Financial Analysis: Tesco Plc and Morrison Plc - Investor's Report

This report presents a comprehensive financial analysis of Tesco Plc and Morrison Plc, two major players in the UK retail sector. It begins with background information on both companies, their operations, investor bases, and recent events. The core of the report involves a detailed evaluation of their financial performance using profitability, leverage, and market value ratios for the years 2018 and 2019. Key ratios such as debt ratio, gross profit margin, operating profit margin, and net profit margin are calculated and analyzed, providing insights into their financial health and risk profiles. A comparison between the two companies is also provided, along with a discussion of the Brexit effect and ethical considerations based on the IFAC code of conduct. The analysis aims to assist potential investors, like Mr. and Mrs. Taylor, in making informed investment decisions. The report also provides a five-year earnings ratio analysis for Tesco Plc.

Running Head: Financial Analysis
Financial Analysis: Tesco Plc and Morrison Plc
Name of the University
Name of the Student
Author Note

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Financial Analysis
Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
About Tesco Plc...........................................................................................................................3
About Morrison Plc.....................................................................................................................5
Financial Analysis of the Tesco Plc.............................................................................................5
Narrative analysis of Tesco Plc...................................................................................................8
Analysis of the 5 years Earning Ratio of the Tesco Plc............................................................10
Financial Analysis of the Morrison Plc.....................................................................................10
Comparison between Tesco Plc and Morrison Plc....................................................................12
Comparative analysis of the “Tesco Plc and Morrison Plc.”.....................................................13
Brexit effect...............................................................................................................................15
Ethical Code of Conduct by the International Federation of Accountants................................15
Conclusion.....................................................................................................................................17
Reference and Bibliography..........................................................................................................18
Appendices....................................................................................................................................20

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Financial Analysis
Introduction
The report discusses the detailed financial analysis of the “Tesco Plc” and its competitor
“Morrison Plc”. Mr and Mrs Taylor wanted to invest part of their savings of £400,000 in a
suitable company where they can get some earnings. They used to work in the retail sector in
South Yorkshire as a middle manager. Now after their retirement they both live in Sheffield.
There will be a “financial comparison” between the “Tesco Plc and Morrison Plc”. Provide with
a brief discussion and background information of both the competitive companies. Discuss the
difference between both the company’s operations in the recent scenario and investor base. The
next part will discuss and evaluate based on various investment and solvency ratios, along with
the interpretation that will reflect the companies’ situations related to the solvency state. These
will help Taylors’ to decide which company to invest as they wanted to spend on the Tesco Plc
of 5.2%. However, the recent news made them aware of the current scenario and scandals
happened in the Tesco Plc for overstating the profit statement in their financial records and thus
they decide to re-think and invest with the help of the financial analyst.
Discussion
About Tesco Plc
“Tesco Plc” is one of the popular retailer of Food in the world with “over 2,300 stores”
and supermarket. It located in the United Kingdom and operated from their majorly and it also
ranked as the largest private sector for the employers with “over 326,000 employees” working in
the company. It has diversified its work and overseas like in Asia and continental Europe
includes “Czech Republic, Hungary, South Korea, Malaysia, Poland, Republic of Ireland and
Taiwan”. In the London Stock Exchange (LSE), the year 1947, Tesco Plc is listed and worked

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Financial Analysis
till date for its popularity. Tesco Plc manages to take over the small retail of food companies to
set up itself the largest company of retail business. At the beginning of the year 1974, Tesco Plc
has launched gas and fuel station and became an independent and the giant retailer in the UK.
Tesco Plc also launched its bank in the year 2009. Tesco Plc rigorously maintaining its position
and gradually over time, improving the business and operation and flourishes over time from the
beginning or initial start-up period. With its vast employees, labours it influenced a large market
and social and environmental activities. However, even making huge popularity in the market, it
gets involved in scandals related to the overstatement of the profit by over £250 million. Due to
which the person involved in the scandals are suspended they were the 4 executives and other
large investment company like Black-Rock had sold its holding to the Tesco. This scandal
affects lead to end up with its 43 stores, and cutting down of the products. It created a history for
the UK for such tremendous loss for such company situated in the UK. Tesco plc was a very
renowned food retailer in the UK until the sandal happened

