AAF044-6 Accounting and Finance
AAF044-6 Accounting and Finance
Introduction
Tesco Plc is one of the largest retail markets in the United Kingdom grocery business market. This UK-based retail business is considered a multinational company in the FMCG industry. This business company generally offers refreshed vegetables, daily need products and groceries for their customers. It delivers fresh food items, beverages, drink items, grocery products, bakery, healthy foods and many more helpful products for their consumers that are necessary at home. Tesco is considered the largest Retail store in the UK because along with it also supplies electronic appliances and different electronic products to its clients. Along with that Tesco has its bank, consultancy and financial services that are also considered as the major key factors of Tesco. The bank that Tesco has in the United Kingdom is popularly known as Tesco Bank.
Horizontal analysis
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| Tesco | 2023 | % IN 2023 | 2022 | % IN 2022 | 2021 | % IN 2021 | 2020 | % IN 2020 |
| Total Assets | 4,61,32,000 | 100.00% | 4,93,51,000 | 100.00% | 4,57,78,000 | 100.00% | 5,23,02,000 | 100.00% |
| Current Assets | 1,27,25,000 | 27.58% | 1,21,89,000 | 24.70% | 1,08,07,000 | 23.61% | 1,31,64,000 | 25.17% |
| Total non-current assets | 3,34,07,000 | 72.42% | 3,71,62,000 | 75.30% | 3,49,71,000 | 76.39% | 3,91,38,000 | 74.83% |
| Total Liabilities Net Minority Interest | 3,39,02,000 | 100.00% | 3,37,07,000 | 100.00% | 3,34,53,000 | 100.00% | 3,90,49,000 | 100.00% |
| Current Liabilities | 1,77,35,000 | 52.31% | 1,61,39,000 | 47.88% | 1,59,97,000 | 47.82% | 1,79,27,000 | 45.91% |
| Total Non-Current Liabilities Net Minority Interest | 1,61,67,000 | 47.69% | 1,75,68,000 | 52.12% | 1,74,56,000 | 52.18% | 2,11,22,000 | 54.09% |
| Total Equity Gross Minority Interest | 1,22,30,000 | 100.00% | 1,56,44,000 | 100.00% | 1,23,25,000 | 100.00% | 1,32,53,000 | 100.00% |
| Stockholders’ Equity | 1,22,41,000 | 100.09% | 1,56,60,000 | 100.10% | 1,23,43,000 | 100.15% | 1,32,75,000 | 100.17% |
| Minority Interest | -11,000 | -0.09% | -16,000 | -0.10% | -18,000 | -0.15% | -22,000 | -0.17% |
| Walmart Inc | 2023 | % IN 2023 | 2022 | % IN 2022 | 2021 | % IN 2021 | 2020 | % IN 2020 |
| Total Assets | 24,34,57,000 | 100.00% | 24,48,60,000 | 100.00% | 25,24,96,000 | 100.00% | 23,64,95,000 | 100.00% |
| Current Assets | 7,59,15,000 | 31.18% | 8,10,70,000 | 33.11% | 9,00,67,000 | 35.67% | 6,18,06,000 | 26.13% |
| Total non-current assets | 16,75,42,000 | 68.82% | 16,37,90,000 | 66.89% | 16,24,29,000 | 64.33% | 17,46,89,000 | 73.87% |
| Total Liabilities Net Minority Interest | 15,94,66,000 | 100.00% | 15,29,69,000 | 100.00% | 16,49,65,000 | 100.00% | 15,49,43,000 | 100.00% |
| Current Liabilities | 9,24,58,000 | 57.98% | 8,73,79,000 | 35.69% | 9,26,45,000 | 56.16% | 7,77,90,000 | 50.21% |
| Total Non-Current Liabilities Net Minority Interest | 6,70,08,000 | 42.02% | 6,55,90,000 | 26.79% | 7,23,20,000 | 43.84% | 7,71,53,000 | 49.79% |
| Total Equity Gross Minority Interest | 8,39,91,000 | 100.00% | 9,18,91,000 | 100.00% | 8,75,31,000 | 100.00% | 8,15,52,000 | 100.00% |
| Stockholders’ Equity | 7,66,93,000 | 91.31% | 8,32,53,000 | 90.60% | 8,12,98,000 | 92.88% | 7,46,69,000 | 91.56% |
| Minority Interest | 72,98,000 | 8.69% | 86,38,000 | 9.40% | 62,33,000 | 7.12% | 68,83,000 | 8.44% |
Key features of the organization
According to different resources, it is evident that the organization has several key features that are helping the organization in maintaining its financial perspective in a domestic market. These key features are
Factories
Discord is working in different manufacturing factories that are working on product development packaging and distribution in several retail markets and supermarkets (Tesco, 2021). These businesses are also helpful in maintaining financial development and sustainability in the domestic market of the United Kingdom.
