ACCOUNTING ANALYSIS

Assignment 2

Assignment 2

Introduction

In this assignment, a comprehensive ratio analysis has been done in part A. Moreover, the paper has discussed the ratios and the current market share price of the selected company. This paper guides the investors that either to invest in the selected company or not. In the second part a scenario of a motorcycle has been discussed and the project has been evaluated through the financial tools and techniques. Decisions have been made to assist the management of the company either to invest in the project or not.

The word of caution about ratio analysis is needed to be excercised. It has to be kept in mind that most of the times, the judgement of the person who is carrying out the ratio analysis is needed to be looked at. The thorough comparison is also needed to be carried out, at the same time, ratio cannot be analyzed in isolation. They have to be analyzed keeping in mind the benchmarks in the industry. The trend analysis can happen due to it, but in order to get a more correct information about the proceedings, all the ratios are needed to be looked at.

Discussion

Part A

TESCO Plc

In 1919, TESCO was founded by Jack Cohen in East End of London, from small market stall. Now, TESCO operates globally in 14 countries with more than 500,000 employees (TESCO Plc, 2013a).

TESCO primarily operates in retail business in UK. However, TESCO expanded its business internationally to 14 countries and operating online and UK. TESCO also diversified business in the banking sector and mobile business with O2 in UK and Ireland (TESCO Mobile, 2013) & (TESCO Bank, 2013).

Profitability ratios

Profitability ratios measure how much a company is profitable or not, through the capital invested how much earned and investment, which result economic enterprise. Profitability ratios relate to the return type of the company, may be regarding sales, its assets, its equity, and the value of their shares. It shows the ability to generate profits of the organization. The main profitability indicators are: operating margin, net margin, return on assets, asset turnover and return on equity (Penman, 2007, pp. 115-125). The profit making ability of the business is the most important thing for the business. They have to ensure that they are earning decent profits. The basic purpose of the business is to earn profits so it has to be made sure that the corporation is earning decent profits. These ratios thus are needed to be analyzed accordingly.

Net profit margin

Net profit margin is related to the measure of the profitability of the busiens on overall revenues that are generated by the business in that period. Formula for net profit margin is as follows:

Net profit margin of Tesco Plc is as follows:

FY 2013

FY 2012

FY 2011

Profit for the year (mil)

£ 120

£ 2,814

£ 2,671

Revenues (mil)

£ 64,826

£ 64,539

£ 60,931

Net profit margin

0.002

0.044

0.044

It is found that Tesco's profitability is decreasing from the last year. Net profit margin of the company is maintained for ...