Financial and Business Analysis of Tesco Plc

OXFORD BROOKES UNIVERSITY

BSc (Hons) in Applied Accounting

REASEARCH AND ANALYSIS PROJECT

TOPIC 8

THE BUSINESS AND FINANCIAL PERFORMANCE OF TESCO PLC FOR 2007 TO 2009

BY: HARDIK MAJETHIA

(6500 Words)

Contents

1 INTRODUCTION 3

1.1 Topic chosen 3

1.2 Reason for choosing this topic 3

1.3 Reason for choosing this organisation 3

1.4 Aims and objectives 4

2 INFORMATION GATHERING 5

2.1 Sources used 5

3 FINANCIAL ANALYSES 12

3.1 Revenue growth analysis 12

3.2 Operating profit margin 13

3.3 Net profit margin 14

3.4 Return on capital employed 16

3.5 Current ratio 17

3.6 Quick ratio 19

3.7 Inventory days 20

3.8 Payable days 21

3.9 Gearing ratio 22

3.10 Interest cover 23

3.11 Earnings per share 24

3.12 Return on equity 25

4 STRATEGIC EVALUATIONS 27

Porter's five forces 27

5 CONCLUSIONS 29

6 RECOMMENDATIONS 30

7 REFERENCES 31

1 INTRODUCTION

1.1 Topic chosen

There are 20 topics available on oxford brooks website to carry out Research analysis project. I am going to carry out my research work on topic number 8 which is "Business and Financial performance of an organisation over last three years." The organisation I have choose for my research work is focusing on Tesco plc with comparing J Sainsbury plc because they both are big retail supermarket chain based in UK.

1.2 Reason for choosing this Topic:

The reason behind choosing this topic is; Financial and Business performance does not attract me because I am an accountant but also because this is the first aspect a wise investor would consider before invest in the company. This topic will also provide good understanding of business process, their objectives, performance, strengths and weaknesses of the company.

Analysis of the data will help to understand the factors involved in fluctuation or stability is genuine or not. The statement of financial position and statement of comprehensive income are not sufficient for the users or potential users to make their economic decision. It is also difficult for the users to understand the company's performance just based on the figures which are given in the financial statements.

Financial ratio helps to attract the users and potential users towards the company and it makes easy to make their decision whether to invest in the company or how the company is performing. This will also indicate return on investment, financial key performance indicators, risks involved in investments such as how to raise finance whether through equity or debt. Ratio analysis also indicates the area where business could not perform well and required more focus and control.

The other reason for choosing this topic is that it is the core area of ACCA syllabus. ACCA papers F5, F7, F9, P2 and P3 are relevant to this topic as result. This topic has also given me an opportunity to apply the knowledge practically which I have gained throughout my ACCA study.

1.3 Reason for choosing this Organisation

The main purpose of choosing this well known organisation 'Tesco plc' is because this is one of the giant retail supermarket chains in the UK and across the world. It is also world's third largest grocery retailer. It has a massive growth from 1929 to till date.

According to CEO's statement Tesco has sturdy growth and performed well even in bad economy time period. They have achieved this by growing fast in overseas country and in UK as well. They have also made sure that they offer better and wide range of products to customers which have allowed them to come in the stores and helps volume in the business.

http://www.tescoplc.com/annualreport09/abouttesco/chief_executive_qa

According to the current figures there are 4331 stores with approximately 468000 employees working for the company, around the world.

http://www.tescoplc.com/plc/about_us/map/

According to the latest news Tesco plc announce their entry in India. It intends to develop a whole sale cash and carry business in India, with an initial investment of up to £60m in the first two years.

Tesco has also signed a franchise agreement with Trent, the retail arm of TATA group. Trent currently operates four star bazaar hypermarkets; but within next five years they have plan to open another 50 stores. To achieve their objectives Tesco will supply the products to these hypermarkets as well as offer their retail expertise and technical capability to support the development of their business.

http://www.tescoplc.com/plc/media/pr/pr2008/2008-08-12/

1.4 Aims and Objectives

The financial ratio indicates company's business performance in percentage rather than just huge figures given in the financial statements; ratios are more understandable and comparable with past performance and with other business of same industry. The users and potential users are more likely to understand business performance of the company. However it is not appropriate to judge the company's performance just based on calculation of ratio without comparing last year's performance, industry average or competitor's performance.

Therefore