Evaluation of the Financial Performance of Tesco Plc.

Paper Type:  Course work
Pages:  5
Wordcount:  1266 Words
Date:  2022-03-29

Question #1: Evaluation of the Financial Performance of Tesco Plc.

Tesco Plc. is a British multinational general merchandise and grocery retailer with headquarters in Hertfordshire, United Kingdom. The company is ranked as third-largest retailer globally based on profits and ninth globally going by the revenue. Tesco has stores across twelve nations in Europe and Asia and is the leader in the grocery market in the UK where it controls a market share of roughly 24 percent, as well as in Thailand, Ireland, and Hungary. The retailer was established by Cohen in 1919 as a collection of market stalls. The business multiplied, and after two decades, the company had more than a hundred Tesco stores throughout the nation. Initially a food merchant, Tesco went on to diversify geographically and into other niches, such as electronics, books, software, clothing, and books, as well as internet and other financial services. The company later repositioned itself, shifting from down market, low cost and high volume retailer to a dealer that appeal across numerous social groups through offering of products, which ranged from its "Tesco Finest" items to "Tesco Value" range. The diversification of its allure was efficient and saw the chain expand from five hundred stores during the nineties to two-thousand five hundred stores a decade later. The company today is listed and trades on the London Stock Exchange, and it is a component of the FTSE 100 Index. In the paper, the financial performance of Tesco is analyzed and the business actions implemented and policies adopted of the three-year period (Cusumano 2010). The trend of shareholders' wealth is assessed taking into account the impacts of the above measures and policies on profitability. Further, the critical qualitative factors that ought to be considered by analysts when examining the future performance of an organization are evaluated. It is advanced that Tesco Plc. needs to readjust its business activities to improve its financial performance.

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Company Perspectives

Tesco is focused on creating shareholders' value using an innovative strategy centered on customers and implemented by its employees. The approach is premised on an array of principles, which include a value for money, first-class service, and customer loyalty. The company is focused on giving clients quality merchandise at affordable prices. It emphasizes unique customer service and is a leader in the provision of superior customer service. Customer loyalty is of primary importance at the company, and the loyalty program is rewarded through Clubcard. It works closely with its providers and suppliers to ensure products of highest quality with numerous choices are made available to customers (Kim & Davis 2016). Tesco has invested heavily in existing stores to develop flexible formats to demonstrate its commitment towards enhancing customers' shopping experience.

Corporate Objectives

Tesco's vision is to concentrate more on its employees and customers. The company's objective is to be a leading retailer globally, which comprehends its customers. According to its slogan, every step the company makes is instrumental in achieving its long-term goals. Tesco's mission states that the company is designed to create value for both customers and shareholders to earn loyalty for the lifetime (Rotter & Mark-Herbert 2014). It seeks to expand profitably and attain the market leader position, which could be of benefit to both shareholders and customers. Of Tesco's core values is the creation of value for the customer in exchange for lifetime loyalty.

Analysis of Financial Performance

Tesco is persistently growing in productivity and profitability, as well as returns on capital and equity and higher profit margins. The net profit of Tesco has increased over the three-year period by 25.54%. However, notwithstanding the said factors, the rise can be attributed to the numerous measures that the company too following the 2007-08 global economic downturn. The changes included encompassed supply chain management, inventory management, and energy saving measure, which were aimed at instilling efficiency in resource use. Over the three years, the liquidity ratio improved altogether by 14.75%, which implied that Tesco could meet its obligation timely than during the earlier years (Rotter & Mark-Herbert 2014). The acid test likewise improved, increasing by 18.75 %, which that the company was holding a sizable share of its assets to meet short-term obligations.

