Financial Analysis of Tesco: Operations and Performance Evaluation

This report provides a comprehensive financial analysis of Tesco, a multinational retailer, examining its market position, operational activities, and financial performance. The analysis utilizes various financial ratios, including liquidity, asset management, leverage, and profitability ratios, to assess Tesco's financial health and efficiency. The report also includes a comparative analysis with Tesco's competitor, Sainsbury's, to benchmark their respective performances. The operational activities of Tesco, such as product planning, process mapping, supply chain management, and layout planning, are also discussed. The report further evaluates key financial performance figures for the last two years, including cost of goods sold, to provide a holistic view of Tesco's financial standing and strategic decisions. The conclusion summarizes the key findings, highlighting Tesco's strengths and weaknesses, and offering insights into its future prospects.

Running head: MANAGE OPERATION AND FINANCE
MANAGE OPERATIONS AND FINANCE
Name of the Student
Name of the University
Author Note

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Executive Summary
The purpose of this project is evaluate different ratio and show how they help to understand
the finance structure of the company. The reports deal with the company name Tesco and
with the help of the company it has been shown the different operations which a company
perform and what are usage of different financial ratio. In the end of the paper a comparative
study has been done of Tesco and its biggest competitor Sainsbury’s and their respective ratio
has been evaluate so that it can be easily seen which company is performing better and it has
been seen that Tesco is performing well in the industry and can achieve its goals easily if it
continue to improve themselves like they were doing before.

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Table of Contents
Introduction................................................................................................................................3
Discussion..................................................................................................................................3
Overview of the Company.....................................................................................................3
Market analysis of Tesco.......................................................................................................3
Operational Activities............................................................................................................4
Comparative Analysis of Financial Ratio of Tesco and Sainsbury........................................5
Calculations of last two years Key Financial Performance Figures......................................9
Conclusion................................................................................................................................10
References................................................................................................................................12
Appendix..................................................................................................................................13

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Introduction
Finance is the most important base for an organization, it is the base from which an
outsider can judge about the company as it can be seen by the finance structure how the
company is performing in its industry and how he is able to manage the market, if the finance
structure of the company is not so strong than it can be said that the company will not able to
survive in the time of economy slum or when the market is not stable (Gitman et al 2015).
The market operation which a company carry also help the people to know what are the
operations which the company carry and how they able to survive in the market. There are
many factors which we have to see to know a company finance structure we have to check all
its financial ratio and have to analysis one by one each ratio than only we will able to know
actual finance structure of the company. A ratio is a qualitative analysis of the financial
statement of an company with help of ratio we can analysis many factors about the company
such as how much liquidity the company has, how much efficiency the company has and how
easily it can generate cash from its business it basically gives us an overview of the company
and how the operation are held in the company.
Discussion
Overview of the Company
The report is based on the company named Tesco. It is multinational groceries ,
merchandise retailer which is based in United kingdom, its headquarters is in Welweyn
Garden City, Hertfordshire which is based in England . It is one of the largest retailer in its
industry and has shops in many countries.
Market analysis of Tesco
It is a grocery store so it has a general market of customers which are normally the
consumer of the product the one who will consume the product for their own purpose. It has a

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wide diversification it deal with many no products in many sector so it has different number
of customer as regard with the product (Wood et al 2016). There are many company which
provide same products like Tesco but Tesco able to gain market more than its competitors as
the first principle which it follow is to fulfil customers need as first priority as it mainly focus
on what their customer and how he can help them in achieving it as it focus more on
customers rather than increasing its profit so the customers also get attract by the service
which the company provide as a result it give an edge over the competitors of the company ,
Second principle which the company follow is it keep their price as cheap as possible they do
not charge much for its product it can be say that it keep its price as low as possible so that it
can attract large number of customer which will ultimately give the company more profit it
believe in more sales of its product rather than huge profit upon some limited sale so as a
result it able to gain an edge over its competitors, the third principle is that develop their
company with time so it able to give their customers all the stuff as per their need and
preferences so due to this it able to go ahead so it competitors , the last and most important
principle which it follow is it maintain it brand image throughout its operation and to
maintain that it focus on the quality of its service and as result it able to satisfy customer need
which help them to get more value in the market.
Operational Activities
These are the functions of the business which are directly related to the goods and
services provided by the organization in the market. These are the core activities which the
company provide such as manufacturing, selling and distribution of its product. It is the
section which have most of outflow and inflow of cash and it also help to know about the
profitability which the company has and how they are performing

