Analysis of Tesco Finances
Tesco is one of the companies on the list of London Stock Exchange and constitutes of FTSE 100 Index. In the year 2015, Tesco had a market capitalization of about £ 18.1 billion and was ranked the 28th largest shop on London Stock Exchange with a primary listing. This essay will also show the history of Tesco and where it came from and finally analyze the financial information of Tesco and ways that can help Tesco Company to improve its income and profits from sales of its products and services offered to its consumers.
Tesco Background
Jack Cohen founded Tesco Company in 1919 as a collection of market stalls. Tesco’s name appeared first in 1924 when Cohen bought tea shipment from T.E Stockwell and added the first two letters of his surname (CO) to become Tesco. In 1931, the first Tesco shop was opened by Cohen in Burnt Oak, Barnet. By 1939 the Company had expounded rapidly, and he had opened more than 100 Tesco shops in the country. From 1990 the UK grocer has expanded globally to the other 11 states. Apart from the US pulling out of the Company in 2013, there is rapid growth elsewhere, according to 2018 data.
Tesco has shown a lot of diversity since the 1960s, such as retailing books, electronics, clothing, toys, furniture, software, petrol, telecoms, financial services, and internet services. Tesco repositioned in the 1990s from a down-market high-volume low-cost retailer to a shop planned to attract a range of customers from social groups through offering them products that ranged from ‘Tesco value’ (low-cost)
items to a variety of ‘Tesco finest.’
Analysis of Tesco
Tesco year on year has increased their growths rates in GBP on dividends per share and earnings. The growth rate increased to 92.33% and 11.88%, respectively, on the dividends in the year 2019. The positive dividend payments trend is net-worthy since few industries pay a dividend. In a five year analysis of earnings per share and dividends per share, growth ranked highly with industry relative average to its peers.
According to the 2018 income statement and balance sheet analysis, it is evident that the Company decreased its profitability, considering some of the past years, which brought a bit higher income. In the income statement of 2018, the cost of sales had 181%, gross profit had 81%, administrative expenses were 15%, profit from property-related items was 137%, and profits from associates and joint ventures share of post-tax 6%. Finance income 29%, finance costs 129%, profit before tax 25%, and finally, the taxation was 87%.
The percentages of 2018 balance sheet analysis on non-current assets go as follows; intangible assets and goodwill assets had 21%, equipment, plant, and property had 148% and investment property 1%. Investments in associates and joint ventures 6%, other investments 7%, advances and loans to customers 55%, derivative financial instruments nine %and the deferred tax assets was 1%.
Tesco Company in Europe in the financial year of 2018, there was an increase of 0.3% like-for-like sales despite the competitive conditions in the market. The focus on rising the breadth and quality of the store ranges delivered results that are positive with growth in fresh food sales of 1.2%. This growth was pulled back by a reduction in general clothing and merchandise.
Besides Tesco Company strengths, it had the following weaknesses in the year 2019, Tesco Company’s cash reserves declined by 1.14bn. The Company earned 1.97bn from a cash flow margin of 3.08% operations. Tesco Company used 1.98bn in financing cash flows, and on investing activities, they used 1.14bn. There is a clear indication that in 2019 Tesco Company was operating on debts and liabilities because their cash reserves are diminishing daily because of too much expenditure than the income they are getting from their product sale and services offered.
Tesco Company profits in 2019 before tax was £198.9 with a lower rate of 0.1% from2018, which was £199.1. Net interest income and reduction in commission income and fees are the key drivers in declining its profits before tax. The net interest income increased by 11.3%, 2019 net interest margin was 3.8%, a slight decline from 2018, which was 3.9%. In 2019 commission income and the fee was £333.2m making it a 5.3% decline from 2018 commission income and fee which was £351.8m
Conclusion and recommendation
In conclusion, according to the analysis of the 2018 income statement and balance sheet in comparison with other years, Tesco has gone into debt. The entire process of Tesco Company marketing seems to be relying on the liabilities. The Company’s outdated and stagnant policies governing Tesco company has brought huge losses. Hence, the Company should engage in practices to update their policies and practices to earn more profit.
What I can recommend to Tesco Company is to close up and withdraw financial supports from the unprofitable shops in different countries and invest that cash in other shops that are performing well and bringing profit after all.
Tesco should also reduce the operating costs by training employees more often to provide effective and efficient services so that only a few employees can be used to serve a specific number of customers.
Tesco Company should also generate cash from all operations by bringing in a differentiated brand of products so that more customers can be attracted because of the wide range of products and services being offered.
They are maximizing to add value to properties, especially planting trees and building houses and apartments that customers can rent and bring more money. Through attracting more customers in the properties, there is more profit for Tesco Company.
Tesco Company should also involve themselves in corporate social responsibilities where they will helping communities in various developmental programs so that these community members can help market their products and services in social events and social media.
Tesco Company should accept the role of the media marketing that is; Facebook, Instagram, twitter, putting in a note that most of their consumers search for information from the social media.
Finally, Tesco Company should merge with the leading companies to learn their techniques in marketing and make plans that will benefit their Company.