Tesco financial performance listed on the bases of London stock exchange, with the symbol of TESCO the London stock market is listed. Tesco financial performance of last five years is as fallows.
The financial performance includes
Turnover(£m)
Profit before tax(£m)
Profit for year(£m)
Basic earning per share(p)
Years
Turnover(£m)
Profit before tax(£m)
Profit for year(£m)
Basic earning per share(p)
February 2010
62,500
3,200
3,090
29.02
February 2009
54,300
3,128
2,130
28.92
February 2008
47,298
2,803
1,899
26.95
February 2007
46,600
2,653
1,576
22.36
February 2006
38,300
2,210
1,366
19.70
The fallowing is the financial performance of the Tesco from last five years. Tesco is the fourth largest retailer in the world at the end of 2006. In the year 2007, Tesco moved ahead by home depots professional supply division. In 2007 February Tesco operated more than 1,988 stores in UK. Tesco made record profits for a British company in the year 2009 and 2010 February. Underlying per tax increased 10.1% to £3.4 billion. Tesco is trying to offer more than 16,000 new jobs in which 9000 will be in UK. Tesco share of the UK grocery market increased between the periods of December 2008 to December 2009 the share is 30.1% in 2009 market share up 0.1% in 2008 December.
RATIO ANALYSIS:
The ratio analysis contain five types they are
Profitability ratio
Gearing ratio
Liquidity ratio
Investor ratio
Advanced investor ratio
Profitability ratio:
In the ratio analysis the profitability contain
Grows profit margin
Net profit margin
Gross profit margin:
The equitation of grows profit margin is
Gross profit margin = Gross profit / Turnover *100
Turnover = sales
Gross profit = turnover - cost of sale
Gross profit=62500-42.3=62457.7
Sales=4.2%
62457.7/42,254*100 =147.8
The gross profit margin ratio tells us about the profit of a business makes on its cost of sales or cost of goods sold. It tells about the how much gross profit for £1 turnover business is earning. Gross profit is the profit we earn before we leave any administration costs and selling costs. The gross profit margin should be much higher than the net profit margin.
Net profit margin:
Net profit margin = Net profit / Turnover *100 (or)
Net profit margin= profit before interest and taxation / turnover *100
Net profit = gross profit - expenses
Net profit/turnover*100 = 42254/62500*100 = 67.6064
The amount of net profit per £1 of turnover business earned is calculated by the net profit margin. The cost of sales, administration costs, the selling and distribution costs; in these they will pay the tax.
TESCO PLC
Profitability
2009
2010
Gross profit margin
4,185
4,607
Net profit margin
Sales
42,254
(http://ar2010.tescoplc.com/~/media/Files/T/Tesco-Annual-Report-2009/Attachments/pdf/Full-Review.pdf)
Gearing ratio:
Gearing = long term liabilities/ equity share holders funds
Gearing is the concerned as the relationship between the long terms liability that a business as and capital employed. The idea is to balance the shareholder funds being significantly larger than long term liabilities.
Gearing
Creditors
14,107
21,033
Equity shareholders funds
436,758
44,190
Liquidity ratio:
Liquidity ratios are
Current assets: current liabilities
(Current assets - stocks): current liabilities
The current ratio and the acid test ratio are the important ratios in the ratio analysis.
Current ratio:
It is also called as the working capital ratio and it is a real ratio.
Formula of current ratio is
Current assets / current liabilities
Current ratio
2009(£m)
2010(£m)
Current assets
12,906
14,681
Current liabilities
4,116
4,250
Current assets / current liabilities = 14,681/4,250 = 3.454353
Acid test ratio:
It is also called as the quick ratio. The main idea of the ratio is the sales of products will not sale quickly and some of the items will sale quickly. The stocks are sometimes sale quickly and some times will not sale quickly it should not be more than 4 to 5 days that is a good market.
The formula for the acid test ratio is
Current assets - stock: current liabilities
Acid test ratio
2009(£m)
2010(£m)
Current assets-stocks
13,479
11,765
Current liabilities
4,116
4,250
Current assets-stock/current liabilities =11,765/4,250 = 2.768235
Investor ratio:
The investor ratio contains five basic five ratios they are
Earning per share
Dividends per share
Divided yield
Dividend cover
Price earning ratio
Earning per share:
The formula for the earning per share is as follows
Earning per share = profit available to equity shareholders/average number of issued equity shares
The car phone warehouse consolidate profit and loss account
Year 2010(£m)
Year 2009(£m)
Profit for the financial period(£)
2,138
2,336
Weighted average number of issued shares
33
110
2138/33 = 64.78
Basic 29.33p in 2010 and 27.14p in 2009
Diluted 29.19p in 2010 and 26.96p in 2009
Dividends per share:
Earning per share shows shareholders earned way of profit for a period. Dividends per share show how much the shareholders were actually paid by way of dividends.
The formula for dividends per share is
Dividends per share = dividends paid to equity shareholders/average number of equity shares
Tesco consolidated profit and loss account
Year 2010(£m)
Year 2009(£m)
Equity dividends(£)
14,681
12,906
Weighted average number of issued shares
33
110
14681/33 = 444.87
Dividend yield:
Dividend yield allows investors to compare the latest dividend they received with current market values of the share as indicators return they are earning on there shares. By taking the last two years ratio we will observe that the ratio will be grown high or low. It will clearly show the latest share price
The formula fore the dividend yield is
Dividend yield = Latest annual dividends / current market share price.
Food retailers
Dividend yield
Budgens
2.0
Dairy frame international
1.1
Morrison
1.1
Safeway
4.4
Sainsbury
4.6
Thornton's
5.8
These are the some of the examples dividend yields.