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Financial Analysis
Source:” https://www.bbc.com/news/business-47784817”
“https://ichef.bbci.co.uk/news/624/cpsprodpb/39E1/production/_106271841_marketshares-
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About Morrison Plc
“Morrison Plc” is also a listed company in the London Stock Exchange Market and even
a strong competitor for the retail sector in the UK. It is one of the reliable and progressive
companies who think about its employees and cares about its customer’s choice and likes. It
provides a good quality product, supplies the attractive product, supplies value for money
product which attract its customers to be a stable and consistent customer. “Morrison Plc” is one
of the suitable competitors for the Tesco Plc as it competes thinks about its customer’s well-
being. It has a strong influence on its customer and reflects a good structure and strategic views
to influence the market with its services and products. They usually have consistent annual
growth which reflects in their financial statement and thus analysis the same for the company in
the next step. It is not as huge company as Tesco Plc but can be compared based on its product
and service level. They generate low-risk statement for its product and reflects in the sales or
revenue earnings. It fulfills all its responsibilities with the help of its shareholders' wealth and
shares.
Financial Analysis of the Tesco Plc
The analysis of the “Tesco Plc” can be evaluated based on the profitability ratio, leverage
ratio and market value ratio for the year 2018 and 2019, to get an understanding in respect to
financial risk part of the company. Leverage financial ratio includes debt ratio; profitability ratio

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Financial Analysis
includes gross margin ratio, operating profit ratio and Net profit ratio and Market value ratio
includes earning per Share, price-earnings ratio, dividend earnings ratio and earnings yield ratio.
Debt ratio= Total debt / Total Asset
Particulars February 2019 February 2018
(£m) (£m)
Total Debts -8,012 -5,484
Total Assets 14,834 10,480
Debt Ratio 0.54 0.52
Dividend earnings ratio= Earnings Per share/ Dividend per Share
Particulars February 2019 February 2018
(per Share) (Pence) (per Share) (Pence)
EPS 13.65 14.8
DPS 5.77 3
Dividend earnings
ratio 2.37 4.93
Earnings Per Share = Net income/ Number of shares
Particulars February 2019 February 2018
(Pence) (Pence)
Net income (£m) 1,320 1,210
Number of Shares (issue) 9,685 8,165
Basic EPS (Pence) 0.13p 0.14p

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Financial Analysis
Earning yield ratio= Earnings per Share / Market Price of Share
The “market price” of the “Tesco Plc” Share in the financial statement for the year 2018,
February and 2019, February were 209 pence and 223.40 pence (PLC, 2020).
Particulars Feb- 2019 Feb-2018
(Pence) (Pence)
EPS 13.65 14.8
Market Price of a Share 223.4 206
Earnings Yield (%) 0.06 0.07
Price Earnings Ratio= Market price of Share/ Earning per Share
Particulars February 2019 February 2018
Market Price of a Share 223.40p 206.00p
EPS 13.65 pence 14.80 pence
P/E Ratio (Times) 16.36 13.92
Operating profit margin ratio= Earnings before Interest and Tax/ Net Sales
Particulars February 2019 February 2018
(£m) (£m)
Sales 63,911 57,493
EBIT 1,674 1,300
Operating profit
margin (%) 2.61% 2.26%

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Financial Analysis
Net profit margin= Net Income/ Net sales
Particulars February 2019 February 2018
£m £m
Sales 63,911 57,493
Net income 1,320 1,210
Net profit margin 2.06% 2.10%
Gross profit margin= (Sales - Cost of Goods Sold)/ Net sales
Particulars February 2019 February 2018
£m £m
Sales 63,911 57,493
Cost of goods sold -59,767 -54,141
Gross profit margin% 6.50% 5.80%
Narrative analysis of Tesco Plc
Debt Ratio
It is used to calculate and measure the leverage of the company. A standard debt ratio is
0.4 or 40%. The lower the debt involved by a company, the lesser will be the risk involved to
meet the debt and more than 0.6, the company is considered to be at a precarious state. The debt
ratio implies that the part of asset financed by a Tesco plc company by short and long term debt.
The Tesco Plc debt ratio indicates that it increased from the standard ratio; however, not crossed
the risky zone, which implies a hope to meet the debt efficiently. Tesco plc debt ratio for the year
2018 was 0.52, which has increased to 0.54 for the year 2019, indicates that the debt part is

