FINANCIAL ANALYSIS AND MANAGEMENT

INTRODUCTION OF MARKET AND INDUSTRY

FINANCIAL ANALYSIS RECOMMENDATION

Tesco 2012

TRADITIONAL RETAILING BUSINESS HAS BECOME TO BE A FAST-GROWING INDUSTRY WITH GLOBALISATION AND INFORMATION

TECHNOLOGY DEVELOPMENT

AT CURRENT STEP, IT IS WISE TO INVEST IN A FAMOUS MULTINATIONAL RETAILING

COMPANY THAT HAS A WORLDWIDE CUSTOMER MARKET , STRONG COMPETITION

ABILITY , STABLE OPERATION CONDITION AND GOOD POTENTIAL PROSPECT

Retail Industry

Supermarkets have been rolled out all over the globe, with supermarket chains securing their place at the top of the world’s retail chain.

Obstacle of stricter legislation on expansion, superstore retailers have sought different formats

1. Using in store services2. Downsizing stores3. Promoting click and collect services

Trend

Global Industry Analyst – Global supermarket food products sales are predicted to generate revenue in excess of $1.7 trillion by 2015

Market growth has been driven by the rising importance of consumerism.

Economic recession – number of consumer visits to supermarkets has fallen over recent years.

However, average spends-per-visit have risen.

Tesco at a glance

Founded in 1919Developed as a self-service market One of the world’s largest retailers with

operations in 14 countriesEmploying almost 520000 people and serving

millions of customers every weekMulti-format

Positioning

Customer relationship managementAdded value services1. Finance2. Telecom3. Express

Core business model

Tesco 2012 core strategy

To grow the UK coreTo be an outstanding international retailer in

stores and onlineTo be as strong in everything we sell as we are

in foodTo grow retail services in all our marketsTo put our responsibilities to the communities

we serve at the heart of what we doTo be a creator of highly valued brands To build our team so that we create more value

VERTICAL ANALYSISHORIZONTAL ANALYSIS

Performance in 2012

2012 2011

1REVENUE

64,539 60,455

2OPERATING PROFIT

3,985

3,917

3NET PROFIT AFTER TAX

2,965

2,777

4NET FINANCE CHARGES

241

333

5DIVIDENDS PAID

1,183

1,083

6EPS (WHERE APPLICABLE) 14.8

SEN PER SHARE

7NO. OF ORDINARY SHARES SHARES

8PRICE PER SHARE

377.40

(figures in £ millions)

DATA FROM THE INCOME STATEMENT

2012 2011

1TOTAL ASSETS 50,781 47,206

2CURRENT ASSETS 12,863 12,039

3ALL INVENTORIES 3,598 3,162

4ALL ACCOUNTS RECEIVABLE 2,657 2,330

5CASH & CASH EQUIVALENTS 2,305 2,428

6CURRENT LIABILITIES 19,249 17,731

7TOTAL LIABILITIES 32,980 30,583

8TOTAL EQUITY 17,801 16,623

9TOTAL BORROWINGS 11,749 11,075

(figures in £ millions)

DATA FROM STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

Key Ratios: Profitability

OPERATING PROFIT MARGIN

6.2

6.5

NET PROFIT MARGIN

4.6

4.6

OPERATING ROI

7.9

8.3

NET ROI

5.8

5.9

ASSET UTILISATION

1.3

1.3 million

2012 2011

Interpretation

Profit margin business was not that good as last year

There was a slide fall due to economic recession in the main market like USA an London

Revenue of sale also decline relative to total assets that is "1.28 to 1.27" 

Overall profitability base on return on investment has declined according to the previous years.

Key Ratios: Liquidity

CURRENT RATIO

0.66

0.68

CASH RATIO 12.0

13.7

AR RATIO 13.8

13.1

INVENTORY DAYS 20.4

19.1

AR DAYS 15.0

14.1

WORKING CAPITAL DAYS 35.4

33.2

2012 2011

Interpretation

The company cash resource can't meet up to it current liabilities as cash is less than 1

Need to increase cash resources because this could cause instability to the cash flow system.

Working capital period is good since is lesser than 90 days, indicating a healthy turnover

All transaction in the retails industry or Tesco precisely is done by cash on delivery or cash before service

Key Ratios: Debt Management Ratios

GEARING 66.0

66.6

ASSET FINANCING 23.1

23.5

INTEREST COVER 16.5

8.3

2012 2011

Interpretation

The company borrowing level is 1. Conservative due to low gearing ratios2. Normal level of borrowing (between 10-30)

Key Ratios: Investor Ratios

ROE 16.6

16.7

DIVIDEND PAYOUT 40.0

39.0

EPS 14.8

P/E RATIO

2012 2011

Interpretation

Return to shareholder is a double digit Fairly healthy though there is a slide decline

with decline in the general profit.

Overall Performance

Decline in profitabilityLow working capital daysCash flow to be enhancedNormal level of borrowing, with conservative

attitudeFairly healthy returns to investor

Tesco vs Walmart (2012)

OPERATING PROFIT MARGIN

6.2 6.0

NET PROFIT MARGIN

4.6 3.7

OPERATING ROI

7.9 13.7

NET ROI

5.8 8.5

ASSET UTILISATION

1.3 2.3 million

CURRENT RATIO

0.7 0.9CASH RATIO 12.0 10.5

AR RATIO 13.8 9.5INVENTORY DAYS 20.4 33.2

Tesco Walmart

Tesco vs Walmart (2012)

AR DAYS 15.0 4.9

WORKING CAPITAL DAYS 35.4 38.1

GEARING 66.0 255.3

ASSET FINANCING 23.1

INTEREST COVER 16.5

ROE 16.6 21.7

DIVIDEND PAYOUT 40.0

EPS 14.8

P/E RATIO

Tesco Walmart

Market Outlook

Still suffering the negative impact of economic recession

Related decline in levels of disposable incomeConsumer demand for better value for money

and greater interest in discount supermarkets

Global Industry Analysts predicts recovery from economic recession will put the spotlight back on supermarket industry’s growth fundamentals.

Recommendation

Shares are currently not doing better so ‘’ HOLD ‘’

Bonds ‘’ Invest ’’ because it gives 5% interest .

Overall outlook for investment is ‘’ NEGATIVE ’’

Balance Sheet: A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

Averaging the growth over the past 5 to 10 years can give you a better idea for the investment.