Finance & Accounting Assignment_mansi

8/12/2019 Finance & Accounting Assignment_mansi

1/39

1

Student ID : 1232941

Student Name : Manasi J S

Subject : Accounting and Financial Management

Subject Number : 7AC002

Activity title : Assignment - Accounting and Financial Management

Due Date : 21.04.2013

Date Submitted : 16.04.2013


2/39

2

Table of contents

CHAPTER 1 : EXECUTIVE SUMMARY ...................................................................................................... 3

CHAPTER 2 COMPANY PROFILE............................................................................................................. 4

Profitability ratios ......................................................................................................................... 14

CHAPTER 4 : SOURCES OF FINANCE ...................................................................................................... 19

The approach to growth and returns.......................................................................................... 21

CONCLUSION ......................................................................................................................................... 22


3/39

3

TESCO PLC

EVALUATION OF FINANCIAL PERFORMANCE OF TESCO PLC

FOR 2012- 2013

CHAPTER 1 : EXECUTIVE SUMMARY

This report aims to analyse the financial position of Tesco Plc from a prospective investors

point of view. The analysis is based on the recent financial statements available for Tesco.

TESCO PLC is a largest grocery retail business segment which primary deals with food,

general merchandise, clothing and electrical products. It is worlds largest retailers with over

530,000 employees with presence in 12 countries and serving millions of customers a week.

This research paper aims to evaluate the companys overall financial position of the firm

during the year 2011-2012 and 2012-2013. Through the analysis it was identified that the

group finances its operations with combination of retained profits, long term and medium

term debt capital market, commercial paper, bank borrowings and leases. Through

analysing the policy of the firm, it was found that the company follow the debt maturity

profile. It maintains a commercial paper programme of 2 billion and USD 4 billion. It also

has a bank facility of 2.725 billion of which 2.6 billion of revolving credit facilities which

will mature in August 2018 and 0.125 billion of bilateral credit facilities with a maturity

period of December 2015


4/39

4

CHAPTER 2 COMPANY PROFILE

Tesco Plc is headquartered in Cheshunt, Hertfordshire, England, United Kingdom. It is a

British multinational grocery and general merchandise retailer. It was founded by Jack

Cohen in 1919 as a group of market stalls. The name Tesco was appeared in 1924 after

Cohen purchased a shipment of tea from T.E Stockwell and combined those initials with

the first two letters of his surname Tesco is the worlds second largest retailer measured

by profits and third largest retailer measured by revenue. Tesco is listed on the London

Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalisation

of approximately 24.4 billion as of 15 January 2012, the 15th-largest of any company

with a primary listing on the London Stock Exchange. (Source:

http://en.wikipedia.org/wiki/Tesco). Tesco is operating all over 14 countries and also

employing almost 530000 people and serving millions of people every week in stores

and online.

Tesco international operations are in Europe, Asia and United States. Subsidiaries of

Tesco are Tesco Stores Ltd, Tesco Bank and Tesco mobile. Tesco plc has grown through

organic and in-organic growth in the past. Organic growth is when a company strives to

increase its output/production in order to attain greater profits. In this the company

does not expand by means of mergers or acquisitions but carries on its course of

business. This is generally termed as the most reliable way of growth for the companies.

It is also a prime indicator of how effectively the management has used it resources. The

company benefits from increased revenue which could refer to an increase in customer

base and market share. Organic growth does not need outside investment and is safer

than brisk growth. This is due to the tried and tested business models where the profits

are reinvested into the company avoiding outside sources of finance.

Vision

The characteristics which are central to the vision of the business are, they built around

customers and colleagues, high-quality assets around the world and multiple opportunities

for growthand these characteristics are central to our Vision for the business
http://en.wikipedia.org/wiki/Market_capitalisationhttp://en.wikipedia.org/wiki/Tescohttp://en.wikipedia.org/wiki/Tescohttp://en.wikipedia.org/wiki/Tescohttp://en.wikipedia.org/wiki/Market_capitalisation


5/39

5

Tesco wants to be the most highly valued business by: the customers they serve, the

communities in which they operate their loyal and committed colleagues and their

shareholders. For these things to be possible the Vision for the business has five elements

each of them describes the sort of company Tesco aspires to be.

Board of Directors

Sir Richard Broadbent :- Non-executive Chairman Philip Clarke :- Group Chief Executive Laurie Mcllwee :- Chief Financial Officer Patrick Cescau :- Senior Independent Director Gareth Bullock :- Non-executive Director Stuart Chambers :- Non-executive Director Olivia Garfield :- Non-executive Director Ken Hanna :- Non-executive Director Deanna Oppenheimer :- Non-executive Director Jacqueline Tammenoms Bakker :- Non-executive Director

Jonathan Lloyd :- Company Secretary

Stakeholders

Customers Colleagues Investors Industry Local communities Suppliers

Corporate objectives

Offers the best value of money and the most competitive prices to the customers. Meeting the needs of customers by constantly seeking, and acting on, their opinions

regarding innovation, product quality, choice, store facilities and service.


6/39

6

Providing shareholders with progressive returns on their investment improvingprofitability through investment in efficient stores and distribution depots, in

productivity improvements and in new technology.

Working closely with suppliers to build long term business relationships based onstrict quality and price criteria.

Participating in the formulation of national food industry policies on key issues suchas health, nutrition, hygiene, safety and animal welfare.