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In regard with Tesco they have maintain and upgraded its business operation as per the time
requirements some operations frameworks are as follows:
1. Product Planning - The company is not a production company so it does not have
to concentre on that side, it have to focus on its product design as product planning
is on-going process and Tesco is doing it and focusing how they can give more
design to its product and how it can capture more amount of customers.
2. Process Mapping – This process involve what the business which the organization
do and Tesco not only had improve their existing services but also added many
services which can help customers in many ways.
3. Supply Chain Management – Under this process it is seen how the company
handle the product from manufacturing to distribution and in regards with the
company has good in maintaining its cost and handling and as a result they able to
minimize the cost of its product which able to give more profit to the company.
4. Layout Planning – As it is retail store so it focus on how their product is arrange
and how they are being represents in front of customers the more good layout the
more company can attract its customers.
Comparative Analysis of Financial Ratio of Tesco and Sainsbury
As per Babalola and Abiola 2013 financial ratio are the ratio which helps to know about the
company financial position in the market and how they are doing against their competitors
some financial ratio are:
Liquidity Ratio – This ratio help to know the ability of firm regards of short term debt (Al
Nimer 2015). These can be classified into Current Ratio and Quick ratio
 Current ratio – This ratio help to know how much company can pay their current
liabilities with respect to current asset.

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(About.sainsburys.co.uk, 2019).
In the above ratio it can be seen that the Sainsbury has more current ratio than of
Tesco so it can understand it can pay their liability rather than Tesco and Sainsbury has not
have much gap between in current asset and current liability but Tesco have a big gap
Between its current asset and current liability.
 Quick ratio – This ratio help to know how much company can pay their current
liabilities in respect of liquid asset
(Tescoplc.com, 2019)
In the above ratio it can be seen that Tesco have more quick ratio compare to
Sainsbury and it have more liquid asset than Sainsbury, Tesco can pay its current liabilities
more easily than Sainsbury can pay.
Asset Management Ratio – It can also be classified as efficiency ratio it help the company
to know how they are using their asset in generating sales. It can be classified as average
collection period and stock turnover ratio.
 Average Collection Period - This ratio helps to know the credit policy which the
company is following that how much time it provide its debtor to pay for the product

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It can be seen from the above ratio that Tesco has a liberal policy regarding debtors in
compare to Sainsbury as it has astringent policy which gives less time to debtors.
 Stock Turnover Ratio – It show the relation between the Inventory and cost of goods
sold
It can be seen from the above ratio that Tesco have higher stock turnover than
Sainsbury and it can be seen that Tesco have more inadequate stock in compare to Sainsbury.
Leverages Ratio - This ratio help to know how the company is using its debt and how easily
they can pay their debt. These can be classified as debt ratio and debt-equity ratio.
 Debt Ratio- It indicate how the asset of the company has been financed whether it from
short term debt or from long term debt or both.
It can been seen from the above ratio that Tesco have high debt ratio in compare to
Sainsbury so it means company have more debt compare to Sainsbury.

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 Debt-Equity Ratio- Under this it compare the debt of the company with the equity , it
shows how much long term debt company has
It can be concluded by the above ratio that Tesco has higher debt-equity compare to
Sainsbury and it even mean that it has more use of debt in compare to Sainsbury.
Profitability Ratio – It can also be termed as performance ratio. This ratio analysis how
much the company is generating revenue in compare to the industry norms, it can classified
as gross profit margin and operating profit margin.
 Gross Profit Margin - It show the gross profit which the company is earning by selling
its product to the market.
It can be seen by the above ratio that Sainsbury is having more gross profit margin compare
to Tesco so it can classified as Sainsbury is able to attract more customer and able to generate
more sales in compare to Tesco.
 Operating Profit Margin - It is the profit which is after deducting cost of goods sold
and all other operating expenses but before charging interest and tax.

