Comprehensive Financial Report: Tesco PLC Analysis and Improvement

This report provides a detailed financial analysis of Tesco PLC, a leading supermarket chain, evaluating its performance through various financial measures. It examines the company's balance sheet, income statement, and cash flow statement for the years 2018 and 2019. The analysis includes profitability ratios, liquidity ratios, efficiency ratios, and market-based ratios to assess Tesco's financial health. The report identifies areas where Tesco can improve its profitability, such as removing unprofitable products, attracting more customers, increasing conversion rates, reviewing pricing structures, and optimizing inventory management. It also recommends a new investment project for the company and discusses whether the company should pay return earnings. The report concludes with actionable recommendations aimed at enhancing Tesco's financial performance and strategic positioning. Desklib provides this and other solved assignments to aid students in their studies.

Financial Management

Table of Contents
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
Performance evaluation...............................................................................................................5
Recommendations for improving profitability............................................................................8
Recommend one new investment project to the company........................................................10
Decide whether or not the company should pay return earnings or not....................................11
CONCLUSION..............................................................................................................................12
REFERENCES .............................................................................................................................13

INTRODUCTION
Financial management is indeed an necessary activity to control the financial capital for
every entity in modern dynamic environment (Antonopoulos and Hall, 2016). This is basically
related with financial plan for certain tasks, such as strategic forecasting, arranging, handling
and monitoring corporate assets. Financial management is exactly the job of financial executives
in order to accomplish the targets of companies in a specific period. Financial analysis is defined
as a means of analysing company numerical knowledge over a particular time period. In other
terms, this should be interpreted as a means of evaluating firms, programs and expenditures with
a view to determining the financial position of companies. In order to better understand the
crucial about FM Tesco Plc have been selected which is leading supermarket in present time.
In this report, performance evaluation by analysing the different performance measures,
recommendations for improving the profitability is discussed. In addition, recommendation for
one new investment project and discussion about company should pay return earnings or not is
also discussed.
MAIN BODY
Overview of company
Tesco is a very well-known supermarket that offers its non-food customers a range of
items, including food. It is among the UK's biggest supermarkets and one of globe's growing
grocery distributors. Jack Cohen began offering extra food in the Eastern suburbs area in
Brixton, London in 1919 this lead establishment to greatest London retail shop. The business
works continuously these comprise a wide variety of grocery and oil store stores via Tesco
Express fascia, the local highway outlets via Tesco Metro, super centres via Tesco Extra and
semi-food providers through Tesco Home plus (Banerjee, 2016). Tesco has consolidated to cover
book shopping, clothes, appliances, accessories, toys, energy, tech, financial services,
telecommunications and Internet. In recent trade of marketing Tesco established a new retail
store in 2018, Jack's, to deal with Lidl and Aldi. In April 2013, in its recording costs of £ 1.2
trillion Tesco announced that this was stepping back from the US sector. On 27 January 2017 the
firm revealed that Tesco had entered into an deal to combine with the largest retailer Company in
Britain, Booker, to form the World's largest grocery business. However this was obsessed with
controlling the British sector.
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Analysis of balance sheet:
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Analysis – On the basis of above presented balance sheet, this can be find out that company’s
performance is different in both of years. In the context of volume of total assets of company this
can be find out that they had of 44862 GBP million in year 2018 which raised in next year and
became of 49047 GBP million. This is showing that company made purchase of more assets in
year 2019. Herein, this is important to know that current assets of company have been decreased
in year 2019 in compare to year 2018. Such as in year 2018, their current assets were of 13726
GBP million which reduced and became of 12668 GBP million. It is indicating that company’s
liquidity position has been decreased in year 2019. In the context of total liabilities, this can be
assessed that in year 2018, their liabilities were of 34382 GBP million which reduced and
became of 34189 GBP million. It is showing that company managed their total debts and
liabilities in year 2019. That is why the amount of total liabilities decreased in this year. On the
other hand, in the aspect of current liabilities this can be stated that in year 2018, current
liabilities were of 19238 GBP million which increased and became of 20680 GBP million in next
year 2019. It is indicating that company’s efficiency of managing short term debts has been
decreased in an effective manner (Yulihantini and Wardayati, S2017).
In addition, the value of total stakeholder’s equity also increased in year 2019 as
compared to year 2018. Such as in year 2018, total stakeholder’s equities were of 10480 GBP
million which increased and became of 14858 GBP million in year 2019.
Analysis of income statement:
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Analysis- On the basis of above income statement, this can be find out that net income of
company is different in both years. Such as in year 2018, net income was of 1206 GBP million
which raised and became of 1322 GBP million in year 2019. This is showing that company is
able to generate higher revenues in year 2019 as compared to year 2018. Same as the net profit,
company’s gross profits also raised in an effective manner in year 2019 instead of year 2018.
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Analysis of cash flow:
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Analysis- The cash flow of above company has been prepared by three different methods which
are operating, financing and investing activities. In the financing activity company is getting net
cash outflow that is of 3236 GBP million and 1981 GBP million for year 2018 and 2019. While
