FINANCIAL PERFORMANCE TESCO

Financial Performance Tesco

Financial Performance Tesco

1. Introduction

 Tesco group PLC is one of the UK's biggest and the world's leading international retailers of foods, home ware and financial services with a high quality, serving more than 10 million customers a week in over 1.900 stores and department stores in the UK. The Company also trades in 9 countries worldwide, and has a Group turnover in excess of £30 billion in 2005.

This report will assess the financial health of Tesco in the financial year 2005 through its accounting ratios. There are two steps in the process of evaluation. Firstly, the comparison of Tesco's accounting ratios should be done in financial year 2005 and year 2004. Secondly, compare with the UK's second largest retailer, J Sainsbury group PLC (Sainsbury) in order to find the positive and negative points in Tesco's financial situation, which is also in the year 2005 and 2004. Five categories ratios have been used to analysis the financial health of Tesco, which are liquidity ratios, profitability ratios, efficiency ratios, investment ratios and gearing ratios respectively. All of data are selected from Tesco and Sainsbury's annual reports in the recent two years. Three financial statements have been mainly approached, which are Profit and Loss Accounts, Balance Sheets, and Cash Flow Statements.

 

2. The SWOT Analysis of Tesco

Strengths

Leading retailer in the UK with a large market share, over 28%.

The brand is strong and it has become a household name.

Its clubcard gives a real insight into Customer profiles and their shopping habits and brings more customer loyalty for the company.

Customer focused philosophy.

It has a large product range which gives more choice to customers such as Organics, Finest and Value.

Strong customer service leading to satisfied customers.

Excellent management methods leading to high levels of organisation.

Offers low prices.

 

Weaknesses

Increased competition from other supermarkets, such as Sainsbury, ASDA.

Lack of Global Scale.

Motivation of staffs could be affected by monotony.

Large portfolio ageing stores

 

Opportunities

Develop the brand with global marketing.

Develop their dot.com business which has no walls so they could sell houses, furniture and trips.

Expansion into non-food markets such as car sales, insurance, personal finance, and clothes.

Expansion into new geographical areas outside the United Kingdom such as Europe and Asia.

 

 

Threats

Increased competition from other supermarkets. For example: The development of Sainsburys local will have a big impact on many of the city centre Tesco stores.

The price-war and UK recession.

Tesco may under the pressure which is environmental issues such as waste and recycling.

Government intervention may restrict the Tesco's growth and investment.

 

3. The Analysis of Ratios

According to Weetman (1999), financial ratios are widely used as a tool in the interpretation of financial statements. They are a means of evaluating a company's performance or health that uses a standard of comparisons of items on the company's financial statements rather than a direct reading of the financial figures. Ratios can be seen as a technique in order to interpret financial accounts through the ratios analysis. It can examine the company's position in more details and compare with other companies in a similar industry ...