Detailed Financial Statement Analysis of Tesco (2016-2018)

This report provides a financial analysis of Tesco Plc, examining its performance from 2016 to 2018. It begins with an introduction outlining the report's objectives, which include calculating the current ratio for the specified years and evaluating the company's depreciation policy in accordance with IFRS standards. The main body of the report details the calculation of the current ratio, demonstrating a consistent ratio of 0.8 in 2016 and 2017, and 0.7 in 2018. The analysis then explores Tesco's depreciation policy, confirming its alignment with IAS 16. Furthermore, the report investigates key financial metrics from Tesco's annual reports, including interest expense, average scale of debt, average cost, and interest coverage. The report concludes by summarizing the key findings and providing a concise overview of Tesco's financial position. The report includes references to relevant academic journals and Tesco's annual reports, along with supporting illustrations from the financial statements.

FINANCE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1............................................................................................................................................3
Current Ratio..........................................................................................................................3
TASK 2............................................................................................................................................3
Companies policy on depreciation.........................................................................................3
TASK 3............................................................................................................................................4
Annual Report of Tesco..........................................................................................................4
a. Interest Expense.............................................................................................................4
b. Average Scale of Debt...................................................................................................4
c. Average Cost..................................................................................................................5
d. Interest Coverage...........................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6
APPENDIX .....................................................................................................................................7

INTRODUCTION
The below report identifies the financial statements of Tesco. The report shows the
calculations and provides current ratio of the last three years. Further, it explains the company's
policy on depreciation and explores whether the company's treatment of depreciation matches the
requirements of the IFRS (Guo and Wang, 2019). The annual report of Tesco Plc and identifies
the interest expense, income statement and calculates the average scale of debt.
MAIN BODY
TASK 1
Current Ratio
The current liabilities of Tesco in 2018 were (-19,238) and the current assets of the
organisation are 13,517. The calculated current ratio is 0.7 in 2018. The current liabilities of the
organisation in 2017 were 15,417 and the current assets were (-19,234). The calculated current
ratio for the organisation in 2017 is 0.8. The current liabilities of Tesco were 17,866 and the
current ratio were 14,684 in 2016. The current ratio of the organisation is 0.8 in 2016.
Working Notes: In order to evaluate the Current ratio. The formula used was Current
Ratio = Current Assets/Current Liabilities. The same formula was used in the identification of
the current ratio for all years including 2016, 2017 and 2018.
TASK 2
Companies policy on depreciation
IAS 16 (of the IFRS) provides two alternatives approaches which are acceptable for fixed
assets to accounting. The first approach used here is the cost model under which the item of fixed
assets is carried at its minus cost and its depreciation that is accumulated.
The declined value of the fixed assets are known as depreciation. In IAS 16 the
depreciation is described as the decline in value of an asset in over time along with the
systematic allocation of the amount of depreciation over the useful life of an asset.
The depreciation policy of Tesco asserts that the decline in value of a company's asset in
its useful life which is later used in order to account for the declined value of the overall assets of
the company. The company's treatment of depreciation matches the requirements of IFRS
completely but it explains that the value of the overall assets are determined by the depreciation

of the single asset overtime (Utami, 2018). As per the IFRS and IAS standards the value of all
assets tend to provide the value of depreciation, but not just a single one.
TASK 3
Annual Report of Tesco
a. Interest Expense
Interest expense refers to a non operating expense interest which is shown on the income
statement of a company. It tends to develop an understanding of the interest expense of a TESCO
and how they have incurred. The annual interest expense of the company is 585 as compared to
the expense of 2017 which is 622. It allows the company to grow on a large scale and maintains
strict development routine to develop required growth and achievements. The formula used here
is (Interest Expense + Non-current expenses * 100).
b. Average Scale of Debt
The average scale of debt refers to the financial debt of the company which measures the
extent of a company's leverage. In order to identify the annual average scale of debt, the
company's last years and current liabilities are divided by 2 to get the actual scale of debt. As per
the above illustration it can be seen as the last year liabilities of the company were 39,415 and
the current liabilities are 34,382. Dividing them by 2 we receive an 56606. The current debt of
the company is 56606.
Illustration 1: Average Scale of Debt of Tesco
(Source: Annual Report, Financial Statements, Tesco, 2018)

c. Average Cost
The average cost of the company is equal to the total cost. It is divided by the unit
number from the produced good. Also, it is equal to the average sum of costs which are variable
and fixed.
The average cost of the Tesco annual report is identified by cost of debt and interest
expenses divided by average liabilities.
As per these calculations, the average cost of the company is 17579.50.
d. Interest Coverage
The formula which is used for the interest expense here is Interest Expense/ Non Current
Liabilities + Current Liabilities * 100%. The Non current liabilities of the organisation in 2018
were 5,512 and the current liabilities of the organisation were (-19,238). The interest expense is
7.00. As per these evaluations and calculations the found interest coverage for the organisation is
-0.05% in 2018.
CONCLUSION
The report identifies the importance of financial statements in Tesco Plc. It analyses the
current ratio, the company's policy on depreciation. Along with it, as per its recent annual reports
it identifies the interest expenses, average scale of debt, average cost and interest cover ratio.

REFERENCES
Books and Journals
Guo, L. and Wang, Z., 2019. Ratio Analysis of J Sainsbury plc Financial Performance between
2015 and 2018 in Comparison with Tesco and Morrisons. American Journal of Industrial
and Business Management, 9, pp.325-341.
O'Hare, J., 2016. Analysing financial statements for non-specialists. Routledge.
Utami, M. W., 2018. THE ROLE OF NATIONAL CULTURE IN THE EMERGENCE OF
FINANCIAL STATEMENT FRAUD: COMPARISON OF JAPANESE AND BRITISH
CULTURE IN THE CASES OF OLYMPUS AND TESCO.
Online
Annual Report Tesco. 2018. [Online] Available through:
<https://www.tescoplc.com/media/474793/tesco_ar_2018.pdf\/>
Annual Report Tesco. 2018. [Online] Available through:
<https://www.tescoplc.com/media/474793/tesco_ar_2018.pdf\/>

APPENDIX
(Source: Annual Report Tesco, 2018)
(Source: Annual Report Tesco, 2017)
Illustration 2: Financial Statement 2017-2018
Illustration 3: Financial Statement 2016-2017