result 9% 12% 1% 3% -82%
Figure 2: Profitability Ratio
Leverage Ratio
It is the one of the financial measurement, which helps in providing the information
regarding how much the capital comes in the form of debt for assessing the ability of the
company as well as for meeting the financial obligations. It is the ratio, which helps in
determining the amount that can be borrowed for increasing the profitability of the company.
This category of the ratio is most important because all the companies rely upon the mixture

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of the equity as well as debt for financing the operations and knowing about the amount of
the debt that are held by the company. It is useful for evaluation of payment of the debts by
the company as and when it becomes due (Bonazzi and Iotti 2014). If the company uses too
much of the debt then it can be very risky and dangerous for the company as well as for the
investors. The uncontrolled debts levels can lead towards credit downgrades or worse
situation to the company. However, in case if the company uses less debts then it may raises
questions. The inability or the reluctance for borrowing may be the sign of too tight operating
margin (Lakshmi, Martin and Venkatesan 2015).
The debt to equity ratio of the company shows that over the years, the DE ratio has
been decreased but still the company is in good condition because it is using less debt against
equity. This is the ratio that measures the relationship between the capital that is contributed
by the creditors and the capital, which is contributed by the shareholders. Further, debt to
assets ratio of the company from the year 2015 to 2019 shows that the company has good
capital structure as the company prefers equity in comparison to that of the debt as debt is
more risky (Selahudin et al. 2014). In addition, debt to capital ratio of the company from the
year 2015-2019 shows that over the years, the ratio has been reduced. This means that the
company is less aggressive for financing its growth with the help of debt. Lastly, asset to
equity ratio of the company shows that over the years from 2015-2019 the ratio has been
decreased. This means that the company is focusing on more use of the equity in comparison
with the debt (Jindrichovska and Kubíckova 2014).

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Leverage Ratio 2019 2018 2017 2016 2015
Debt to Equity Ratio
Total Debt 21,545.00 20,655.00 24,022.00 20,604.00 25,185.00
Shareholders Equity 14,834.00 10,480.00 6,414.00 8,616.00 7,071.00
Result 1.45 1.97 3.75 2.39 3.56
Debt to Assets Ratio
Total Debt 21,545.00 20,655.00 24,022.00 20,604.00 25,185.00
Total Assets 49,047.00 44,884.00 45,853.00 43,904.00 44,214.00
Result 0.44 0.46 0.52 0.47 0.57
Debt to Capital Ratio
Total Debt 21,545.00 20,655.00 24,022.00 20,604.00 25,185.00
Total Equity 14,834.00 10,480.00 6,414.00 8,616.00 7,071.00
Result 0.59 0.66 0.79 0.71 0.78
Asset to Equity Ratio
Total Assets 49,047.00 44,884.00 45,853.00 43,904.00 44,214.00
Total Equity 14,834.00 10,480.00 6,414.00 8,616.00 7,071.00
Result 3.31 4.28 7.15 5.10 6.25
Figure 3: Leverage Ratio
Efficiency Ratio
This ratio is being used for analyzing how well the company is using their assets as
well as liabilities internally. It helps in measuring how efficiently the company is using their
assets in order to generate revenues as well as their ability for managing the assets. The
efficiency ratio, calculates the repayment of the liabilities, the general uses of the machinery
as well as inventory, quantity as well as usage of the equity and the turnover of the
receivables. These ratios are helpful in measuring the short-term as well as current
performance of the company (Williams and Dobelman 2017).
The inventory turnover ratio of the company for the year 2015-2019 shows that the
ratio has been increased over the years. This shows that the company is managing its
inventory in good way. This ratio shows that the average number of the times per year the
inventory of the company is being sold. It means with each years, the time taken for turning
over the inventory is reduced. Moreover, the asset turnover ratio of the company shows that