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Financial Analysis
gradually increasing which has to be stopped. This can be done by reducing the debt capacity
and allocating the fund according to the requirement. If more will be the debt, the lesser the
ability to generate profit and raise fund.
Operating profit margin ratio
The “Operating profit margin” of the Tesco Plc shows that there is an increase in the ratio
from 2018 is 2.26% to 2019 2.61%. It signifies profitability structure of a Tesco Plc company,
where it implies that after paying off all the expenses, the variable cost of production like wages,
raw material and outside expense of the company generate a percentage of sales. It has the
efficiency to control its cost and expense with the business operation. However, an increased
operating profit is good for the Tesco Plc.
Gross profit margin Ratio
“Gross profit margin ratio” is a part of profitability calculation of the Tesco Plc
Company. The “Gross profit margin” of the Tesco Company evaluated on 2018 was 5.80%, and
2019 was 6.50% which indicate that the profit structure of the Tesco Plc is increasing annually
and shows a good sign, otherwise lesser the Gross profit margin that is 5% considered to be low
profit on sales and indicates underpricing of a company. Tesco Plc increased its sales or revenue
structure from £57,493 in 2018 to £63.911 in 2019 and helped to generate a profit on sales and
controls the cost and overhead. However, if Tesco Plc price its product accordingly along with
the inflation cost and can control the production cost or supply then the “Tesco PLC” will be
able to control the increased “Gross profit margin” accordingly.
Net profit margin ratio

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Financial Analysis
“Net profit margin” is the key indicator of any company’s profitability. Here more, the
profit more will be the revenue generation. It is used by the most financial analyst and investor
seeks the reports to check the company’s profitability structure. It is the profit that is shared with
the common shareholder profit generated from sales. Here the Tesco Plc has obtained a definite
amount in the net profit for 2018 and 2019. This implies that Tesco Plc Company can finance
more its debt and has interest expense.
Analysis of the 5 years Earning Ratio of the Tesco Plc
Particulars 2015
(million)
2016
(million)
2017
(million)
2018
(million)
2019
(million) Change %
Net Profit -5,694 225 66 990 1,322 30.96
Average no
of shares 8,107 8,126 8,148 8,165 9,686 18.63
Earnings per
share -70.24 2.76 0.81 14.8 13.65 13.62
Financial Analysis of the Morrison Plc
“The financial analysis of the Morrison Plc” is evaluated based on the profitability ratio,
leverage ratio and market value ratio for the year 2018 and 2019, to get an understanding in
respect to financial risk part of the company. The evaluation includes “debt ratio, gross margin
ratio, operating profit ratio, Net profit ratio” and “earnings per share, price-earnings ratio,
dividend earnings ratio, dividend per share and earnings yield ratio” for market value analysis.
Earnings per Share = Net income/ Number of shares

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Financial Analysis
Particulars February 2019 February 2018
(Pence) (Pence)
Net Income (£m) 244 311
Number of Shares in Issue 2,356.80 2,338.60
EPS (pence) 10.35 13.2
Price Earnings Ratio (P/E) = Market price of Share/ Earning per Share
Particulars February 2019 February 2018
(Pence) (Pence)
Market Price of a Share 229.6 224
EPS 10.34 13.3
P/E Ratio 22.20 Times 16.84 Times
Earnings Yield Ratio (EPS) = Earnings per Share / Market Price of Share
Particulars February 2019 February 2018
(Pence) (Pence)
EPS 10.34 13.3
Market Price of a Share 229.6 224
Earnings Yield (%) 4.50% 5.90%
Dividends per Share= Dividend Paid/ Number of Share
Particulars February 2019 February 2018
(Pence) (Pence)
Dividends Paid 12.6 10.09

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Financial Analysis
Number of Shares in Issue 2,356.80 2,338.60
Dividends/Share 0.5 0.4
Dividend Cover ratio= Profit after Tax/ Dividend Paid
Particulars February 2019 February 2018
(Pence) (Pence)
Net income £m 244 311
Dividends Paid 12.6 10.09
Dividend Cover 19.36Times 30.8 Times
Dividend Yield= Dividend per Share/ Market price per Share
Particulars February 2019 February 2018
(Pence) (Pence)
Dividends Per Share 0.5 0.4
Market Price of a Share 229.6 224
Dividend Yield (%) 0.21% 0.17%
Comparison between Tesco Plc and Morrison Plc
Particulars
TESCO PLC MORRSIONS
PLC TESCO PLC MORRSIONS
PLC
February 2019 February 2019 February 2018 February 2018
Earnings Per
Share 13.65 Pence 10.34 Pence 12.15 Pence 13.30 Pence
Price Earnings
Ratio 16.36 Times 22.20 Times 13.92 Times 16.84 Times