Tesco financial analysis

The following report contains a financial analysis of Tesco PLC and its current trading position for the financial year ending February 2010.

The data that has been analysed will be compared with the previous year’s finances. It will include information such as performance, the businesses liquidity, and Tesco’s efficiency. It will also show the extent to which Tesco may or may not appeal to potential investors after the past financial year. In the current economic situation facing the country it’s natural to expect that there has been a downturn in performance due to most people feeling the effect of the recession for most of the year, therefore having less disposable income. The data that has been collected and used will be shown in an appendix at the end. Efficiency The company’s debtor days in 2010 has fallen from 12.

Tesco’s gross profit margin rose from 7. 8% in 2009 to 8. 1% in 2010. This means that their profit before tax has increased showing Tesco must have taken measures to ensure their sales continue to rise even with being in a recession. This could be by increasing prices or buying inventory at a cheaper price. Return on capital employed or ROCE is seen as one of the best ratios for judging a company’s performance; it is a measure of how well the money invested in the business is providing a return for its investors.

In 2009 Tesco’s return on capital employed was 12. 8% and in 2010 this figure had been reduced to 12. 1%. This shows the company’s profits have fallen in the past year but this is to be expected at this current time and with Tesco expanding into new countries the reduction is fairly small. The operating profit is a ratio used to show the profit from trading operations before taxation. Tesco’s operating profit increased to 6.

Investors When investing in a business you want your investment to be a safe one that will bring you a good return on your money. To show this the earnings per share ratio is used so investors can see the potential profit that can be earned on their investment. Over the past three years the earnings per share have risen steadily, in 2008 the figure was 27. 02p, this rose to 28. 87p in 2009 and finally in 2010 the figure was 31. 66p.

With these figures constantly rising it shows that investing in Tesco PLC is a very secure, solid investment. If the figures continue to rise shareholders will be earning more profit further proving to potential investors the rewards that can be earned from investing in the company. Conclusion After my analysis of Tesco using various ratios it is clear that the business has performed well. This is very impressive due to the current economic situation it finds itself operating in. The economic state has only noticeably affected Tesco’s gearing and operating profit margin but this can also be put down to its expansion into new countries.