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Tesco financial review

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Introduction

Unit 11 - Impact of finance on business decisions Centre No: 12224 Candidate No: 1606 Chetan Manek Section Page No. 1.0 Introduction 1.1 Tesco Background Information 1.2 Stores 1.3 Share Price 2.0 Sources of Finance 2.1 Short Term Finances 2.2 Long Term Finances 2.3 Tesco's Finances 2.4 Financial Recommendation 3.0 Ratio's 3.1 Liquidity Ratio 3.2 Gearing Ratio 3.3 Profitability Ratio 3.4 Shareholder Ratio 3.5 Recommended Ratio 4.0 Investment Appraisal 4.1 DCF/NPV 4.2 ARR 4.3 Payback 4.4 Sensitivity Analysis To: From: Chetan Manek Date: Subject: 1.0 Introduction For this assignment, I have been asked to carry out an investigation into one medium-sized or large business organisation. I will write an analytical report analysing & evaluating the effects of financial information to make business decisions it has on the short and long term on the organisation, which I have chosen. The organisation, which I have decided to investigate, is Tesco PLC is because they have a large set of financial data, especially because it is an established organisation, which has been in its market for a long time. I will investigate the different procedures Tesco operates and will give advice to Tesco on their financial future. 1.1 Tesco's Background Information The organisation that I am studying is TESCO PLC. Tesco is a public limited company. Tesco is one of the world's leading international retailers. Since the company first used the trading name of Tesco, in the mid 1920s, the group has expanded into different formats, different markets and different sectors. The principal activity of the group is food retailing, with over 2,500 stores worldwide. Tesco has a long-term strategy for growth, based on four key parts: growth in the Core UK business, to expand by growing internationally, to be as strong in non-food as in food and to follow customers into new retailing services. Tesco is a private sector business, and is owned as a PLC company (Public Limited Company). ...read more.

Middle

Profitability Ratio This would show a business how well it is doing. It focuses on profit, turnover and the amount of capital employed in the business. Some are known as activity ratios, which look at how well a business uses its resources such as stock. Shareholder's Ratio This can be used to analyse the returns shareholders get on their investment in the company, it focuses on earnings, dividends and share price. 3.1 Liquidity Ratio's This is an assessment of a business's ability to meets its short term debts. It is a measure of whether the business has enough cash or assets, which can easily be converted into cash, this may be done to pay bills, invoices as they come due for payment. Current ratios The current ratio is something called working capitol ratio, this is done to find out the working capitol that is available to an organisation. The relationship used to calculate the current ratios is current assets and current liabilities. It is also shows that for every �1 the business owes, how much time they can pay that debt off in the short term. It is calculated using the following formula: Current ratio = Current Assets Current Liabilities 2004 Current Ratio = �3139m �2479m 2004 Current Ratio = 1.27:1 2005 Current Ratio = �3457m �2615m 2005 Current Ratio = 1.32:1 The current ratio in both years is of an average price. An ideal value for the current ratio would be 2. Referring to the figures, which I have collected by calculating my current ratio, I can see that my current ratios for the two years are below average. In 2004 the current ratio was 1.27, and in 2005 it raised to 1.32 this may show a steady increase in the current ratio, and Tesco would be happy to see the current ratio increasing. Acid Test Ratio The Acid test ratio is more a test to see if an organisation is liquid. This is done because stocks are not treated as liquid resources. ...read more.

Conclusion

I will then divide 90 by 110. I will do this for every year few different percentages. 5% Year 1 Year 2 Year 3 Year 4 Year 5 95p 91p 86p 82p 78p 2% Year 1 Year 2 Year 3 Year 4 Year 5 98p 96p 94p 92p 91p From the information seen above, it can clearly be identified that it would be best for Tesco if the 2% was the amount that the Net Profit Value changed. This is because for every �1 that Tesco had they would still be getting 91p back over the course of five years. On the other hand if there was a change of 10% in the price level of the pound, then Tesco will be receiving 61p for every pound over the course of 5 years. This is a 30p Difference from 2% to 10%. I have shown the formula used to calculate to the percentage decrease for every year and for the three projects I am looking at. ARR I am now going to calculate the average annual profit for the three projects. I will looks at both a 10% increase and a 10% decrease over the 5-year period, once I have looked at this I will go back and evaluate what I have found out. Project A Year 1 �20,000.00 Year 2 �40,000.00 Year 3 �60,000.00 Year 4 �90,000.00 Year 5 �90,000.00 -10% �18,000.00 �36,000.00 �54,000.00 �81,000.00 �81,000.00 +10% �22,000.00 �44,000.00 �66,000.00 �99,000.00 �99,000.00 Project B Year 1 �30,000.00 Year 2 �30,000.00 Year 3 �30,000.00 Year 4 �30,000.00 Year 5 �30,000.00 -10% �27,000.00 �27,000.00 �27,000.00 �27,000.00 �27,000.00 +10% �33,000.00 �33,000.00 �33,000.00 �33,000.00 �33,000.00 Project C Year 1 �100,000.00 Year 2 �100,000.00 Year 3 �50,000.00 Year 4 �20,000.00 Year 5 �10,000.00 -10% �90,000.00 �90,000.00 �45,000.00 �18,000.00 �9,000.00 +10% �110,000.00 �110,000.00 �56,000.00 �22,000.00 �11,000.00 5.0 ?? ?? ?? ?? Chetan Manek Unit 11 - Impact of finance on Business Decisions Page 1 of 25 ...read more.

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