Supporting the well-being of the community and the protection of the environment.Tesco Businesses

Important Highlights of Tesco as on 2013

3.5bn trading profityear-on-year performance largely reflects UK reinvestment Final dividend maintained at 10.13p, giving full-year dividend of 14.76p Good progress in the UK, delivering improved resultsfor customers and for Tesco Strong online performance: Group sales of over 3bn for the first time up 13% Confirming exit from the United Statesprocess well-advanced Clear approach to future growth, capital expenditure, returns and cash, providing

clarity for shareholders

TESCO

TESCOUK TESCO

CHINA

TESCOINDIA

TESCOMALAYSIA

TESCOKOREA

TESCOLOTUS

TESCOCZECH

REPUBLICTESCO

HUNGARYTESCO

IRELAND

TESCOPOLAND

TESCOSLOVAKIA

TESCOKIPA

FRESH&EASY

TESCOBANK

DUNNHUMBY


7/39


8/39

8

INDUSTRY ANALYSIS:

Strengths

1. Tesco holds a 13% share of the UK

retail market. Its multi-format

capability means that it will continue

to grow share in food, while

increasing space contribution from

hypermarkets will allow it to drive a

higher share in non-food.

2. Tesco has grown its non-food

division to the extent that its

revenues now total 23% of total

group earnings. Tescos international businesssegment is growing steadily, and is predicted

to contribute nearly a quarter of group profits over the next five years. If geographical

spread continues to grow, this will ensure Tescos continued regional strength.

3. Tesco.com is the worlds biggest online supermarket and this year the group had sales of

over 577 million, an increase of 29% on last year. Tesco online now operates in over 270

stores around the country, covering 96% of the UK. With over a million households

nationwide having used the companys online services, the company has a strong platform

to further develop this revenue stream.

4. Profits for Tescos operations in Europe, Asia and Ireland increased by 78% during the last

fiscal year. The company has a strong brand image, and is associated with good quality,

trustworthy goods that represent excellent value. Tescos innovative ways of improving the

customer shopping experience, as well as its efforts to branch out into finance and

insurance have also capitalized on this.

5. Tesco has developed a successful multiformat strategy that has accelerated itsadvantage. Its UK sales are now 71% larger than Sainsburys. Also the Competition


9/39

9

Commissions report makes it very difficult for a competitor to challenge its scale and has

effectively scuppered Wal-Marts chances of stealing UK leadership. Therefore, Tesco is in

an enormously strong position in its domestic market.

Market share and performance of Tesco when compared to competitors

According to the news reported in the The Gauardian dated 19th

Novemeber 2013 ,

Britain's four biggest supermarkets all lost market share for the first time in at least a

decade over the last three months as they continue to be squeezed by discounters and

upmarket grocers.

Tesco, Sainsbury's, Asda and Morrisons all lost ground to cut-price competitors led by Aldi

and Lidl, which over the most recent weeks have together accounted for nearly 7% of the

grocery market, according to the latest data from Kantar Worldpanel. Almost a third of

British households visited a German-owned Aldi discount store in recent weeks. At the same

time sales of the big supermarkets' luxury ranges have all been growing fast as squeezed

shoppers try to treat themselves without eating out.

Releasing Sainsbury's half year results last

week, King repeatedly pointed out that

Sainsbury's was the only one of the "big four"

grocers to increase market share in the past

year. While the supermarket continues to

increase sales at 2.6%a much stronger pace

than major rivals Tesco, Asda and Morrisons

even Sainsbury's growth fell short of the

overall market growth of 3.2%. It also looked weedy in comparison to impressive growth

from Lidl and Aldi .


10/39

10

Aldi's sales rose a spectacular 31.1% in the 12 week period, compared to the same period a

year before, while Lidl stepped up its growth to 13.8%. Much of Aldi's growth is coming

from new storesbut they are attracting shoppers away from the bigger grocers.

Over the past year, Aldi and Lidl have added nearly 1 percentage point of market share in

the UKequivalent to about 1bntaking their total grip on the market to nearly 7%. Aldi

has led the way in stealing shoppers from rivals, particularly Tesco and Asda, according to

research by analysts Verdict released 2013.

The major supermarkets are also losing market share to premium players Waitrose and

Marks & Spencer, both of which have ambitious plans to open new stores. Waitrose saw an

8.8% rise in sales in the 12 week period, contributing to an unbroken rise in market share

since 2009, according to Kantar.

The retailer is benefiting from an increasing interest in the quality of food in the wake of the

horse meat scandal which broke early this year.

Aldi and Lidl are trying to attract more up-market customers with advertising campaigns

promoting luxury items such as Serrano ham and fresh lobster for Christmas. Lidl launched

its first ever British television advertising campaign this month, several days before any of

the major grocers' festive ads hit the small screen.

(http://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-share-

fall-tesco-sainsburys-lidl, Britain's big supermarkets lose ground to cut-price rivals and

upmarket grocers Viewedon 9th

January2014)
http://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-share-fall-tesco-sainsburys-lidlhttp://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-share-fall-tesco-sainsburys-lidlhttp://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-share-fall-tesco-sainsburys-lidlhttp://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-share-fall-tesco-sainsburys-lidlhttp://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-share-fall-tesco-sainsburys-lidl


11/39

11

CHAPTER 3 FINANCIAL ANALYSIS

Financial Statement Analysis

The financial statements provide prosperous information about the operational results of a

business unit and much can be learned from a cautious examination of these statements.

The main purpose of financial statement is for decision making. Financial analysis is the

procedure of determining the significant operating and financial characteristics of a firm

from accounting data. The profit and loss account and Balance sheet are indicators of two

important factors- profitability and financial reliability.

Objectives of financial analysis

To calculate the earning capacity of the firm. To guage the financial performance and financial position of the firm. To find out the long term liquidity of the funds. To evaluate the solvency of the firm. To find out the debt capacity of the firm. To choose future prospects of the firm. To identify the progress of the firm To calculate the efficiency of operations.

Methods of Financial Analysis

Ratio Analysis

Comparative financial statement analysis

Comparative Balance Sheet Comparative Income Statement

Common size statement analysis

Common size balance sheet Common size income statement

Ratio Analysis

Ratio Analysis is one of the important tools of financial analysis. It aims at making

quantitative information for decision making. Some ratios indicate the trend or progress or

downfall of the firm. It helps the financial management in evaluating the financial position

and performance of the firm.

