Tesco Financial Analysis
As there are many variations of ratios available to measure more or less the same aspect of performance, I have short-listed, in the following table, the key ratios that will be utilized in the analysis: Performance Aspect Growth and Profitability Measure or Ratio General Growth Profit Margin (%) ROCE (%) ROSF (%) Current Ratio Sh. holders Liq. ratio Solvency ratio (%) Gearing ratio (%) Stock Turnover Collection Period Credit Period P/E Ratio Share Price trend Measure or Ratio Definition
Time growth of Revenue, Operating Profits Profit (loss) before tax / Total Revenue Profit (loss) before tax* / (SH funds+Non cur. liab. ) Profit (loss) before tax / Shareholders funds Current Assets / Current Liabilities Shareholders funds / long term Liabilities Shareholder funds/Total assets (Longterm Liabilities + Loans)* / shareholder funds Total revenue / Stocks Accounts payable / Total revenue x 360 (in days) Accounts recv’bles / Total revenue x 360 (in days) Share Price / Unit share earnings Historical trend Liquidity, Solvency and Gearing
Also, the ratio analysis shall be done in specific context and in conjunction with other complementary analysis. Systematic analysis shall be done in following sequential steps: Step-1: Definition of Peer group and selection of companies for comparison Step-2: Review of accounting policies and comparison with peers to ensure a likefor-like comparison Step-3: Review of auditor’s opinion to ensure that any audit qualifications are duly noted during comparison Step-4: Check of any irregular / exceptional items in the financial statements Step-5: Financial ratios / measures analysis (as per Table 1 above)
Finally, a summary of company’s financial strengths and weaknesses shall be presented and a recommendation shall be made regarding the prospects of investment in the company stocks.