TESCO PLC

TESCO plc



TESCO PLC

Answer 1

The principal activity of the company is retailing. Retail industry is one of the predominant sectors of the British Economy contributing significantly to the GDP. There are number of players in the market but primarily it is dominated by Tesco followed by Asda and Sainsbury. All the companies are public listed companies therefore data is readily available.

Answer 2

The competition is intensifying in the UK market; customer retention can become a primary concern for the company and can also lead to loss of market share. A key factor that has helped the company to build a sustainable business model is its value oriented retailing. Tesco's customer loyalty programme, Club card launched in 1995, is one of the longest running loyalty schemes in the UK. At the end of FY2011, Club card had 15 million customers as its active members compared with 13 million at the start of FY2009. Customers have also responded well to the company's new Club card initiatives in FY2011. Nearly three million customers participated in the Big Club card Voucher Exchange promotions held between August and November 2010. Tesco registered a growth of 60% in rewards given through its Partner Reward Scheme. It was also observed that benefits offered by Club card were one of the key reasons behind customers switching to Tesco for their weekly shopping during FY2011 (TESCO Annual Report, 2011). Additionally, during the first half of FY2012, Tesco invested more than £500 million (approximately $772.9 million) in lowering prices on over 3000 everyday product lines. This included 1,000 of the company's own brand products.

Answer 3

Trade receivables period

39 days

26 days

-

ROE

16%

15%

19%

Gross profit margin

8%

8%

10%

Net profit margin

4%

4%

3%

Current ratio

2.0

0.66

1.70

Inventory turnover period

x 365

21 days

19 days

50 days

Payables' turnover period

x 365

x 365

x 365

63 days

75 days

20 days

Gearing ratio

35%

28%

4%

P/E ratio

12.3x

13.38x

9.0 x

Answer 4

Percentage Change

2011

2010

Revenue (sales excluding VAT)

7.065%

60,931 (£m)

56,910 (£m)

Operating profit

10.24%

3811 (£m)

3,457 (£m)

Share Price

9.944%

417.80p

380.05p

The revenue, operating profit and the share price of Tesco have increased as compared to the previous year.

Answer 5

In order to asses any company, financial statement analysis in general and ratio analysis in particular are the first step in the process. These ratios are calculated and compared to some benchmark figures which can be forecasted results, historical ratios, direct competitors performance and industry averages. They help in gauging the company's performance, and this case will help in analyzing the performance of Tesco as compared to the other companies and the industry. The performance is judged by keeping in mind the industry benchmarks.

Profitability

The purpose of profitability relates to a firm's ability to produce a reasonable profit so that the shareholders and investors will keep providing capital to it for its operations. A firm's profitability is connected to its liquidity for the reason that earnings eventually produce cash flow. For these rationales, profitability ratios are imperative to both potential investors and shareholders.

Gross Profit Margin

During the last two years, Tesco has shown slight change in operating profit margin. However, overall gross margin remained about 8%. During the year, the sales have increased by ...