YEAR 2012 2013

Current Ratio 0.67times 0.69times

Quick Ratio 0.37times 0.41times


12/39

12

Stock Turnover

Ratio

17.54 times 16.55 times

Stock Days 20.81days 22.06 days

Gross Profit Ratio 8.15% 6.31%

Net Profit Margin 6.3% 3.4%Return on Capital

Employed

22.68% 11.76%

Asset Turnover

Ratio

1.32 times 1.28 times

Return on Assets 5.73% 0.25%

Return on Equity 16.30% 0.72%

Liquidity Ratios

Liquidity is the capacity of the firm to meets its current liabilities as they fall due.

The following are the important liquidity ratios:

Current Ratio: Current ratio is the most common ratio for calculating liquidity. It signifiesthe ratio of current asset to current liabilities. It is also called working capital ratio.

Current ratio = Current Asset/ Current Liabilities

Year 2012 (Amt in m) 2013(Amt in m)

Current Ratio 12,863/19,249 0.67times 13,096/18,985 0.69

times

Interpretation

The standard norm of current ratio is 2:1, it is considered as an ideal one. So the currentratio of Tesco is not satisfactory. The bve figureshows that the trend in the current ratio

does not reach the standard; low ratio indicates inadequate working capital. Current ratio of

Tesco has a slight increase as compared to the previous year i.e. from 0.67 to 0.69 which

means that Tescos ability to pay its short term debt is increasing.

Quick Ratio: Quick ratio is also known as Acid Test Ratio or Liquidity Ratio. It is therelationship between quick assets to current liabilities.

Quick ratio = (Current asset-stock)/ Current Liabilities


13/39

13

Year 2012 (Amt in m) 2013 (Amt in m)

Quick Ratio (12,863-3598)/

19,249

0.48

times

(13,096-

3744)/ 18,985

0.49 times

Interpretation

The satisfactory level of Quick ratio is considered as 1:1. But the ratio level in both years are

less than 1:1 which means the quick assets does not have the ability to pay off their

liabilities. A company would not want their quick ratio less than 1:1 because this period may

badly affect the ability to pay off their current debt.

Financial Risk/Working Capital Management Ratios

Stock Turnover Ratio: This ratio shows whether investment in inventory is efficientlyused or not. It explains whether investment in inventories is within proper limits or

not. There is no standard ratio for inventory turnover. Each field and kind of business

has its own standard.

Stock Turnover ratio = Cost of goods sold/Average stock


Stock turnover 58519/3,598 16.26

times

60737/3,744 16.22

times

Interpretation

Tesco is doing a good job in managing their inventories. Comparing with the previous year

there is a slight difference in the ratio. There is no standard ratio for the inventory turnover.

The ratio levels relatively close to each other, so the difference in the ratio level cannot be

considered as low.

Stock days: It shows how many days of stock (inventory) are held on average.Stock days = Number of days in a year/Stock turnover


Stock days 365/16.26 22.45days

365/16.22 22.50days


14/39

14

Profitability ratios

Gross Profit Ratio: The ratio expresses the relationship between gross profit andsales. The ratio helps in determining whether the average percentage of mark up on

the goods is maintained or not.

Gross profit ratio = Gross profit/ net sales*100

2012 (Amt in m) 2013 (Amt in m)

Gross Profit 5397 4089

Sales 63916 64826


Gross profitmargin 5,397/63,916*100 8.44% 4,089/64,826*100 6.31%

Interpretation

The table shows the gross profit ratio reduced in 2013. It indicates that the company

was not much successful in managing their operations than the previous year. The

decrease in the gross profit ratio is due to the increase in the cost of goods without

a corresponding increase in the selling price of the goods sold.

Net Profit Ratio : This ratio is also called as the net profit to sales or net profitmargin ratio. This ratio is used to measure the overall profitability of the business.

Net profit margin = Net profit before tax/Sales*100

2012 (Amt in m) 2013 (Amt in m)

Net profit before tax 4038 1960

Sales 63916 64826


Net Profit

margin

4038/63,916*100 6.31% 1,960/64,826*100 3%

Interpretation

Net profit margin is the indicator of how efficient a company is and how well it

controls its costs. The Net profit margin of Tesco in 2013 is reduced; it shows that

the efficiency of the company is lesser in comparison with the previous year. The lowprofit margin indicates the low margin of safety.


15/39

15

Return on Capital Employed: This ratio is also known as Return On Investment (ROI).The primary objective of making investment in any business is to obtain satisfactory

return on capital invested.ROCE = Profit before interest and tax/ Capital, reserves and long-term

liabilities*100

Interpretation

This ratio shows how productively a business is using its capital by relating overall profit

performance to the amount of capital employed in business. Here the return on capital

employed in 2013 is lesser than 2012. ROCE is a relative profit measurement that

demonstrates the return the business is generating from its gross assets. ROCE decreased

during the year, reflecting the trading profit performance.

Asset Turnover Ratio: This ratio shows the efficiency of an entitys capacity to use itsassets to generate sales.

Asset Turnover Ratio = Sales/ Total Assets

Interpretation

Asset turnover ratios in both the years are similar.

return on Assets: It is an indicator of how profitable a company is relation to its totalassets. ROA gives an idea as to how efficient management is at using its assets to

generate earnings. it is calculated by dividing a company's annual earnings by its

total assets

ROA = Net profit / Total Assets*100

2012 (Amt in m) 2013 (Amt in m)


ROCE 4038/17801*100 22.68% 1960/16661*100 11.76%


Asset Turnover 63916/50781 1.3times 64,826/50129 1.3times


16/39

16

Net Profit after tax 2814 120

Total assets 50781 50129

Interpretation

The return on asset in 2013 is lower than the previous year which means the company has

to focus more to generate more revenue.

Return on Equity: This ratio indicates the return earned on the book value ofthe equity share holders equity. Owners are more interested with this since it

indicates the success of the company.