Online shopping
Nowadays every organization must focus on online shopping and different other online platforms that help them to connect with a wide range of other customers and focuses on different customer segment. These also help in customer acquisition and maintaining them by maintaining proper customer acquisition strategies.
Club card system
Tesco is introducing a club card system which is one of the great steps for the organization to add their ring customers from several segments it is also helpful in maintaining customer acquisition strategies and customer loyalty by understanding their requirements and focusing on they are purchase habits.
Credit card system
Tesco also provides a credit card system for payment and buying products for the customers that help them to find a healthier and more secure way to pay at the supermarket (Tesco, 2023). These helps apply bigger payments and smaller payments in several sectors of the United Kingdom.
Telecommunication
The organization has developed a proper chain of communication via telephones and e-mail that comes under telecommunication customer service (Tesco, 2021). Other than that development of several SIM cards and mobile phones is also helpful for the organization in maintaining telecommunication and creating a wide network in the domestic field.
Petrol
Tesco has petrol pumps in the United Kingdom that offer cheap petrol however they also maintain the quality of these biofuel in several perspectives (Tesco, 2023). These are helpful in the domestic and local market for vehicles and industries and also focus on a proper sustainable development process.
Ratio Interpretation
| Current Ratio ( Current Assets/ Current Liabilities) | 0.717507753 | 0.755251255 | 0.675564168 |
| Current Assets | 1,27,25,000 | 1,21,89,000 | 1,08,07,000 |
| Current Liabilities | 1,77,35,000 | 1,61,39,000 | 1,59,97,000 |
| Debt Equity Ratio | 2.769544972 | 2.152426564 | 2.710281131 |
| Debt | 3,39,02,000 | 3,37,07,000 | 3,34,53,000 |
| Total Equity | 1,22,41,000 | 1,56,60,000 | 1,23,43,000 |
| Assets Turnover Ratio ( Total Assets/ Sales)*100 | 1.425518079 | 1.243804583 | 1.264515706 |
| Total Assets | 4,61,32,000 | 4,93,51,000 | 4,57,78,000 |
| Sales | 6,57,62,000 | 6,13,83,000 | 5,78,87,000 |
Liquidity ratio
It can be depicted that the procedure of the “current ratio” can be made through the formula of “(Current Ratio = Current Assets/ Current Liabilities)”. The “current ratio of Tesco Plc” mostly in 2023 is identified as “0.7175”, where this rate for 2022 was around 0.7553. After that by using this formula the current ratio for 2021 was also identified and that was 0.6756. This report has depicted that the “current ratio” of this company is growing year after year and that is the reason why the current ratio of Tesco in 2021 is less than the rest two years.
Gearing ratio
The proper accounting for the “debt/ equity ratio” is calculated through the formula of “(Debt/equity ratio = total debt/ total stockholder’s equity)” (Macrotrends, 2019). The depiction of the “debt/equity ratio of Tesco” for FY 2023 is almost 2.77 whereas in 2022, this “debt/equity ratio” was 2.15. It is also noted that in 2021 this ratio was about 2.71. In this topic, the debt of Tesco Plc is more in 2023 than in the other two years (Tesco, 2023).
