FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis

Introduction

In this report, we will make analysis of the financial and business performance of TESCO Plc and will make a comparison of TESCO with the financial and business performance of Morison's Plc, which is another super market in UK and a competitor of TESCO Plc. In order to make an analysis of the financial performance of a company, one has to focus on analyzing three major areas of the company, i.e. financial leverage of the company, Liquidity management, profitability, and investor suitability of the company (Williams, Susan, Mark and Carcello 2008, 266). Through analyzing a company from these three major perspectives, we can gauge the financial performance of a company (Weygandt, Kieso & Kell 1996, 470).

Profitability comparison of TESCO and Morisson

Operating income margin

The third factor in our analysis is the profitability factor of the company. The first profitability ratio in our analysis is the operating income margin (Bandler 1994, 58).

Table 1: Operating income margin comparisons

(Source: www.finance.yahoo.com)

(Expressed in whole numbers)

In table 8, we have described the operating income margin of both the companies in our analysis. From the above table, we cans see that there is not much difference between the profitability of Morissons and TESCO in terms of percentage. The operating income margin of TESCO has been at a constant percentage of six percent in the past three years and in case of Morissons, it has been around five percent. We can see the same thing in chart 9, in which we have shown the operating income margin trend of Morissons and TESCO.

Chart 1: Operating income margin trend

Return on equity

Table 2: Return on equity comparison

(Source: www.morissons.co.uk and www.tescoplc.com/)

The second ratio in our analysis is a comparison of return on equity, which is a measure of the profits of the company in comparison to its equity. This ratio measures that how much a company is earning on its equity, i.e. how much returns is the company providing to its shareholders. In table 9, we have summarized the return on equity of our companies, calculated from the data extracted from their financial statements. From the above figures, we can see TESCO has been providing more returns to its shareholders as compared to Morisson.

Chart 2: Return on equity trend

From chart 10, we can see the trend of return on equity of TESCO Plc and Morisson. We can see that in chart 10, the return on equity of TESCO is showing a pretty consistent trend in the past three years, and has been hovering around the 16% and 17% benchmark. On the other hand, we can see from chart 10, that the return on equity of Morisson was been around 10% in the year 2009 and it went up to 12% mark in the next two years.

Return on assets analysis

Table 3: Return on assets comparison

(Source: www.money.msn.com)

The third ratio in our profitability analysis is the return on assets. This ratio measures the amount of profit that the company has been able to generate in comparison to their ...