ROE = Profit after tax/ Share Capital + Reserves*100

2012 (Amt in m) 2013 (Amt in m)

Net Profit after tax 2814 120

Share capital & Reserves 17801 16661

Interpretation

Return on equity in 2013 is 0 .74% which is lower than the previous year i.e. in 2012 the ROE

is 16%, which indicates that the return produced for the shareholders are decreasing.


ROA 2,814/50781*100 5.54% 120/50129

*100

0.24%


ROE 2,814/17801 16% 120/16661 0.74%


17/39

17

Comparative financial statement analysis

The preparation of comparative financial statements is an important device of horizontal

financial analysis. Financial data becomes more meaningful when compared with similar

data for a previous period or a number of prior periods. These statements are very helpful in

measuring the effects of the conduct of a business during the period under consideration.

Comparative Balance SheetThe comparative Balance sheet analysis is the study of the trend of the similar items,

collection of items and computed items in two or more Balance Sheets of the same business

enterprise on different dates. The changes in the periodic Balance sheet items reflect the

conduct of the business. The changes can be observed by comparison of the balance sheet

at the beginning and at the end of the period and these changes can help in forming an

opinion about the progress of the enterprise.

Table 6 explain Comparative Balance sheet of Tesco Plc

Interpretation

The comparative Balance sheet shows the increase or decrease of the assets and liabilities

and the amount of increase or decrease. If the current assets increases and current liabilities

decrease the cash will decrease and if the current assets decreases and current liabilities

increase the cash will increases here the current asset increased by 1.81%. Fixed assets

reduced in 2013 compared to the previous year by 3.23% In case of current liabilities, there

is a decrease of 1.37% so there is also decrease in the cash. Non-current assets were

reduced by.036

Comparative Income StatementComparative Income Statement is a statement prepared to get an idea of the progress of a

business over a period of time. The changes in absolute data in money values and

percentages can be determined to analyse the profitability of a business.

Refer Table 7 : represent Comparative Income Statement of Tesco Plc

Interpretation

The table shows that the net sale was increased by 1.42%in 2013 and the cost of sales also

increased. Gross profit rate was decreased by 24.24%. Operating profit and net profit also

decreased by 48% and 95.73 respectively in 2013.It shows that the profitability of the

company was not in a good condition.


18/39

18

Common Size statement analysis

Common size statements are prepared to show the relationship of different individual items

with some common items. These are the comparative statements that give only the vertical

percentage ratio for financial data without giving rupee values.

Common Size Balance SheetIt is a statement in which Balance sheet items are expressed as percentage of each asset to

total of assets and percentage of each liability to total of liabilities.

Refer table 8 Common Size Balance Sheet of Tesco Plc

Interpretation

In common sizeanalysis the percentage of each assets are calculatedto its total assets and

liabilities to the total liabilities. In 2012 the percentage of fixed asset is 66.7% of total assets

and in 2013 the percentage is 65.5. In the case of current assets the percentages is 33.34

and 34.49 in 2012 and 2013 respectively. Current liabilities are of 51.95% in 2012 and

53.26% in 2013.

Common Size Income Statement

A Common Size Income Statement is a statement in which each item of expense is shown as

a percentage of net sales. A significant relationship can be established between items of

income statement and volume of sales. Increase in sales will certainly increase the selling

expense not the administration and financial expenses which are mostly fixed in nature. In

case the volume of sales increases to a considerable extent, administration and financial

expenses may also go up.

Refer table 9 Common Size Income Statement of Tesco Plc

Interpretation

Each item in common size income statement is expressed as a percentage of net sales.

Gross profit is of 8.44% of net sales in 2012 and 6.31 % in 2013. Operating profits are of 0

.26% and 0.27% in 2012 and 2013 respectively. The profit of the year is 4.40% in 2012 and

0.01% in 2013.


19/39

19

CHAPTER 4 : SOURCES OF FINANCE

Financial discipline of TESCO for the future

The Tesco of the future will pursue more focused growth, consume less capital and generate

more free cash flow. Making this transformation in all its aspects will of course not bewithout its challenges.

1. Current Performance of TESCOGroup Sales

Tesco plc is a well known international grocery and general merchandising retail chain based

in Britain. In the financial year2012-13 it has a turnover of 72. 4 billion with a group trading

profit of 3.5 billion. The financial statistics for the group sales are as follows:

2012-13 2011-12 Increase/Dec

rease

Group Sales

Add

UK : 48216m

Asia : 12317m

Europe : 10809m

Tesco Bank : 1021m

72,363m

Add

UK : 47,355m

Asia: 11,627m

Europe: 11,371m

US: 638m

Tesco Bank: 1,044m

72,035 328

Group Revenue 64,826m 64,539 287

Group trading profit

Add

UK : 2,272m

Asia : 661m

Europe: 329m

Tesco Bank : 191m

3,453m

Add

UK : 2,480m

Asia : 737m

Europe: 529m

US (loss): (153) m

Tesco Bank : 168m

3,761 -308

Underlying profit before tax 3,549 3,915 -366Underlying diluted earnings

per share

35.97p 37.41 -1.44

ROCE 12.7

Capex 3.0bn

Source http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-

13_results_statement.pdf

While comparing the financial year 2013 with the previous year 2012, it was found that the

group sale increased by 1.3% and follows a constant growth rate of2.5%. However the group

trading profit declined by 13%.


20/39

20

The impact on group trading profit is as follows :

UK (8.3) %

Asia (10.3)%

Eureope (37.8)%

Tesco Bank (15.1)%

Source http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-


Group trading profit declined by (13.0)%, reflecting investment in the UK, the impact of

regulatory changes in South Korea and the challenging economic conditions in Europe. This

trading performance coupled with reduced JV income and higher net finance costs led to a

decline in Group underlying profit before tax of (14.5)%

According to Philip Clarke, the Chief Executive of Tesco group, the main objective of the

group is set out for sustainable and disciplined growth. The business environment in UK

remains controllable in nature even though faced a small discernible impact on frozen and

chilled convience food sales. But outside the UK the business environment remain

challenging especially in regulatory matters.

