Financial Analysis Of Tesco Plc. Company
Discussion
The Tesco Plc. Company operates as a British Multinational grocery Company and as a general Merchandise Company. The company is located in Welwyn Garden City, England United Kingdom. The company is the largest grocery and general merchandise company measured in the terms of gross revenue produced by the company. The company is having its presence in the major countries of the Europe and Asia and is also having a substantial amount of market share in the United Kingdom. The company has a 28.4% of the market share in the industry, which makes the company as the dominant and leading player in the market as compared to other players in the Industry. The company has its presence in 12 countries on an overall basis including the United Kingdom where its carries on its daily operating activities. The Tesco Company has diversified areas of business primarily in the areas of retailing of books, clothing, electronics, furniture, toys, petrol and other grocery and general merchandise items. The future prospect of the company is primarily dependent on the financial performance of the company and the strategies deployed by the company for the overall development of the company (Wood, Wrigley and Coe 2016). The company has a wide range of portfolio of products in order to diversify the revenue base of the company and give varied amount of services and products
The application of ratio analysis is done in order to analyze the financial performance of the company and the review of the financial informations presented by the company. The application of ratio analysis helps in financial evaluation of the company and analysis of the company. The benefit of ratio analysis is that it provides the operating and financial review of the company. One of the key limitation of the ratio analysis is that it does not incorporate the level of inflation in the calculation (Uechi et al. 2015). The qualitative aspect of the firm is also ignored while evaluating the ratio analysis. The ratio analysis of the company was performed in order to assess the liquidity of the company, profitability of the company and the capital structure of the company. The trend period taken for the analysis was the four-year trend in which the various aspect of the company was taken into consideration for the company (Vogel 2014).
The Gearing or the Capital Ratio shows the amount of debt to equity ratio for the company or the exposure of the debt in comparison with the equity of the company. The company has consistently reduced the debt of the company and considered more amount of equity as a reliable capital source for the company (Omar et al. 2014).
The interest coverage ratio shows the amount of interest burden on the operating income of the company. The company has consistently reduced the debt of the company thereby reducing the interest payment of the company. The higher the interest coverage ratio the better it is for the company (Lakshmi, Martin and Venkatesan 2016).
The return on capital employed for the company shows the return generated for the capital employed by the shareholders of the company. The return on Capital employed for the company has increased consistently for the company and the same has been due to the rising profitability of the company. The increasing return on capital employed for the company shows the wealth creation for the shareholders of the company thereby showing the growth of the company in the long term and showing the overall development of the company (Enekwe 2015).
Ratio Analysis
The gross profit margin shows the amount of operating profit or the gross profit for the company on the total revenue generated by the company. The gross profit of the company has shown a consistent improvement where the operating profit of the company has continuously increased due to the rising revenue of the company (Vogel 2014).
The operating profit ratio for the company shows the operating margin of the company or the income generated by the company before the payment of interest and taxes. The operating profit of the company has shown a growth trend from the year 2015-2018 where the operating profit of the company has increased consistently for the company. Maintain a growth trend in the operating profit of the company is important and the company has maintained the same (Cucchiella, D’Adamo and Gastaldi 2015).
The liquidity ratio for the company shows the net liquidity available with the company in order to meet the current obligations of the company. The two common liquidity ratio analyzed for the company was the current ratio and the quick or acid test ratio for the company (Blum and Dacorogna 2014).
The current ratio for the company shows the amount of current assets available with the company to meet the current obligations of the company in contrast to the current liabilities of the company. The Company has currently maintained and made possible effort for increasing the current ratio of the company thereby increasing the current assets of the company in respect to the current liabilities of the company (Blum and Dacorogna 2014). The current ratio for the company was around 0.60 times in the year 2015 and has consistently increased to around 0.71 times in the year 2018. However, the current assets of the company is still not consistent with the current liabilities of the companies as the current liabilities of the company is much larger than the current assets of the company (Riley et al. 2016).
