Unit 2 M3 Interpret the content of trading and profit and loss account and balance sheet for a selected company, explaining grow accounting ratios can be used to monitor the financial performance of the organisation.

M3: interpret the content of trading and profit and loss account and balance sheet for a selected company, explaining grow accounting ratios can be used to monitor the financial performance of the organisation.

This report is going to illustrate state of given business.  The business that this report is going to illustrate the finance state is Tesco plc, the report will compare and explain each aspects of the Tesco plc’s balance sheet.

Profitability

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

Gross profit margin

The gross profit margin is the overall profit that Tesco plc has made in a year. This is calculated by the gross profit divided by the sales and then multiplied by the 100 to change in to a percentage. For example:

Gross profit/sales x 100 = gross profit margin

This is because it shows the shareholder what Tesco plc’s profit is in a percentage, as this will make it easier for shareholder to know if the business is right organisation to invest in. the calculation below will show the gross profit margin of Tesco plc from the balance sheet.

In comparisons from the gross profit in 2012 to 2013 their gross margin has gone down in 2013 this because in their gross profit margin in 2012 was 8.44% and in 2013 they have now got a profit margin of %6.31. This indicates that their profit margin is gone down because of the gross profit has gone up by %15 this can influence Tesco plc’s shareholders, as they might think that Tesco plc is losing value unless they increase the amount of shares they that they give to shareholder. This is so that they can keep their shareholders or ...