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.
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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.