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It can be seen from the above ratio that Tesco is having more operating profit
compare to Sainsbury so it can be said they able to gain more customers compare to
Sainsbury.
Calculations of last two years Key Financial Performance Figures
This are the qualitative indicator which help the company to know how they are
performing in the market , this help the company to know how the strategy which they have
made is working and what are the changes required in their current strategy and what are
factors they need to consider while making new strategy. This plan helps us to make the
company vision more value while making strategy. It can be classified as key success
indicator, financial indicator and non-financial indicator. Key success indicator indicate how
the growing in the industry, financial indicator indicates the profit and revenue which the
company is earning it help to know how the company is earning regarding the industry and
they can also know where they are lacking and take steps regarding it and non-financial
indicator how the company is with external factors like customers, employees it show how
the company manage its external factors. So here it’s the comparative calculations of key
financial performance of the company of last two years
 Cost of goods sold – It means the cost of goods which the company has sold during the
year, In 2018 the cost was 54141 where as in 2017 it was 53015 so it can been seen this
year company had done more production compare to last year so it means company had
got more business compare to last year.

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 Sales – It is the amount of sale which the company has done in the year. In 2018
company sale is 57491 where as in 2017 it was 55917 so it can be said that company
had got more sales in compare to previous year , so it can be said it has got many
customers in compare to last year
 Gross profit – It shows how much company is earning by selling its product in the
market. In 2018 the profit which the company has earn 3350 where as in 2017 it has
earn 2902 so it can be said that the company has got in increase in its profit which is
good in view of the company and its stakeholders
 Operating profit – It shows how much the company had earn after deducting its
operating cost. In 2018 the profit is 1837 where as in 2017 the profit was 1017 so it can
be said the there is a huge increase in the profit so it can be said that company has able
to manage to minimize its operating cost compare to previous year.
 Profit before tax – It show how much company has earn after deducting all its expense
and interest but before deducting the tax. In 2018 the PBT was 1298 and in 2017 it was
145 so it can be said that company has improve much as it is a huge difference between
two year so company is improving its standard in coming year which effects can be seen
by the rapid increasing of the profit before tax.
 Earning Per Share – It shows the amount which a shareholder get on per share basic.
In 2018 the EPS is 12.12p where as in 2017 it was 0.81p so it can be seen by the figures
that company is earning has been increasing in one year and this will help the company
to gain back the confidence of the shareholder which they have lost in 2017.
Conclusion
It has been concluded from the above discussion that the company Tesco is one the
largest grocery store in United Kingdom. It financial position has been improved in compare
to last years. It has also been seen the financial ratio has also increase compare to last year. In

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the comparative study it have seen that it is doing well in the industry as well from its
competitors. In the above discussion it has been seen many ratio like current ratio, quick ratio
which help to know about the liquidity of the company against its current liability, than it has
been seen about different types of profitable ratio like gross profit margin and operating ratio
from which it can been seen how the company is able to earn from the product and if they
able to manage with industry type or not able to get that much profit which an company get in
the industry, than there was leverage ratio which tell how the company is earning from its
asset and how they are using their asset and what kind of finance is used more in the
company may be its long term debt or it can be short term debt, than there was asset
management ratio which tells that how much credit the company gives to the debtors in
which there were two ratio debtor turnover ratio under which it is seen what kind of credit
policy is used by the company regarding the debtor and then there was stock turnover ratio
which shows how much stock turnover is there in the company if there is more stock turnover
in regards of the industry than it can be said that the company have much inadequate amount
stock lying with them. Lately all the ratio where compared with its competitors in the same
industry so that a better view of the company can be done. This analysis will the company to
know where they are lacking from the competitors and it can take many steps regarding this.

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References
About.sainsburys.co.uk (2019). Title. [online] About.sainsburys.co.uk. Available at:
https://www.about.sainsburys.co.uk/investors/annual-report-2018 [Accessed 11 Mar. 2019].
Al Nimer, M., Warrad, L. and Al Omari, R., 2015. The impact of liquidity on Jordanian
banks profitability through return on assets. European Journal of Business and
Management, 7(7), pp.229-232.
Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Lin, F., Liang, D. and Chen, E., 2011. Financial ratio selection for business crisis
prediction. Expert Systems with Applications, 38(12), pp.15094-15102.
Tescoplc.com (2019). [online] Tescoplc.com. Available at:
https://www.tescoplc.com/media/474793/tesco_ar_2018.pdf [Accessed 11 Mar. 2019].
Wood, S., Wrigley, N. and Coe, N.M., 2016. Capital discipline and financial market relations
in retail globalization: insights from the case of Tesco plc. Journal of Economic
Geography, 17(1), pp.31-57.

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Appendix
FINANCIAL STATEMENT OF TESCO

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