UK

Tesco have made the investment as they planned and it has led to a clear improvement in

their performance, both in absolute terms and relative to the market. Total sales rose by

2.6% excluding petrol, and like-for-like performance improved during the course of the year.

The plan laid out by Tesco last year had described the impact of the investment in terms of a

rebasing of trading margin to 5.2% and the progress they have made in the UK has been

achieved whilst delivering a margin absolutely in line with these expectations.

Asia

The performance of Asia was in line with expectations and was dominated by the South

Korean regulatory changes concerning trading hours. Sales of Asia were reduced by 0.2% i.e.

from the constant rate of 6.1% to 5.9%. Asias revenue (excluding VAT, impact of IFRIC 13)

was also have fluctuated from the constant rate of 6.2% to 6.0%.

Europe

Markets in Europe remain fundamentally attractive; this years performance of Tesco wasdisappointing. The company faced significant headwinds throughout the year, as


21/39

21

macroeconomic uncertainties continued to impact businesses. This had a particularly

marked impact on the general merchandise businesses across the region, holding back the

overall like-for-like sales performance.

Tesco Bank

Tesco made progress through the year in banking products, with good growth in both

customer accounts and balances. Our insurance business was held back by a very

challenging market, with strong downward price pressure in motor insurance. Throughout

this period, we focused on ensuring we offer the best products and prices to our loyal Club

card customers.

In recent years, the Banks profit has been impacted by a couple of non-trading factorsthe

first, fair value releases and the second, the run-off of our legacy insurance agreement with

Direct Line Group. Before these, profits grew well and are up 13% with a particularly

pleasing performance in customer lending.Tesco Bank

DIVIDEND

The offset of business in one direction is not effecting the overall growth of the firm. The

current year 2013, also the company paid a final dividend of 10.13 p per share. This

demonstrate the confidence among the investors and the shows the growth strategy

Future Prospects of the company

By implementing financial discipline , the TESCO PLC aims in driving sustainable growth by

giving priorities in three segment :

1. Continuing to strengthen the UK business2. Sustainable growth through multichannel.3. Pursuing disciplined international growth

This means that, in the current economic environment, investors can expect us to deliver:

Mid-single digit trading profit growth Return on capital employed within a range of 12% to 15% Dividend growth, broadly in line with underlying earnings*, with a target cover of

more than 2 times

The approach to growth and returns


22/39

22

key financial areas of Financial Appraisal of a loan request

Normally five stages are involved while assessing loan request by the bank. They are1. Identification of the customer : before assessing the loan application, the banker will

evaluate the identiy of the customer and the nature of business of the customer

2. Assessing the application by the customer3. Review of application4. Evaluation5. Monitoring and control

At the time of assessing and review of the application the bank adopts two methods:

1. Financial appriasl methods2. Non financial appraisal methods

The financial appraisal by the bank focused on mainly three broad area

Financial structure of the firm

Liquidity of the firm

Profitability


23/39

23

1. Financial structure of Tesco

Equity capital

During the financial year, 19 million (2012: 23 million) ordinary shares of 5p each were

issued in relation to share options for an aggregate consideration of 57m (2012: 69m).

During the financial year, 4 million (2012: 33 million) shares of 5p each were issued in

relation to share bonus awards for an aggregate consideration of 0.2m (2012: 1.6m).

Between 24 February 2013 and 12 April 2013 options over 1,288,429 ordinary shares were

exercised under the terms of the Savings-related

Share Option Scheme (1981) and the Irish Savings-related Share Options Scheme (2000).

Between 24 February 2013 and 12 April 2013 options over 2,741,490 ordinary shares have

been exercised under the terms of the Executive Share Option Schemes (1994 and 1996)

and the Discretionary Share Option Plan (2004).

As at 23 February 2013, the Directors were authorised to purchase up to a maximum in

aggregate of 804.0 million (2012: 803.6 million) ordinary shares.

While analysing the equity capital structure the company follows a strong financial structure

Debt

Current financial cost and net debt :

The total borrowings of the firms are as follows.

Total borrowings 2013 2012

2012

Amt in m

2013

Amt in m

Increase/Decrease

Amount Percentage %

Share Capital 402 403 1 0.25

Share premium 4964 5020 56 1.13

All other reserves 245 685 440 179.59

Retained earnings 12164 10535 -1629 -13.39

Equity contributed to parent company 17801 16661


24/39


25/39

25

Geraring ratio

Gearing ratio % 39.6 %

Debt ratio 46.98

Debt to equity ratio .44

Gearing ratio means the proportion of net assets financed through debt rather than equity,

calculated as net debt divided by total equity. The gearing ratio of remained relatively flat

reflecting stable debt position and growing investment in assets. When comparing the debt

ratio and debt to equity ratio, the company is in a strong financial position to acquire more

loan. It has debt ratio of 46.98

Evaluation on share price :

Tesco reported weak trading figures for the vital Christmas period with UK like-for-like sales

falling 2.4%. The market expected sales to decline on average by 1.5% so this result is worse

than expected and comes against the backdrop of strong sales growth at rival, Sainsburys,

who reported a 0.2% rise in third quarter like-for-like sales yesterday.

The market range for Tesco sales performances was between a 0.5% fall and 2.5% fall and so

their performance lies at the very bottom end of market forecasts.The UK performance was

impacted by a weaker grocery market and a tough comparative.

Tesco now expects to report full year results in line with the current market consensus range,

which is 3.15bn to 3.41bn (mean estimate 3.33bn.

Tesco also suffered declines in like for like sales internationally by -2.2%, a figure which wasnegatively impacted byforeign exchange movements. BeforeFX impact, sales declined by

0.6% internationallywith trading in Asia falling by 0.6% and Europe declining 0.8%.

