FINANCE

Financial Analysis

Financial Analysis

Introduction

This paper provides a financial analysis of three companies, namely Tesco Plc, Morrison Supermarkets and Sainsbury. The major focus of this paper is on the ratio analysis of the given companies. Past 5 years performance is analyzed in depth.

Discussion

Tesco PLC

Tesco is considered to be the top grocery retailer of United Kingdom and it stands on 3rd rank on the world's largest grocery retailers list. In UK alone it has managed to open 5,380 stores and many more in three other continents under the new names. Those continents are Asia, Europe and North America. Therefore, the key ingredient of Tesco's success is to build new stores and enter in to new businesses to increase its growth opportunities. This has provided Tesco with a potential to grow its business in foreign countries and increase its target market. Consequently, Tesco came out of UK and general grocery business in to global market catering world population with its diversified business portfolio.

Figure 1

TESCO Plc

2008

2009

2010

2011

2012

ROCE

18.90

17.20

16.87

16.96

16.30

Gross profit margin

5.3

5.4

5.4

5.5

5.4

Operating profit margin

3.2

3.5

3.6

4.0

3.9

Net Profit Margin

4.49

3.96

4.09

4.39

4.35

Asset turnover

1.72

1.42

1.24

1.30

1.32

Current Ratio

0.61

0.77

0.73

0.68

0.67

Quick Ratio

0.17

0.20

0.18

0.14

0.12

Short term debt

.89

.87

.91

.67

.66

Gearing Ratio

2.53

3.53

3.13

2.84

2.85

Interest Coverage

6.74

7.23

7.39

10.13

11.91

Employee turnover

26%

24.4%

18%

12.6%

8.3%

Absenteeism

7.6%

5.2%

5.8%

4.6%

3.1%

Product return ratio

6.4%

5.5%

3.2%

1.3%

1.5%

From the above ratio illustration, it can be seen that there is a slightly decreasing trend in the current ratio. Current ratio depicts the liquidity position of the company. It tells that how many times a company can pay off its current obligations from its current assets. Since the company deals in fast moving consumer goods, it does not have much cash in hand to pay off the liabilities immediately. The ideal current ratio should be at least 1 or greater than 1, which would mean that the company can pay off its current liabilities once a year.

Then there is asset turnover, which means that how many times a company can generate sales by its total assets. The ratio trend shows a declining pattern above. Further there is net profit margin, which shows the percentage of the profit after deducting the cost of goods sold and all the other expenses including tax and interest charges. It shows a declining trend as well. Company is not able to make profit as much as it was making in the past years. The reason behind this decline maybe the huge loss that Tesco incurred from the chain store it opened in US. Tesco was not as successful in US as it was in other parts of the world.

The next ratio is return on equity. It reflects that how many times company can generate returns from its underlying equity. Due to the mentioned reason, the return on equity has been decreasing from the past years. Further, gearing ratio tells that how much company is financed through debt. There is a slight increasing trend, which means that company has been taking more loans from the bank than the past years.

Further, Quick ratio is a much vigorous measure of the liquidity. It subtracts the inventory from current assets, to know the clear picture that how much current obligations can be paid off by ...