|
Particulars |
2015 |
2016 |
2017 |
2018 |
|
Liquidity Ratio |
||||
|
Current Assets |
11958000 |
14828000 |
15417000 |
13726000 |
|
Current Liabilities |
19810000 |
19714000 |
19405000 |
19238000 |
|
Workings |
(11958000/19810000) |
(14828000/19714000) |
(15417000/19405000) |
(13726000/19238000) |
|
Current Ratio |
0.60 |
0.75 |
0.79 |
0.71 |
The Quick Ratio or the Acid Test Ratio shows the net liquidity position of the company, which is quite similar to the current ratio but does not cover inventory and short-term investment into account. The quick ratio for the company is the amount available with the company in the liquid assets such as cash and cash and cash equivalents. The Quick Ratio for the company has been around 0.11 in the year 2015 and which has increased to around 0.17 times in the year 2018 thereby increasing in contrast to the current liabilities of the company (Wood, Wrigley and Coe 2016). The company should maintain a significant amount of liquid assets of the company in contrast to the current liabilities of the company so that the current operations of the company does not get hampered (Nesticò and Pipolo 2015).
|
Particulars |
2015 |
2016 |
2017 |
2018 |
|
Cash |
2165000 |
3082000 |
3821000 |
3282000 |
|
Accounts Receivable |
– |
– |
– |
– |
|
Current Liabilities |
19810000 |
19714000 |
19405000 |
19238000 |
|
Workings |
(2165000/19810000) |
(3082000/19714000) |
(3821000/19405000) |
(3282000/19238000) |
|
Quick Ratio |
0.11 |
0.16 |
0.20 |
0.17 |
Conclusion/Recommendations
The financial analysis of the company showed that the company had shown a consistent performance in terms of increasing revenue and profitability for the company. The profitability ratio indicates that the company has delivered consistent and increasing return for the shareholders of the company. The increasing efficiency of the company in terms of profitability and maintaining optimum debt for the company has made the future prospect of the company financially viable. The company financial risk has also decreased over the trend period taken into consideration for the company. However, the company should deploy various strategies for maintaining the liquidity of the company thereby increasing the current ratio for the company. The company should however deployed various management strategies and analyses various market and business factors in which the company operates so that the operations of the company runs smoothly.
Reference
Blum, P. and Dacorogna, M., 2014. DFA?Dynamic Financial Analysis. Wiley StatsRef: Statistics Reference Online.
Blum, P. and Dacorogna, M., 2014. DFA?Dynamic Financial Analysis. Wiley StatsRef: Statistics Reference Online.
Cucchiella, F., D’Adamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy decisions in the renewable energy sector. Clean Technologies and Environmental Policy, 17(4), pp.887-904.
Enekwe, C.I., 2015. The relationship between financial ratio analysis and corporate profitability: a study of selected quoted oil and gas companies in Nigeria. European Journal of Accounting, Auditing and Finance Research, 3(2), pp.17-34.
Lakshmi, T.M., Martin, A. and Venkatesan, V.P., 2016. A genetic bankrupt ratio analysis tool using a genetic algorithm to identify influencing financial ratios. IEEE Transactions on Evolutionary Computation, 20(1), pp.38-51.
Nesticò, A. and Pipolo, O., 2015. A protocol for sustainable building interventions: financial analysis and environmental effects. International Journal of Business Intelligence and Data Mining, 10(3), pp.199-212.
Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case examination using Beneish Model and ratio analysis. International Journal of Trade, Economics and Finance, 5(2), p.184.
Riley, E.B., Fieldston, E.S., Xanthopoulos, M.S., Beck, S.E., Menello, M.K., Matthews, E. and Marcus, C.L., 2016. Financial analysis of an intensive pediatric continuous positive airway pressure program. Sleep, 40(2), p.zsw051.
Uechi, L., Akutsu, T., Stanley, H.E., Marcus, A.J. and Kenett, D.Y., 2015. Sector dominance ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications, 421, pp.488-509.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
Vogel, H.L., 2014. Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
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.