Trading Tesco shares

Spread betting andCFD trading Tesco shares of late has been somewhat of a challenge. The

failure to break above the 390p level over much of 2013 added pressure on the stock, and

traders were happy to short the share price back down to support levels of around 320p.
http://www.cityindex.co.uk/market-analysis/market-news/22708052014/sainsburys-keeps-pressure-on-tesco-with-0-2-sales-growth-in-q3/http://www.cityindex.co.uk/market-analysis/financial-news/foreign-exchange-currencies-news/http://www.cityindex.co.uk/market-analysis/financial-news/foreign-exchange-currencies-news/http://www.cityindex.co.uk/spread-betting/http://www.cityindex.co.uk/cfd-trading/http://www.cityindex.co.uk/cfd-trading/http://www.cityindex.co.uk/spread-betting/http://www.cityindex.co.uk/market-analysis/financial-news/foreign-exchange-currencies-news/http://www.cityindex.co.uk/market-analysis/financial-news/foreign-exchange-currencies-news/http://www.cityindex.co.uk/market-analysis/market-news/22708052014/sainsburys-keeps-pressure-on-tesco-with-0-2-sales-growth-in-q3/


26/39

26


27/39

27

CONCLUSION

While going through the fiancnial statement analysis , it was found that the company is

flourishing despite of downturn in UK and Worlds economy. Having an experience of more

than 100 years, it is enjoying a good market share in the business. Tesco earns great respect

and benefits from its loyal customers. This has helped the company to stay profitable and

keep a positive position even in its troubled times. Things are still looking encouraging for

company even though recession has done much harm to the economy and the businesses in

general.


28/39

28

Appendices

1 current ratio

2. Quick ratio

2012

Amt in m

2013

Amt in m

Current Assets:

Inventories 3598 3744

Trade & other receivables 2657 2525

Loans & advances to customers 2502 3094

Derivative financial instruments 41 58Current tax assets 7 10

Short term investments 1,243 522

Cash & cash equivalents 2305 2512

Other Assets 510 631

Total Current Assets 12863 13096

Current Liabilities

Trade& other payables 11234 11094

Financial liabilities:

Borrowings 1838 766

Derivative financial instruments &

other liabilities 128 121

Customer deposits & deposits by

bank 5465 6015

Current tax liabilities 416 519

Provisions 99 188

Other Liabilities 69 282

Total current liabilities 19249 18985

2012

(Amt in m)

2013

(Amt in m)

Total Current Assets 12863 13096

Less: Inventories -3598 -3744


29/39

29

3. Stock turnover ratio

2012 (Amt in m) 2013 (Amt in m)

Cost of goods sold 58519 60737

Average stock 3598 3744

4. Return on Capital employed

2012 (Amt in m) 2013 (Amt in m)

Share Capital 402 403

Share premium 4964 5020

All other reserves 245 685

Retained earnings 12164 10535

Non-controlling

interests

26 18

Total 17801 16661

Profit before interest & tax 4038 1960

5. asset Turnover ratio

Quick Assets 9265 9352

Current Liabilities 19249 18985

2012 (Amt in

m)

2013 (Amt in

m)

Total Current Assets 12863 13096Fixed Assets:

Property, plant & equipment 25710 24870

Total Fixed Assets 25710 24870

Non-current Assets

Goodwill & other intangible assets 4618 4362

Investment property 1991 2001

Investments in joint ventures & associates 423 494

Other investments 1526 818

Loans & Advances to customers 1901 2465


30/39

30

6. Comparative balance sheet

Derivative financial instruments 1726 1965

Deferred tax assets 23 58

Total noncurrent assets 12208 12163

Total Assets(Current assets + Fixed assets +non- current

assets) 50781 50129Sales 63916 64,826

2012

Amt in m

2013

Amt in m

Increase/Decrease

Amount Percentage %

Current Assets:

Inventories 3598 3744 146 4.06

Trade & other receivables 2657 2525 -132 -4.96

Loans & advances to customers 2502 3094 592 23.66

Derivative financial instruments 41 58 17 41.46

Current tax assets 7 10 3 42.86

Short term investments 1,243 522 -721 -58.00

Cash & cash equivalents 2305 2512 201 8.72

Other Assets 510 631 121 23.72

Total Current Assets 12863 13096 233 1.81

Fixed Assets:

Property, plant & equipment 25710 24870 -840 -3.26

Total Fixed Assets 25710 24870 -830 -3.23

Non-current Assets

Goodwill & other intangible assets 4618 4362 -256 -5.54

Investment property 1991 2001 10 0.50

Investments in joint ventures & associates 423 494 71 16.78

Other investments 1526 818 -708 -46.39

Loans & Advances to customers 1901 2465 564 29.67

Derivative financial instruments 1726 1965 239 13.85

Deferred tax assets 23 58 35

Total noncurrent assets 12208 12163 -45 -0.36

Total Assets 50781 50129 -652 -1.28

Current Liabilities

Trade& other payables 11234 11094 -140 -1.25


Borrowings 1838 766 -1072 -58.32


31/39

31

7. Comparative income statement

2012

Amt in

m

2013

Amt in

m

Increase/Decrease

Amount Percentage %

Net Sales 63916 64826 910 1.42Less: Cost of sales 58519 60737 2218 3.79

Gross Profit (A) 5397 4089 -1308 -24.24

Operating expenses

Administrative expenses 1612 1562 -50 -3.10

P/L arising on property related items -397 339 58 14.61

Total operating expenses (B) 1215 1901 686 56.46

Operating Profit (A-B) 4182 2188 -1994 -47.68

Add: Share of post tax profits of

Joint Venture & associates 91 54 -37 -40.66

Derivative financial instruments & other

liabilities 128 121 -7 -5.47

Customer deposits & deposits by bank 5465 6015 550 10.06

Current tax liabilities 416 519 103 24.76

Provisions 99 188 89 89.89

Other Liabilities 69 282

Total current liabilities 19249 18985 -264 -1.37

Non-current liabilities


Borrowings 9,911 10,068 157 1.58

Derivative financial instruments and

other liabilities 688 759 71 10.31

Post-employment benefit obligations 1,872 2,378 506 27.02Deferred tax liabilities 1,160 1,006 -154 -13.26