Efficiency ratio
This procedure for estimating the “asset turnover ratio” can be estimated by using the formula of “(Fixed Asset Turnover = Sales /Net Fixed Assets)”. Currently, the “asset turnover ratio” for 2023 is “1.4255”, in 2022 the rate is “1.243” while in 2021 it is “1.2645”.
Comparison with top supermarkets in the United Kingdom
| Organisations | Tesco | Walmart |
| Income statement | The overhead figure depicts the “income statement” of Tesco Plc the retail organisation of the UK. This picture illustrates the Income statement of the last three financial years. In this matter, the total revenue of Tesco Plc in 2023 is around 65,762m which is relatively better than the annual revenue of Tesco in its previous financial years (Finance.yahoo, 2023). The gross profit of this company in 2021 was 3,965m which was more profitable than the existing economic year. Thus it can be considered that the total income of Tesco in 2022 was around 3.661m. Though the gross profit was better in 2021 than in 2022, the “gross profit margin” was more reasonable in 2022 than in the last three years which was almost 4,633m. The operating cost of this company has also risen in the recent financial year in comparison to the operating expenses of previous years. Among these financial years of 2021, 2022 and 2023, 2022 is identified as the best year for the business plan of Tesco Plc. After that, the “pretax income” of this company also increased in 2022 which is more or less 2,033m which was better than the existing financial year 2023. Apart from that, the “net income” for the typical stockholders of this company in 2023 is nearly 745m while the “net income” for the stockholders of this company in 2021 was 6,143m (Tesco, 2023).
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As per the income statement it is seen that sales of the company has been 605881 in year 2023 which has increased from 555233. Again the expenses of the company has increased in the recent year. The net income of the company has reduced from 13510 to 11680. This shows that company needs to improve the services in order to reduce expenses and more sales can be done.
In addition to that EPS rate of the company has reduced a lot that means share position of the company has not improved.
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| Balance sheet | This “balance sheet” estimates the computation of the prevailing cost as well as the estimated income of the UK-based retail company Tesco Plc (Macrotrends, 2019). As per the above “balance sheet”, the estimated “total assets” improved significantly in 2022. After that, this rate decreased more in 2023. It has been noted that, in 2021 the “total assets” of Tesco Plc was 45,778 million, on the other side, in 2022; the “total asset” has been increased by 49,351 m. However, in 2023 the total assets also fell and the total amount after decreasing is about 46,132m. This “reducing asset” is considered one of the crucial problems that are presented in the annual report of Tesco. In this respect, the “total liabilities” of this company are not very diverse in Tesco mostly for per year of the three selected years. In the case of 2023, the drawback presented in this report of Tesco is approximately 33,902m; on the contrary, in the rest two years rather than 2023, the penalties were almost 33,707m and 33,453m in 2022 and 2021 respectively (TSCO.UK, 2021). The “total gross equity” of Tesco Plc is close in 2021 and on the other hand, in 2023 it was almost 12,325m and 12,230 respectively. Whereas, in 2022 the calculated balance sheet the measurement of “total gross equity” was roughly 15,644m.
