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You will prepare and submit a term paper on TESCO Plc. Your paper should be a minimum of 2000 words in length.
You will prepare and submit a term paper on TESCO Plc. Your paper should be a minimum of 2000 words in length.
The income statement and balance sheet for Tesco have been shown in the worksheet attached herewith (Reuters, 2009). While analyzing the company financials certain parameters were kept in mind. The analysis is conducted in two segments. The first segment would focus on the comparison of financial ratios of the company among different periods. The later segment would be of the comparison of company financials vis-a-vis the ratios of the respective industry. The ratios that would take part in this analysis are briefly portrayed below.
Ratios Defined
The profitability of any company can be measured in many different traditions like gross profit margin, net profit margin, return on assets, return on equity, etc.
Gross Profit Margin:
Gross Profit Margin is defined as the gross profit of per unit of revenue and is calculated as
Gross Profit Margin =Gross Profit / Sales
Net profit Margin:
Net profit margin is often measured as
Net profit Margin = Profit after tax/ Sales.
While calculating for the above ratios ‘revenue figures’ represents ‘sales’.Net profit margin ignores the profit those are paid out to its debt investors as interest and because of it, this ratio is not so effective while comparing between firms having different capital structures.
Return on Assets:
Financial managers often measure the performance of the firm by the ratio named return on assets. Return on assets is measured as
Return on assets = Net Income /Average total assets.
A certain amount of high value is desirable. Although a low ROA ratio does not entail that the assets could have produced better results if invested elsewhere.
Return on equity:
Another way to look at the firm’s performance is a return on equity. It can be measured as Return on equity (ROE): Net Income/Average Equity.
Although equity holders like to see their firm earning high return on equity, consumers and regulators often assume high return as evidence that the company is charging high prices for their products.