Provisions 100 272 172

Total non-current liabilities 13731 14483 752 5.48

Share Capital 402 403 1 0.25

Share premium 4964 5020 56 1.13

All other reserves 245 685 440 179.59

Retained earnings 12164 10535 -1629 -13.39

Non controlling interest 26 18 -8 -30.76

Total 17801 16661 -1140 -6.40

Total Liabilities 50781 50129 -652 -1.28


32/39

32

Financial Income 176 177 -1 -0.56

4449 2419 -2030 -45.62

Less: Finance cost 411 459 48 11.67

Profit before tax 4038 1960 -2078 -51.46

Less: Taxation 874 574 -300 -34.32Profit for the year from continued

operations 3164 1386 -1778 -56.19

Discontinued operations:

Loss of the year from discontinued

operations 350 1266 916

Profit for the year 2814 -120 2694 -95.73

8. common size balance sheet

2012 2013

Amount

(in m) Percentage

Amount

(in m) Percentage

Fixed Assets:

Property, plant &

equipment 25710 50.63 24870 49.61

Total Fixed Assets 25710 50.63 24870 49.61

Current Assets:

Inventories 3598 7.09 3744 7.47

Trade & other receivables 2657 5.23 2525 5.04

Loans & advances to

customers 2502 4.93 3094 6.17

Derivative financial

instruments 41 0.08 58 0.11

Current tax assets 7 0.01 10 0.02

Short term investments 1243 2.45 522 1.04

Cash & cash equivalents 2305 4.54 2512 5.01

Other assets 510 1.00 631 1.26

Total Current Assets 12863 25.33 13096 26.12

Non-current Assets

Goodwill & other

intangible assets 4618 9.09 4362 8.70

Investment property 1991 3.92 2001 3.99

Investments in joint

ventures & associates 423 0.83 494 0.99Other investments 1526 3.00 818 1.63


33/39

33

Loans & Advances to

customers 1901 3.74 2465 4.91


instruments 1726 3.39 1965 3.92

Deferred tax assets 23 0.05 58 0.12Total noncurrent assets 12208 24.04 12163 24.26

Total Assets 50781 100 50129 100

Current Liabilities

Trade& other payables 11234 22.12 11094 22.13


Borrowings 1838 3.62 766 1.53


instruments & other

liabilities 128 0.25 121 0.24

Customer deposits &

deposits by bank 5465 10.76 6015 11.99

Current tax liabilities 416 0.82 519 1.03

Provisions 99 0.19 188 0.38

Other Assets 69 0.14 282 0.57

Total current liabilities 19249 37.90 18985 37.87


Financial liabilities:Borrowings 9,911 19.52 10,068 20.08


instruments and other

liabilities 688 1.35 759 1.51

Post-employment

benefit obligations 1,872 3.69 2,378 4.74

Deferred tax liabilities 1,160 2.28 1,006 2.00

Provisions 100 0.19 272 0.54

Total non-currentliabilities 13731 27.03 14483 28.89

Share Capital 402 0.79 403 0.80

Share premium 4964 9.76 5020 10.01

All other reserves 245 0.48 685 1.37

Retained earnings 12164 23.95 10535 21.02

Non controlling interest 26 0.05 18 0.04

Total 17801 35.05 16661 33.24

Total Liabilities & Equity 50781 100 50129 100


34/39

34

9. Common size income statement

2012 2013

Amount

(in m) Percentage

Amount

(in m) Percentage

Net Sales 63916 100 64826 100

Less: Cost of sales 58519 91.56 60737 93.69

Gross Profit (A) 5397 8.44 4089 6.31

Operating expenses

Administrative expenses 1612 2.52 1562 2.41

P/L arising on property related

items -397 0.62 339 0.52

Total operating expenses (B) 1215 1.9 1901 2.93

Operating Profit (A-B) 4182 6.54 2188 3.38Add: Share of post tax profits of

Joint Venture & associates 91 0.14 54 0.08

Financial Income 176 0.26 177 0.27

Less: Finance cost 411 0.64 459 0.71

Profit before tax 4038 6.32 1960 3.02

Less: Taxation 874 1.37 574 0.89

3164 4.95 1386 2.14

Loss of the year from

discontinued operations (350) 0.54 (1266) 1.95

Profit of the year 2814 4.40 120 0.01


35/39

35

Group Balance Sheet

23

February2013

(Amt in m)

25 February

2012

(Amt in m)

Non

current assets

Goodwill & other intangible assets4362 4618

Property, plant & equipment24870 25710

Investment property 2001 1991

Investments in joint ventures & associates 494 423

Other investments 818 1526

Loans & Advances to customers 2465 1901

Derivative financial instruments 1965 1726Deferred tax assets 58 23

37033 37918

Current assets

Inventories 3744 3598

Trade & other receivables 2525 2657

Loans & advances to customers 3094 2502

Derivative financial instruments 58 41

Current tax assets 10 7Short term investments 522 1,243

Cash & cash equivalents 2512 2305

12465 12353

Assets of the disposal group and non-current assets

classified as held for sale 631 510

13096 12863

Current liabilities

Trade& other payables (11094) (11234)


Borrowings (766) (1838)

Derivative financial instruments & other liabilities (121) (128)

Customer deposits & deposits by bank (6015) (5465)

Current tax liabilities (519) (416)

Provisions (188) (99)

(18703) (19180)

Liabilities of the disposal group classified a held for

sale (282) (69)


36/39

36

Net current liabilities (5889) (6386)



Borrowings (10,068) (9,911)Derivative financial instruments and other liabilities (759) (688)

Post-employment benefit obligations (2,378) (1,872)

Deferred tax liabilities (1,006) (1,160)

Provisions (272) (100)

(14483) (13731)

