Download RAP 8 Tesco financial analysis.pdf PDF

TitleRAP 8 Tesco financial analysis.pdf
TagsStrategic Management Debt Equity (Finance) Revenue Tesco
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Total Pages36
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Page 1

OXFORD BROOKES

UNIVERSITY

Research and Analysis Project
Report

Topic 8

The Business and Financial Performance of

Tesco Plc

Period 2006 to 2008



Submitted By: Syed Fahad Amjad

ACCA Reg.No: 1346741

Mentoring By: Colin Biggs



The project is submitted as part of the requirements for the award of the BSc

in Applied Accounting, Oxford Brookes University



November 2009

6458 words

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Oxford Brookes University

Research and Analysis Project




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Acknowledgements

I am grateful to my mentor Mr. Colin Biggs for his guidance and patience throughout the

preparation of this project report.



I would also like to thank my friends and family who supported me during the year.

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The table below shows the percentage increase/decrease in return on equity

Return on Equity 2006 2007 2008

Net Income 1576 1899 2130

Equity 9444 10571 11902

Percentage Increase/Decrease 16.70% 18% 18%

Tesco
Tesco’s return on equity has been consistent throughout the period of 2006-08. There has
also been a increase in the ratio during 2007 when the ratio increased from 16.70% in 2006
to 18% in 2007. The increase in the ratio was resulted due to the increase in the net income
by 20% as compare to 2006 net income. One of the main non-financial factors that boost
the return on equity was Tesco’s participation in a number of charity campaign. Tesco
donated £8.7 million to sports for school and cancer research UK which helped them raise
£53 million in equity (Business in the community, 2008). While in 2008, they were able to
maintained the same percentage which represents good performance and shows further
increase in future as the investment matures.

Return on Equity 2006 2007 2008

Net Income 58 324 329

Equity 3965 4349 4935

Percentage Inc/Dec 1.46% 7.45% 6.67%

Sainsbury
Sainsbury increased its return on equity ratio significantly in 2007 when its percentage was
climb from 1.46% in 2006 to 7.44% in 2007. The reason behind the increase of this ratio was
due to the massive increase in their net income.

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Research and Analysis Project




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Earnings per Share
It should be noted that last year’s EPS would be actual, while current year and forward year
EPS would be estimates.
The table below shows the EPS of Tesco for the period 2006-08.

Earnings Per Share 2006 2007 2008

Ordinary Shares 1570 1874 2124

Weighted Ave. No. Of Shares 7823 7936 7881

EPS 20.07 23.61 26.95

Tesco
Tesco earnings per share have been increased during 2006-08 periods on a consistent basis.
In 2006 the earnings per share was 20.07p which was increased during 2007 by 19% to
23.84p, and in 2008 it was further increased by 13% to 26.95 showing Tesco’s strong
earnings and increasing return for investors every year.

The table below shows share price of Tesco analysed from year 2006 to year 2008.


There was a decrease in share price during 2008. Recession has been the main reason
behind the decrease of its share price as it hits all the largest retailers during 2008.
However, by the end of 2008, Tesco share price started to boost up again as the graph
shows.

Earnings Per Share 2006 2007 2008

Ordinary Shares 176 249 337

Weighted Ave. No. of
Shares 1692.2 1719.8 1767.2

EPS 10.40 14.48 19.07




ACE
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ACE
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APPENDIX 2.0


FORMULA’S

 Net Profit Margin
Net Income

Sales

 Operating Income Margin
Operating Income

Sales

 Gross Profit Margin
Gross Profit

Sales

 Return on Investments
Net Income

Long-term Liability+Equity

 Return on Equity
Net Income

Equity

 Earnings Per Share
Ordinary Shares

Weighted Ave. Number of Shares

 Current Ratio
Current Assets

Current Liabilities

 Acid Test Ratio
Current Assets-Stocks

Current Liabilities

 Total Debt to Assets
Total Liabilities

Total Assets

 Debt to Equity
Total Debt

Total Equity

 Interest Cover
Earnings before Interest & Tax

Interest Expense

 Asset Turnover
Sales

Total Assets

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 Stock Turnover Period
Average Inventory

Cost of Goods Sold/365


 Debtors Turnover Period
Average Gross Receivables

Sales/365

 Creditors Turnover Period
Creditors

Cost of Goods Sold/365

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