Analysis of fINANCIAL SITUATION OF TESCO PLC. This project will be focusing on analysis of the financial situation, and investigations of the irresistible driving force behind Tescos growth .

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APRIL 7, 2006

 WORD COUNT: 4,987


CONTENTS                                                      PAGE

Executive Summary                                        3

Introduction                                                        4

Methods of analysis                                        8

Presentation and Analysis

Of findings                                                        10

Conclusion                                                        16

Bibliography                                                19

Appendices                                                        21
Executive Summary

The finding of the analysis is that Tesco is a sustainable company with comfortable level of liquidity, huge fixed assets base and is generating excellent profits from its consistently increasing revenue. The company holds sufficient resources and access to market funds to fund its on going expansion programmes.

The present competition condition is in favour of the company, positively contributed by some of the most important factors “its size”, great bargaining power, huge market share and Sainsbury’s weaker position which was one of its major competitors.

The company’s shares has started out performing in the stock market due to its fundamentally strong position based on excellent financial results and positive news about its plans ahead.


1.1. Reason for choice of topic

Being a professional accountancy student and an active investor in stock market back home in Pakistan, it was my usual practice to perform tests on the financial data  of the different companies in order to analyse their financial health for the investment purposes , although I have left my country for the studies , but still my inside investor is still keen to look at and analyse things  as an investor’s point and  the professional accountant inside me gives me the opportunity to make use of  my knowledge, which I have gained during  my studies, in this analysis process. Therefore I preferred this topic over others.

The purpose of the research is review and synthesis existing knowledge and investigate existing situation s and problems , (Collis and Hussey 2003)

This project will be focusing on analysis of the financial situation, and investigations of the irresistible driving force behind Tesco’s growth .


1.2 Objectives

1.2.1Company and industry context

The supermarket industry in UK is a fiercely competitive market, dominated by three large supermarket groups, Tesco, Sainsbury and ASDA. The chasing pack of second Rank super markets (Wait rose , Morrison’s ,marks and Spencer’s) could  only challenge the big three if they  joined forces and get some foreign investment backing. However the competition commission does not encourage such practices in UK.

Tesco has been a success story for the past decade.  The company which was founded in 1919 as a small grocery stall has now grown up to the largest UK food retail chain. The company now runs more than 2,460 supermarkets, hypermarkets and convenience stores in The UK, Ireland, central Europe and Asia. Its operations include different format  stores consisting of Tesco express (petrol stations), Tesco metro (small Urban), Tesco extra (hypermarket), Tesco direct (catalogue) and Tesco also owns 35 % stake in Us grocery Chain Safeway Grocer works. (Extracts from

1.2.2 Competition

The main competitors of Tesco (30.5% ) include ASDA( 16.7%), Safeway/Morrison’s and Sainsbury(15.7%). Source TNS. Out of these three Sainsbury ranks as the biggest competitor of the company in respect of the turnover and lines of businesses, ASDA is American owned and not listed while Morrison’s have a relative small market share.

1.2.3 Research and Analysis Objective

The aims and objectives of this research can be summarized as:

  • Review of the financial position  of the company
  • Asses the company’s capacity  to meet the challenges in the retail industry


Research can be approached in various ways:

  • Quantitative
  • Qualitative
  • Applied
  • Basic
  • Inductive
  • Deductive

(Source: Effective learning service, University of Bradford)

Here I will be following combination of quantitative techniques with the Inductive research, as I will be analysing company’s published Data and drawing conclusions there upon. The inductive approach is preferable to deductive approach when the purpose is not to test any particular hypothesis. (Saunders, Lewis and Thornhill)

For doing this research I will be performing vertical and horizontal analysis for Tesco. I will also calculate the following ratios for Tesco and its peers and will compare their share price.


  • liquidity ratios,
  • profitability ratios
  • gearing ratios,
  • investment ratios

1.3 Information gathering

Primary research

Due to the confidential nature of Data I did not have any access to the any financial data which was primarily available, information is only obtained from publicly available data (for both Tesco and Sainsbury).

Secondary research

  • Academic and professional training
  • Attended the Seminar conducted by  BPP called “Success in your Research and Analysis Project”.
  • Read the BPP text book “ success in your Research and analysis project” which provided the initial outline, approach, research suggestions and structuring for the project.

  • Subscription of financial publications and news papers such as “The Economist”  “Financial Times”  and “Daily Telegraph”.

  • Conventional library research
  • Going to the British Library enabled me to gain access to the academic publications on research methods for business, as well as industry-specialist publications.

  • Internet Resources Research

  • Tosco plc’s website, from which I could obtain three years’ worth of annual and interim reports, and company news.

  • Sainsbury’s and ASDA’s Websites.

  • London Stock Exchange for  providing details of historic share performance of the companies under consideration.

  • Specialist trade publications such as “KPMG retail publications Library” provided operational information on the  retail industry .
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  • Accountancy magazine

  • Online version of Student Accountant magazine online provided an easy access to huge data base of articles useful in performance appraisal modelling.

  • Using internet search engines (Goggle, Msn, Yahoo)

  • Using highly informative financial  news websites like , CNN money, yahoo business, BBC, CNBC , Reuters and

  • Web sites like and Investorwords .com , which contained useful information about technical details about  financial analysis.

1.4 ...

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