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Total assets of the company has reduced from 81070 to 75655 in the recent year. This states that company needs to improve the position so that assets of the company can be improved. Total assets has reduced from 244860 to 243197, which states that assets management strategy needs to be applied. On the other hand the liabilities of the company has increased from, 87379 to 92198. This states that liability reduction and assets enhancement strategy needs to be introduced. |
| Cash flow | According to the formation, the “operating cash flow of Tesco” mostly for 2023 is identified as 3,722m, while in 2022 the rate of “cash flow” was about 3,757m, and whereas the “cash flow” in 2021 was approximately 602m. It represents the “cash flow” of Tesco Plc has increased from the previous years. Though 2022 year has minimum cash flow while, the rate has increased for the years 2021 and 2022. The “investing cash flow in 2023” of Tesco Plc is almost 706m while in 2022 it became 1735m, and finally, in 2021 it was about 6,171m (Investegate, 2023). This study also offers the “financial cash flow” of the successive financial years that have been chosen for the progression of this study. All these “financial cash flows” are depicted appropriately through the above picture and a few negative aspects have been identified regarding the cash flow of Tesco Plc. The “end cash position” of this company in 2021 was 1,978m on the contrary in 2022 this amount was around 1,771m. In this aspect, in 2021 this rate was around 1,565m. | Cash flow position of the company has been depicted by the help of cash flow statement. From the cash flow statement it has been seen that cash flow from operating activities has reduced from 36074 to 28841. This report analysed that in 2023 which is 1250m that was bigger than the 2021 and 2022 financial years. This figure also portrays and reflects that the “issuance of debt of Walmart Plc” amount is 0 in 2023. On the other hand, in 2022 the “issuance of debt” was more or less 394m while in 2021 this rate became 1098m. This report has depicted that the refund of the deficit is a crucial element of the company Tesco (Scirp.org, 2019). At this point, the business of Walmart Plc must spend the debts as quickly as possible. In the case of Walmart, the rest amounts need to be paid by 2023 which was 709m. On the other part, in 2022 they remained debt was approximately 775m, while in 2021 this rate was about 1814m. |
Common size analysis
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Common size analysis
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| Tesco PLC | 2023 | 2022 | difference in % | 2021 | difference in % | 2020 | difference in % |
| Total Revenue | 6,57,62,000 | 6,13,83,000 | 7.13% | 5,78,87,000 | 6.04% | 6,47,60,000 | -10.61% |
| Cost of Revenue | 6,21,01,000 | 5,67,50,000 | 9.43% | 5,39,22,000 | 5.24% | 6,01,80,000 | -10.40% |
| Gross Profit | 36,61,000 | 46,33,000 | -20.98% | 39,65,000 | 16.85% | 45,80,000 | -13.43% |
| Operating Expense | 21,34,000 | 20,34,000 | 4.92% | 18,43,000 | 10.36% | 19,63,000 | -6.11% |
| Operating Income | 15,27,000 | 25,99,000 | -41.25% | 21,22,000 | 22.48% | 26,17,000 | -18.91% |
| Net Non-Operating Interest Income Expense | -4,82,000 | -6,65,000 | -27.52% | -7,23,000 | -8.02% | -8,26,000 | -12.47% |
| net income | 7,45,000 | 14,81,000 | -49.70% | 61,43,000 | -75.89% | 9,71,000 | 532.65% |
| Walmart Inc. (WMT) | 2023 | 2022 | difference in % | 2021 | difference in % | 2020 | difference in % |
| Total Revenue | 61,12,89,000 | 57,27,54,000 | 6.73% | 55,91,51,000 | 2.43% | 52,39,64,000 | 6.72% |
| Cost of Revenue | 46,37,21,000 | 42,90,00,000 | 8.09% | 42,03,15,000 | 2.07% | 39,46,05,000 | 6.52% |
| Gross Profit | 14,75,68,000 | 14,37,54,000 | 2.65% | 13,88,36,000 | 3.54% | 12,93,59,000 | 7.33% |
| Operating Expense | 12,71,40,000 | 11,78,12,000 | 7.92% | 11,62,88,000 | 1.31% | 10,87,91,000 | 6.89% |
| Operating Income | 2,04,28,000 | 2,59,42,000 | -21.26% | 2,25,48,000 | 15.05% | 2,05,68,000 | 9.63% |
| Net Non-Operating Interest Income Expense | -18,74,000 | -18,36,000 | 2.07% | -21,94,000 | -16.32% | -24,10,000 | -8.96% |
| Net Income Common Stockholders | 1,16,80,000 | 1,36,73,000 | -14.58% | 1,35,10,000 | 1.21% | 1,48,81,000 | -9.21% |
Table 2: common size analysis of Tesco and WalmartSource: (Self – created)
Conclusion and recommendation
In conclusion, it is necessary to say that Tesco is focused on maintaining a proper financial analysis that provides proper information about the financial performance over the last three years. The company also experienced several fluctuations in the liabilities, total assets and equity. The analysis also develops and discusses the key features of the company and analyzes the financial structure by maintaining a comparison with Walmart that reveals competitive dynamics, cash flow, and income statements. However, the analysis also focuses on finding out the market segment market understanding and financial metrics for both companies as they have similar customer base financial strings and market capture.
