FINANCIAL ANALYSIS

Financial Analysis- Tesco



Financial Analysis- Tesco

Introduction to Tesco PLC

Tesco is a significant international retailer. As a global business, the company perceives itself as having a vital role to play in helping to minimize its environmental impacts. Although based in the United Kingdom, Tesco PLC has developed into an international grocery and general merchandising chain, employing 440,000 staff worldwide and with sales exceeding £59 billion (in the year ending February 2009). Operating income exceeded £3 billion. These figures make Tesco the largest British retailer in terms of both combined sales and domestic market share, and the third largest in the world after Wal-Mart (United States) and Carrefour (France). It is claimed that £1 in every £7 of UK retail sales goes the way of Tesco.

Financial Analysis

Profitability Ratios

Year

2011

2010

2009

2008

2007

 

 

 

 

 

 

Profitability ratios:

 

 

 

 

 

Return On Shareholders' Funds (ROSF)

29.32%

26.02%

27.44%

24.05%

19.92%

Return On Capital Employed

34.47%

33.40%

34.63%

28.95%

23.63%

Operating Profit Margin

28.18%

27.36%

22.21%

17.93%

12.69%

Gross Profit Margin

39.37%

40.13%

35.20%

33.16%

28.98%

Profit margin is the amount of profit generated by the sales. There are various profitbality ratios being analyzed above which includes Return on Shareholder's fund, Return on capital employed, Operating profit marigin and Gross profit. As calculated above the ROSF in 2007 was reported to be 19.92% which increased to 27.05% in 2008. In 2009, the ROSF increased to 27.44% which then reduced to 26.02% in the year 2010. In 2011, the ROSF was reported to be highest (as compared to the preceeding five years). The return on capital is the total return generated by total capital. The return on capital in 2007 was 23.63% which increased to 28.95% . In 2009 the ROC increased again to 34.63% but declined a year after to 27.63%. In 2011 the ROC of the company was reported to be 34.47%.

The operating profit margin of the company is also showing an increasing trend. In 2007, the operating pofit margin of TESCO plc was reported to be 12.69% which increased to 22.21% in the next year. In 2010 the operating profit margin was calculated to be 27.36% which increased to highest ever margin in 2011 i.e. 28.18%.

The gross profit margin of the company shows an increasing and decreasing trend. From 2007 to 2010, the company's operating profit margin shows apostive and increasing trend. In 2010 the operating profit margin was 40.13% which decreased to 39.37% in 2011.

Efficiency Ratios

Year

2011

2010

2009

2008

2007

Efficiency ratios:

 

 

 

 

 

Average stock turnover period

6.95days

6.85days

6.43days

6.84days

6.65days

Average settlement period for debtors

42days

42days

42days

51days

51days

Average settlement period for creditors

81days

79days

79days

93days

80days

Sales revenue to capital employed

1.22times

1.22times

1.55times

1.61times

1.86times

 

 

 

 

 

 

The average stock turnover period also shows an increasing trend. This means that the inventory is being utlilized or being turover in long days. In 2007 the stock turnover period was 6.65 and in 2011 it increased ot 6.95 days. Inventory turns or inventory turnover is one of the parameters used for the management control function logistics or sales department of a company. The rotation, in this context, expresses the number of times you have renewed stocks (of an item, a commodity) for a period, usually one year.

This value is a good indicator of the quality of the management of supply, stock management and purchasing practices of a ...