Income Statement

Revenue 2017 2016 2015 2014
Total Revenue $ 55,295,000.00 $ 53,357,000.00 $ 56,388,000.00 $ 63,050,000.00
Cost of Revenue $ 52,932,000.00 $ 51,184,000.00 $ 54,320,000.00 $ 58,876,000.00
Gross Profit $ 2,363,000.00 $ 2,173,000.00 $ 2,068,000.00 $ 4,174,000.00
Administrative $ 1,190,000.00 $ 1,367,000.00 $ 1,949,000.00 $ 1,193,000.00
Total Operating $ 54,122,000.00 $ 52,551,000.00 $ 56,269,000.00 $ 60,069,000.00
Operating Income $ 1,173,000.00 $ 806,000.00 $ 119,000.00 $ 2,981,000.00
Interest Expense -$ 513,000.00 -$ 480,000.00 -$ 487,000.00 -$ 441,000.00
Income Before Tax $ 145,000.00 $ 202,000.00 -$ 6,334,000.00 $ 2,259,000.00
Income Tax Expense $ 87,000.00 -$ 54,000.00 -$ 670,000.00 $ 347,000.00
Minority Interest -$ 24,000.00 -$ 10,000.00 -$ 10,000.00 $ 7,000.00
Net Income -$ 40,000.00 $ 138,000.00 -$ 5,741,000.00 $ 974,000.00

The Tesco's long-term solvency is critical throughout the three years. It is likewise discovered that the reliance on outside sources of income is high compared to equity borrowing. The ratio of interest cover is relatively high in 2016 than the current year. The indicator supports the decision by the company to depend more on debt in 2017 because it established that the cost debt was relatively cheaper than that of equity. The ratios of efficiency are relatively low for the 2016 fiscal year. Tesco is past the stock and debtor days, which explain the increase in sales over the three-year period although the company ought to consider the effect of increased stock prices because they can become obsolete in the long-term. The ratio analysis distinguishes the ramifications of innovation for the retail business for the management of receivables particularly personal finance and inventory management. The creditor position ensures that Tesco is access to competitive pricing because it pays promptly. The dividend per share and earning per share is likewise increasing over time despite lower payout in the previous two years. The low payout can be attributed to the company hold of monetary resources to fund future growth.

Balance Sheet

Period Ending 2017 2016 2015 2014
Cash And Cash Equivalents $ 3,032,000.00 $ 2,528,000.00 $ 1,549,000.00 $ 2,021,000.00
Short Term Investments $ 3,011,000.00 $ 3,520,000.00 $ 593,000.00 $ 1,016,000.00
Net Receivables $ 1,488,000.00 $ 1,421,000.00 $ 1,785,000.00 $ 1,881,000.00
Inventory $ 2,301,000.00 $ 2,430,000.00 $ 2,957,000.00 $ 3,576,000.00
Other Current Assets $ 630,000.00 $ 412,000.00 $ 292,000.00 $ 2,567,000.00
Total Current Assets $ 15,417,000.00 $ 14,684,000.00 $ 11,958,000.00 $ 15,572,000.00
Long Term Investments $ 1,562,000.00 $ 1,863,000.00 $ 1,915,000.00 $ 1,301,000.00
Property Plant $ 18,108,000.00 $ 17,900,000.00 $ 20,440,000.00 $ 24,490,000.00
Goodwill $ 1,792,000.00 $ 1,827,000.00 $ 2,288,000.00 $ 2,286,000.00
Intangible Assets $ 925,000.00 $ 1,047,000.00 $ 1,483,000.00 $ 624,000.00
Other Assets $ 2,254,000.00 $ 1,860,000.00 $ 2,224,000.00 $ 2,681,000.00
Deferred Long Term Asset $ 707,000.00 $ 49,000.00 $ 514,000.00 $ 73,000.00
Total Assets $ 45,853,000.00 $ 43,904,000.00 $ 44,214,000.00 $ 50,164,000.00
Accounts Payable $ 8,875,000.00 $ 8,293,000.00 $ 9,677,000.00 $ 10,359,000.00
Debt $ 12,153,000.00 $ 13,943,000.00 $ 12,659,000.00 $ 11,365,000.00
Other Current Liabilities $ 1,283,000.00 $ 841,000.00 $ 860,000.00 $ 2,036,000.00
Total Current Liabilities $ 19,405,000.00 $ 17,866,000.00 $ 19,810,000.00 $ 21,399,000.00
Long Term Debt $ 9,490,000.00 $ 11,029,000.00 $ 10,520,000.00 $ 9,340,000.00
Other Liabilities $ 8,151,000.00 $ 4,700,000.00 $ 6,641,000.00 $ 4,564,000.00
Total Liabilities $ 39,439,000.00 $ 35,288,000.00 $ 37,143,000.00 $ 35,442,000.00
Common Stock $ 409,000.00 $ 407,000.00 $ 406,000.00 $ 405,000.00
Retained Earnings $ 332,000.00 $ 3,265,000.00 $ 1,985,000.00 $ 9,728,000.00
Treasury Stock $ 601,000.00 -$ 141,000.00 -$ 414,000.00 -$ 498,000.00
Capital Surplus $ 5,096,000.00 $ 5,095,000.00 $ 5,094,000.00 $ 5,080,000.00
Other Stockholder Equity $ 623,000.00 -$ 134,000.00 -$ 397,000.00 -$ 478,000.00
Total Stockholder Equity $ 6,438,000.00 $ 8,626,000.00 $ 7,071,000.00 $ 14,715,000.00
Net Tangible Assets $ 3,721,000.00 $ 5,752,000.00 $ 3,300,000.00 $ 11,805,000.00