Tesco needs to focus on its diversification and cost control which helps in maintaining efficiency and profitability. The company also need to focus on technological integration that helps them include innovative technologies and streamline operation to maintain a competitive mentality in the digital retail landscape. It is also necessary for Tesco to focus on sustainable development goals for maintaining the market trend and understanding potential brand loyalty and reputation.
The organization also prioritized operational efficiency for customizing costs and improved profit margins.
Recommendation
- The company’s gearing ratio is 2.77 in 2023, 2.48 in 2022, and 2.71 in 2021, per the financial ratio. This shows that over the last ten years, the ratio has increased to the level of the previous year, indicating that debt financing was necessary for the business to operate. Paying off their debt is necessary to lower their financial risk because delaying it could make matters worse.
- By the help of liquidity ratio, that is through current ratio the short term liability position of the company is measured and it has been seen that in 2022 the current assets has been lower as compared to current liabilities. This states that the company has not been able to meet the debt obligations on time. In that case the company can be recommended to use debt reduction and assets enhancement strategy so that improvement in the debt obligation can be done.
- By the help of efficiency ratio the asset improvement position can be determined. As per the analysis it has been seen that in 2023 the assets has been in good position. This can be further improved by introducing better service for the customers.
References
Fidelity.co.uk (2023). Tesco PLC Company Financials and Reports | TSCO | GB00BLGZ9862 | Fidelity. [online] www.fidelity.co.uk. Available at: https://www.fidelity.co.uk/factsheet-data/factsheet/GB00BLGZ9862-tesco/financials [Accessed 6 Dec. 2023].
Finance.yahoo (2023). Tesco PLC (TSCO.L) Balance Sheet – Yahoo Finance. [online] finance.yahoo.com. Available at: https://finance.yahoo.com/quote/TSCO.L/balance-sheet?p=TSCO.L [Accessed 6 Dec. 2023].
Globaldata (2022). Tesco Plc: Financials. [online] www.globaldata.com. Available at: https://www.globaldata.com/company-profile/tesco-plc/financials/ [Accessed 6 Dec. 2023].
Hl.co.uk (2023). Tesco plc (TSCO) Ordinary 6.333p Statements & Reports. [online] Hargreaves Lansdown. Available at: https://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-6.333p/financial-statements-and-reports [Accessed 6 Dec. 2023].
Investegate (2023). Tesco PLC Interim Results 23/24. [online] www.investegate.co.uk. Available at: https://www.investegate.co.uk/announcement/rns/tesco–tsco/tesco-plc-interim-results-23-24/7794914 [Accessed 6 Dec. 2023].
Macrotrends (2019). Tesco Gross Profit 2006-2019 | TSCDY. [online] Macrotrends.net. Available at: https://www.macrotrends.net/stocks/charts/TSCDY/tesco/gross-profit [Accessed 6 Dec. 2023].
Scirp.org (2019). Tesco PLC (2019) Annual Report and Financial Statements 2019. – References – Scientific Research Publishing. [online] www.scirp.org. Available at: https://www.scirp.org/reference/referencespapers?referenceid=3172237 [Accessed 6 Dec. 2023].
Tesco (2021). Tesco plc – AnnualReports.com. [online] www.annualreports.com. Available at: https://www.annualreports.com/Company/tesco-plc [Accessed 6 Dec. 2023].
Tesco (2023). Annual Report 2023. [online] origin.tescoplc.com. Available at: https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2023 [Accessed 6 Dec. 2023].
TSCO.UK (2021). Tesco PLC Financial Statements – WSJ. [online] www.wsj.com. Available at: https://www.wsj.com/market-data/quotes/UK/XLON/TSCO/financials [Accessed 6 Dec. 2023].
Uk.practicallaw (2020). Tesco PLC – Annual report 2020. [online] Practical Law. Available at: https://uk.practicallaw.thomsonreuters.com/w-025-4831?transitionType=Default&contextData=(sc.Default)&firstPage=true [Accessed 6 Dec. 2023].
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