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from the year 2015-2019, the ratio has been increased, which means that the ability of the
company for generating the sales from their sales have been increased (Gitman, Juchau and
Flanagan 2015). The highest asset turnover of the company is in the year 2019 that is 1.36. It
shows that the value of the sales of the company in relation to the asset’s value has increased.
It is of great use of the investors, who can compare the fixed asset turnover ratio with those of
the other competitors, which shows that the company is using their fixed assets for generating
the sales better than that of the competitors (Ehiedu 2014).
Efficiency Ratio 2019 2018 2017 2016 2015
Inventory Turnover ratio
Cost of Goods Sold 59,767.00 54,141.00 53,015.00 51,089.00 64,396.00
Average Inventory 2,440.50 2,282.50 2,365.70 2,693.50 3,266.50
Result 24.49 23.72 22.41 18.97 19.71
Asset Turnover Ratio
Net Sales 63,911.00 57,493.00 55,917.00 53,933.00 62,284.00
Average Total Assets 46965.5 45368.5 43878.5 44059 47189
Result 1.36 1.27 1.27 1.22 1.32
Figure 4: Efficiency Ratio
Market Potential Ratio
The market potential ratios are calculated for evaluating the company’s current share
price of the publicly held stock. These ratios are employed by the current as well as potential
investors in order to determine, whether the shares of the company are underpriced or over-
priced. The calculations of the market potential ratio are important, as the investors are more
concerned with the performance of the company (Sauaia 2014).
The calculated price to earnings ratio of the company for the year 2015-2019, shows
that the highest ratio was in 2017 and in other year, the P/E ratio has decreased. Price to
earnings ratio helps in indicating the amount that the investor expects for investing in the
company for receiving the earning of the company. Hence, in comparison with the years
mentioned, the company have high P/E ratio in 2017, which indicates that the market value of

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the stock in comparison earnings of the company is higher. Moreover, in the year 2018, the
ratio has drastically decreased by 217 and in the year 2019, increased by 0.17 (Ozlen 2014).
Further, dividend yield of the company for the year 2015-2019 shows that percentage of the
company’s market price of the share, which is annually paid to the shareholders has been
decreased. Dividend Yield is that financial ratio, which helps in measuring the quantum of
the cash dividends that are being paid out to the shareholders relative to market value per
share. It is being observed that the company has not paid dividend for two years that is for the
year 2016 and 2017 because of less income earned by the company (Damjibhai 2016).
Market Potential Ratio 2019 2018 2017 2016 2015
Price to Earning Ratio
Current Stock Price 233.2 205.4 189.7 190.55 245.4
EPS 13.65 12.15 0.81 3.24 -70.24
Result 17.08 16.91 234.20 58.81 3.49-
Dividend Yield
Annual Dividend 357 82 0 0 914
Current Stock Price 233.2 205.4 189.7 190.55 245.4
Result 1.53 0.40 - - 3.72
Figure 5: Market Potential Ratio
Conclusion
Hence, it can be concluded from the analysis that the liquidity position of the
company is very weak. The liquidity ratio calculated such as current ratio, quick ratio and
working capital ratio shows that the company is not in the condition for paying its short-term
liabilities. However, the company is able to cover its interest expenses. Moreover, the
profitability ratio shows that the profitability margin of the company is very less because the
high cost of the operations. Further, the leverage ratio shows that the company is using less
debt in comparison to the equity. This means that the company is adopting less aggressive
approach and playing safe. In addition, the efficiency ratio shows that the company is able
generate sales from its assets over the years. Lastly, the market potential ratio shows that the

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company is not able to work as per the expectations of the shareholders. The EPS, market
value of the shares and distribution of the dividends are very less.
Therefore, the recommendations that could be given to the company are that firstly
the company should increase the position of liquidity. Secondly, the company should improve
the level of efficiency in utilizing their assets and liabilities, which could be done by reducing
the cost of its operations. Lastly, the market potential has to be improved and company
should try to distribute dividends to the shareholders to maintain the confidence levels of the
investors.

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