Net assets 16661 17801

Equity

Share Capital 403 402

Share premium 5020 4964

All other reserves 685 245

Retained earnings 10535 12164

Equity attributable to owners of the parent 16643 17775

Non-controlling interests 18 26

Total equity 16661 17801


37/39

37

Group Income Statement

Year ended 23 February 2013 52 weeks

2013

(Amt in m)

52 weeks

2012

(Amt in m)

Continuing operations

Revenue 64826 63916

Cost of sales (60737) (58519)

Grossprofit 4089 5397

Administrative expenses (1562) (1612)Profit/losses arising on property related items (339) 397

Operating profit 2188 4182

Share of post-tax profits of joint ventures and

associates

54 91

Finance income 177 176

Finance costs (459) (411)

Profit before tax 1960 4038

Taxation (574) (874)

Profit of the year from continuing operations 1386 3164

Discontinued operations

Loss for the year from discontinued operations (1266) (350)

Profit for the year 120 2814


38/39

38

Group Cash Flow Statement

Year ended 23 February 2013 52 weeks

2013

(Amt in m)

52 weeks

2013

(Amt in m)

Cash flows from operating activities

Cash generated from operations 3,873 5,688

Interest paid (457) (531)

Corporation tax paid (579) (749)

Net cash generated from operating activities 2,837 4,408

Cash flows from investing activities

Acquisition/disposal of subsidiaries, net of cash

acquired/disposed

(72) (65)

Proceeds from sale of joint ventures and associates 68 Proceeds from sale of property, plant and equipment,

investment property and non-current assets classified

as held for sale

1,351 1,141

Purchase of property, plant and equipment,

investment property and non-current assets classified

as held for sale

(2,619) (3,374)

Purchase of intangible assets (368) (334)

Net (increase)/decrease in loans to joint ventures and

associates

(43) 122

Investments in joint ventures and associates (158) (49)

Net proceeds from sale of/(investments in) short-term

and other investments

1,427 (767)

Dividends received from joint ventures and associates 51 40

Interest received 85 103

Net cash used in investing activities (278) (3,183)

Cash flows from financing activities

Proceeds from issue of ordinary share capital 57 69

Increase in borrowings 1,820 2,905

Repayment of borrowings (3,022) (2,720)

Repayment of obligations under finance leases (32) (45)

Purchase of non-controlling interests (4) (89)

Dividends paid to equity owners (1,184) (1,180)

Dividends paid to non-controlling interests (3)

Own shares purchased (303)

Net cash used in financing activities (2,365) (1,366)

Net increase/(decrease) in cash and cash equivalents 194 (141)


39/39

Cash and cash equivalents at beginning of the year 2,311 2,428

Effect of foreign exchange rate changes 26 24

Cash and cash equivalents including cash held in

disposal group at the end of the year

2,531 2,311

Cash held in disposal group (19) (6)Cash and cash equivalents at the end of the year 2,512 2,305

Bibliogarphy

http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-


http://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-and-

strategy-for-the-year-2013

http://www.tesco.com/investorInformation/report95/corpobj.html

http://www.svtuition.org/2008/10/comparative-financial-statement.html

http://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879-

RAP8Tesco.pdf

http://financials.morningstar.com/ratios/r.html?t=TSCDY

http://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financial-

statements-and-reports

http://www.tescoplc.com/index.asp?pageid=17&newsid=783

http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porter-

five-forces-and-value-chain-analysis/

http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turn-

volatile-after-2-4-decline-in-uk-sales-over-christmas/
http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-13_results_statement.pdfhttp://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-13_results_statement.pdfhttp://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-13_results_statement.pdfhttp://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-and-strategy-for-the-year-2013http://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-and-strategy-for-the-year-2013http://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-and-strategy-for-the-year-2013http://www.tesco.com/investorInformation/report95/corpobj.htmlhttp://www.tesco.com/investorInformation/report95/corpobj.htmlhttp://www.svtuition.org/2008/10/comparative-financial-statement.htmlhttp://www.svtuition.org/2008/10/comparative-financial-statement.htmlhttp://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879-RAP8Tesco.pdfhttp://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879-RAP8Tesco.pdfhttp://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879-RAP8Tesco.pdfhttp://financials.morningstar.com/ratios/r.html?t=TSCDYhttp://financials.morningstar.com/ratios/r.html?t=TSCDYhttp://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financial-statements-and-reportshttp://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financial-statements-and-reportshttp://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financial-statements-and-reportshttp://www.tescoplc.com/index.asp?pageid=17&newsid=783http://www.tescoplc.com/index.asp?pageid=17&newsid=783http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porter-five-forces-and-value-chain-analysis/http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porter-five-forces-and-value-chain-analysis/http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porter-five-forces-and-value-chain-analysis/http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turn-volatile-after-2-4-decline-in-uk-sales-over-christmas/http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turn-volatile-after-2-4-decline-in-uk-sales-over-christmas/http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turn-volatile-after-2-4-decline-in-uk-sales-over-christmas/http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turn-volatile-after-2-4-decline-in-uk-sales-over-christmas/http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turn-volatile-after-2-4-decline-in-uk-sales-over-christmas/http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porter-five-forces-and-value-chain-analysis/http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porter-five-forces-and-value-chain-analysis/http://www.tescoplc.com/index.asp?pageid=17&newsid=783http://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financial-statements-and-reportshttp://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financial-statements-and-reportshttp://financials.morningstar.com/ratios/r.html?t=TSCDYhttp://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879-RAP8Tesco.pdfhttp://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879-RAP8Tesco.pdfhttp://www.svtuition.org/2008/10/comparative-financial-statement.htmlhttp://www.tesco.com/investorInformation/report95/corpobj.htmlhttp://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-and-strategy-for-the-year-2013http://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-and-strategy-for-the-year-2013http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-13_results_statement.pdfhttp://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_2012-13_results_statement.pdf

Finance & Accounting Assignment_mansi

Documents