Tesco Ratio Analysis.docx - Tesco PLC Financial Performance Analysis Students Name Institution Course Instructor Date 2 Introduction The importance of

Tesco Ratio Analysis.docx - Tesco PLC Financial Performance...

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Tesco PLC Financial Performance Analysis Students' Name Institution Course Instructor Date
2 Introduction The importance of financial position and performance of Tesco plc can never be overstated since it helps determine viability and stability of the company. This report aims at discussing the performance as well as position of Tesco financially through the analysis of its financial statements. The evaluation is based on the period between 2017 to 2020. Tesco operates stores that offer primarily food products, clothing products, general merchandise and electrical products. Also, provided by Tesco are banking, insurance and financial services. Considering the many branches operated by Tesco over the world, Tesco can be regarded as a leading retailer globally. The company was established in 1919 by Jack Cohen. To determine performance and financial position of Tesco various ratio analysis were conducted and a discussion is provided in the following section. The ratio analysis is segmented into three broad categories: profitability ratios, Operational ratios and structure ratios. Discussion of financial position and performance of Tesco Profitability Ratios The figure below shows the trend analysis of major profitability ratios of Tesco Plc over the past four years. Year End 2020 2019 2018 2017 Return on Shareholder’s Funds (%) 9.91 11.27 12.39 2.25 Return on Capital Employed (%) 3.83 5.90 5.07 0.55 Return on Total Assets (%) 2.51 3.41 2.89 0.32 Profit margin (%) 2.03 2.62 2.26 0.26
3 Gross margin (%) 7.07 6.48 5.83 5.19 EBIT margin (%) 3.89 3.37 3.20 1.82 EBITDA margin (%) 6.06 5.62 6.27 4.73 The essence of profitability ratios is measurement and evaluation of company’s ability to generate profit in relation to revenue ( Karale, 2020). Various profitability ratios provide useful insight on the businesses’ financial wellbeing as well as performance. The Return on shareholder’s funds measures the corporation’s profitability in relation to the equity of stockholders. According to the profitability analysis, Tesco has experienced growth in ROE over the last four years with a significant increase from 2.25% from 2017 to 12.39% in 2018. Over the last two years, Tesco seems to have maintained relatively high ROE with 11.27% in 2018 and 9.91% in 2020 showing that the company is less dependent on debt in its cash generation. Based on the Return on Capital Employed the company has posted an increased trend over the last years. Overall, the company has an increasing trend over the past four years showing a growth in profit and earnings in every revenue made but in the last year there has been a slight decline in sales which has caused ROA and Profit margin to decline.

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