Tesco dividend yield
Latest annual dividend
9.1%
Current market share price
427.75
9.1/427.75= 0.0212
Dividend cover:
It tells about how easily a business can pay its dividends from its profits. High dividend cover means that the business can pay easily and low dividend cover means the business have difficulty in paying the dividend.
The formula for the dividend cover is
Dividend cover = net profit available to equity share holders / dividends paid toe equity shareholders
Tesco profit and loss account
Year 2010(£m)
In year 2009(£m)
Profit for the financial period
3,607
3,615
Dividends
968
883
3607/968 = 3.7262
Price earning ratio:
Price earning ratio is a vital ratio for investors. It gives the induction of the business. Price earning ratio of 1 show little confidence in business and of 20 express a great deal of optimism about the future of the business.
Formula for the price earning ratio is
Price earning ratio = current market share price / earning per share
The car phone warehouse
Pence
Price earning ratio
Current market share piece
76.0
16.52
Earning per share
4.6
16.52
76.0/4.6 = 16.52
Advanced investor ratio:
The interest cover ratio and dividend pay out ratio are equal and it is calculated in the same manner.
The formula for the interest cover ratio is
Interest cover = net profit before interest / interest paid
Interest cover is the safety margin for the business. High interest cover ratio means the business is easily meet the interests from profits and the low interest cover means the business is difficulty to meet the interest from profits.
Year 2010(£m)
Year 2009(£m)
Profit before interest and taxation
3,176
2,917
Net interest receivable
690
562
Referred from World Wide Web (http://www.bized.co.uk/cgi-bin/ratios/ratiodata.pl)
3176/690 = 4.60
Tesco in 2010:
The basic chart of Tesco in 2010
(http://uk.finance.yahoo.com/q?s=TSCO.LHYPERLINK "http://uk.finance.yahoo.com/q?s=TSCO.L&ql=0"&HYPERLINK "http://uk.finance.yahoo.com/q?s=TSCO.L&ql=0"ql=0)
The following chart shows the finance behaviour of Tesco in the year 2010.
Group sales:
The group sales have been increased year by year. From the following figure we can assume the development of Tesco year by year in group sales.
The group sales in 2010 62.5£bn. in the year 2006 it is 43.1£bn, in 2007 it is 46.6£bn, in 2008 it is 51.8bn, in 2009 it is 59.4£bn (http://ar2010.tescoplc.com/~/media/Files/T/Tesco-Annual-Report-2009/Attachments/pdf/Full-Review.pdf).
Financial highlights of Tesco:
Group sales (including vat)
+6.8%
Underlying profit before tax
+10.1%
Group profit before tax
+10.4%
Underlying diluted earning per share
+9.1%
Diluted per share
+9.8%
Dividend per share
+9.1%
Tesco in UK CORE
Sales
£42.3bn
Sales up
4.2%
Trading profit
£2.4bn
Trading profit up
6.7%
UK results
£m
% growth
Sales
42254
4.2%
Trade profit
2413
6.7%
Trade margin
6.2%
0.1%
(http://ar2010.tescoplc.com/~/media/Files/T/Tesco-Annual-Report-2009/Attachments/pdf/Full-Review.pdf)
Recommendations:
Tesco is the world's largest retailer it has to plan for the development of the company not only in the UK but also in the other countries like US. As we know Tesco is in the high position in the UK market and it should develop the stores in the other countries and should be competitor for the other companies in the world.
As a global player Tesco operates in 12 countries, Tesco's arrival in US can be influence the directions of the US glossary business in such areas as labour, environment, health, and food system.( http://departments.oxy.edu/uepi/publications/exec_sum.pdf)
Activates types under taken by the business should be extended because one area is struggling with profit then the other area can be profitable and this is called diversification.
In the specialization activates should be reduced because the making loss and some of the items are too high.
Tesco is expanding its business in order to keep up competition to a very high level. Tesco should invest in new services and products so they can fulfil the customer's demands. Tesco customer is the one the imperative stakeholders of Tesco. The actions of the customers can directly affect the business so the customers are the stakeholders.
Tesco have two choices of recommendations diversifying and specialization. It can diversify their commerce or it can specialize in their current business. The business need to reduce their types of activities due to loss of profit in commerce. (http://bizcovering.com/international-business-and-trade/tesco-2/)
The health and safety should be must the entire employee should be healthy and should be in care. And we recommend Tesco to develop the stores in other countries and maintain the health and safety and Tesco should be grow up more faster and should develop the share price and market values. In the future Tesco should be in the top position in the world not only in the UK but also in the other countries like US the Tesco should develop the store and maintain the good products.
Conclusion:
Tesco is the largest retailer from the last five years and it has faced competitions from the companies like Sainsbury, ASDA and Morison and stud in the top position from the last five years. The financing market is grown up yearly and day by day. The stores has developed and increased. The group sales have been increased year by year and it became the leading retailer. Comparing to the last five years Tesco have developed and improved in store and sales of the products. Tesco improved it self by increasing the stores and sales from past five years the Tesco is the leading retailer and it has over taken the companies like Sainsbury. Sainsbury is also the leading retailer and it became competition for Tesco. Tesco trashed Sainsbury in past five years and rose up to overtake Sainsbury
Tesco should develop the stores in other countries like US. As we know the Tesco is top in UK market and it is in the leading retailer in the 17 countries but it should develop its store and share price. It has les stores in US it should develop the store in US and should become worlds leading retailer. It should develop its group sales and share price and should be in top position in coming five years. It should implement new elements.