Cash Flow

Period Ending $42,791.00 $42,427.00 $42,063.00 $41,692.00
Net Income $1,298,000.00 $138,000.00 -$5,741,000.00 $974,000.00

Operating Activities

Depreciation $1,298,000.00 $1,231,000.00 $1,366,000.00 $1,532,000.00
Adjustments Net Income $198,000.00 $925,000.00 $4,449,000.00 $993,000.00
Receivables -$98,000.00 -$58,000.00 -$28,000.00 -$64,000.00
Changes In Liabilities $1,984,000.00 $723,000.00 -$263,000.00 $1,376,000.00
Changes In Inventories $140,000.00 $350,000.00 $636,000.00 -$123,000.00
Operating Activities -$1,493,000.00 -$1,183,000.00 $65,000.00 -$1,503,000.00
Capital Expenditures -$1,205,000.00 -$871,000.00 -$1,989,000.00 -$2,489,000.00
Investments $877,000.00 -$2,882,000.00 $89,000.00 -$774,000.00
Other Cash flows from Investing Activities $84,000.00 $43,000.00 $213,000.00 $244,000.00
Dividends Paid - - -$914,000.00 -$1,189,000.00
Sale Purchase of Stock $1,000.00 $1,000.00 $15,000.00 $62,000.00
Net Borrowings -$1,863,000.00 -$759,000.00 $1,701,000.00 $1,183,000.00
Effect Of Exchange Rate -$131,000.00 $1,000.00 $78,000.00 -$105,000.00
Cash and Cash Equivalents $739,000.00 $908,000.00 -$639,000.00 $282,000.00

Given strategic analysis and the critical financial ratio, it is reasoned that the Tesco financial health and business performance is better in the 2017 fiscal year than the previous years. The trend shows a consistent and stable direction, and it is due to the beneficial strategy of growth in a range of business segments and product range, as well as the marketing department. Although performance was excellent, it is below what Tesco had projected. Tesco supply chain is sufficiently proficient and adds to the low cost, the effect of energy saving strategy is nominal, and there has not been a significant effect on the implementation of tills in the retail sector. It is likewise revealed that the assets are not adroitly used. The company is pursuing the policy of cost leadership where it is troublesome for it to generate profit margin through price premium and it is the feasible approach to increasing its margins through efficient use of resources. The fundamental environmental components are additionally disturbing for Tesco.

The depressed economic circumstance positively is affecting organizations everywhere throughout the world. On account of depressed financial conditions, customers tend...

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Evaluation of the Financial Performance of Tesco Plc.. (2022, Mar 29). Retrieved from https://proessays.net/essays/evaluation-of-the-financial-performance-of-tesco-plc

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