ACCOUNTING AND CORPORATE FINANCE

Accounting and Corporate Finance



Accounting and Corporate Finance

TESCO

Tesco is engaged in retailing and associated activities. Co.'s Core UK segment consists of four different store formats: Express, Metro, Superstore and Extra, as well as one trial format called Home plus. Co.'s Non-Food segment includes merchandise such as including electrical, home entertainment, clothing, health and beauty, stationery, cook shop and soft furnishings, and seasonal goods such as barbecues and garden furniture in the summer. Co.'s Retailing Services segment consists of several operations, including Tesco Personal Finance, Tesco.com and Tesco Telecoms. Co.'s International segment operates in 13 markets outside the U.K., in Europe, Asia, including India, and North America (www.marketwatch.com).

Valuation Ratios

P/E Ratio= Market Value per Share

Earnings per Share

2008

2009

2010

2011

Market Value Per Share

2.05

1.83

1.64

1.5

Earnings Per Share

1.33

1.45

1.39

1.66

P/E Ratio

1.54

1.26

1.17

0.90

P / E ratio (market price / earnings) - is the relation of price to earnings and is formed by comparing the prices to be paid per share to earnings in the accounting period falling in these shares. This indicator is one of the most popular indicators used to measure because it reflects the attitude of investors to the company. It shows how much the investor must pay for every single penny of net profit of the company. The increase in the index indicates that investors are willing to pay for shares in the company more than before. Low levels may suggest that the investment is beneficial, because the company has achieved considerable gains at relatively low market valuation. Too low a level will signal its purchase for the investor, because the company's shares are undervalued theoretically. There is an increasing trend of the P/E ratio of TESCO which means that the investors of TESCO are willing to pay more for the shares then they have paid before (www.reuters.com/finance/stocks).

Book to Market= Book Value of Firm Market Value of Firm

2008

2009

2010

2011

Book Value

2.05

1.83

1.64

1.5

Market Value

14.32

19.24

19.48

18.15

Book to market

0.14

0.09

0.08

0.08

This ratio is calculated in order to determine the actual value of the company by comparing the market value of the firm to its book value. For stock valuation, this ratio is very important because if the ratio is calculated to be below 1 then the stock is said to be undervalued and if the ratio is calculated to be more than 1 then the stock is said to be overvalued. In case of TESCO, it is clearly visible that the stock is undervalued and has a chance to rise in the stock market (http://finance.yahoo.com).

Profitability Ratios

2008

2009

2010

2011

Operating Margin %

14.47

11.86

10.76

12.27

Net Profit margin %

7.75

5.58

5.05

5.73

Return on Equity %

19.08

17.18

16.9

17.15

Profitability ratios are the relation of profit to the size. In particular, these indicators should be considered in the context of a particular industry or in time. In order to calculate the profitability ratios, other ratios are also calculated such as Operating margin, Net profit margin and return on equity.

Operating Margin

The operating margin also called operating margin is a ratio that relates the operating income and revenue of a company. The operating margin used to assess the ability of a firm to generate profits without regard to its ...