from operating activities, company is generating cash inflow in both of the years. In the end,
company has free cash flow of 1145 GBP million in year 2018 and 674 GBP million in year
2019.
Performance evaluation
Profitability ratio
Year 2018 Year 2019
Gross Profit 3350.00 4144.00
Revenues 57491.00 63911.00
Gross Profit Margin 5.83% 6.48%
Year 2018 Year 2019
Net Profits 13 -163
Revenues 57491 63911
Net Profit Margin 0.02% -0.26%
Analysis- On the basis of profitability ratio this can be find out that
their gross profit ratio of company was of 5.83% in year 2018 which
increased and became of 6.48% in year 2019. This is showing that
company is generating higher amount of profit in year 2019 as
compared to year 2018.
While in the context of net profit margin of company, it can be stated
that in year 2018, this was of 0.02% which reduced and became as
net loss margin of -0.26%. It shows that company has performed
poor in year 2019 and faced too much losses.
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Liquidity ratios
Year 2018 Year 2019
Current Assets 13726 12668
Current Liabilities 19238 20680
Current Ratio 0.71 0.61
Year 2018 Year 2019
Quick assets 11463 10051
Current Liabilities 19238 20680
Quick ratio 0.60 0.49
Analysis- On the basis of above mentioned both liquidity
ratio of company, this can be find out that they are unable
to meet criteria of ideal ratio in both of years. In the
aspect of current ratio of company, this can be find out
that in year 2018, it was of 0.71 times which reduced and
became of 0.61 times.
As well as quick ratio also reduced in year 2019 as
compared to year 2018. In year 2018, this was of 0.60
times which decreased and became of 0.49 times.
It is indicating that company is unable to pay its short
term debts.
Efficiency ratios
Year 2018 Year 2019
Sales 19238 20680
Account receivables 1482 1640
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Account receivables turnover ratio 12.98 12.61
Analysis- On the basis of this ratio, it can be stated that
company’s performance is almost similar in both of
years. Such as in year 2018, ratio was of 12.98 times
which reduced and became of 12.61 times. In
comparative manner, company’s performance was better
in year 2018.
Year 2018 Year 2019
Cost of goods sold 54141 59767
Inventories 2263 2617
Inventory turnover ratio 23.92 22.84
Analysis- Same as the above ratio, this is also similar in
both of years. Like in year 2018, this was of 23.92 times
that decreased and became of 22.84 times. It is indicating
that company was able to manage their inventories in
year 2018 as compared to year 2019.
Year 2018 Year 2019
Sales 54141 59767
Assets 44862 49047
Assets turnover ratio 1.21 1.22
Analysis- The assets turnover ratio is similar in both of
years. Such as in year 2018, it was of 1.21 times which
raised by a little margin and became of 1.22 times. It
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shows that company is able to manage its assets
effectively in both of years.
Market based ratio: Year 2018 Year 2019
Shareholder's Equity 281 291
Net Profits 13 -163
Return on Equity 4.63% -56.01%
Year 2018 Year 2019
Debt 6334 6278
Equity 281 291
Debt Equity Ratio 4.44% 4.64%
Analysis- On the basis of above mentioned ratios, this can be find out that in company’s
efficiency to generate return on equities has been reduced by huge margin in year 2019.
Company failed to generate return in year 2019.
While in the aspect of debt to equity ratio, it can be stated that company is unable to meet
ideal condition which is of 1 to 1.5. company’s ratio was of 4.44 and 4.64 in both year 2018 and
2019.
Recommendations for improving profitability
In the above analysis, it is determined Tesco Plc overall profitability is quite good and
company is earning sufficient profit throughout the financial year. However, the current and total
liabilities of company is increasing due to the over dependence on debt and loans to meet the
various operation. There are number of ways which can be beneficial in the context of Tesco to
improve the profit margin in upcoming year and help in gaining the top position through the
entire world. Some of these are discussed underneath:
 Remove Unprofitable Products and Services: The first and most interesting option for
the Tesco plc is to add the commodities with the largest operating margin that can
directly increase the profit margin for the future time. Manager of Tesco plc are
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recommended to focus on those valuable goods or services until company have
established the most profitable one as it can change the profit figures (Brusca, Gómez‐
villegas and Montesinos, 2016). They can also need to decide whether to delete the
unsustainable goods or services or even evaluate the opportunities of making any change
in existing product.
 Find more and more customer: Potential customers could support Tesco Plc to expand
in more areas where growth can be attained as well as increase the overall profitability.
However, that may be the most costly method for raising extra sales as adding new
customer forces company to spend more on promotional activities so that customer can
know about Tesco Plc product. As it have been is observed that attracting a new
consumer costs six percent as much as maintaining an established client. The easiest and
most cost effective approach to attract potential consumers is to give rewards to the
existing clients which can inspire them and these existing customer of Tesco plc would
tell other customer to join company. In recent dynamic market circumstance word of
mouth is the most powerful form of advertising which can lead to higher profitability.
 Increase your Conversion Rate: New lead generation is an vital part of doing business
development in today's business era (Cantillon, Maître and Watson, 2016). The facts is
that manager of Tesco plc must exactly t know which proportion of new leads can
actually transform into a sale and raise revenue. Rising conversion of revenue in Tesco
Plc is among the best and cheapest ways of raising profitability within an accounting
year. This can also be beneficial to reduce the current and other liabilities and increase
the total cash in hand for company which can be put into other operating and financing
activities.
 Review Current Pricing Structure: Increasing inflation may be a frightening prospect
because a minor rise in Tesco costs will affect total operating income in a unsurprising
way. Thus manager of respective company are recommended to assign right cost of the
goods and services which is a quite necessary option to increase profit margin. They are
recommended to periodically check the quality of company goods and change their prices
accordingly.
 Reduce your inventory: A smart way to simplify the Tesco plc profit margin and
increase the cash flow is stock management (Tang and Baker, 2016). Thus, putting less
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