StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Principal Activities of Tesco, Auditors Report and Its Importance - Essay Example

Cite this document
Summary
The paper "Principal Activities of Tesco, Auditors Report and Its Importance" discusses that the company is able to convert its inventory into sales in just 21 days in 2011 as compared to 19 days in 2010. This makes the company quite efficient in comparison to the industry average of 50 days…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER97.5% of users find it useful
Principal Activities of Tesco, Auditors Report and Its Importance
Read Text Preview

Extract of sample "Principal Activities of Tesco, Auditors Report and Its Importance"

? Financial Information: work Assignment Financial Information: work Assignment Principal Activities of Tesco Plc.: Tesco Plc. Is one of the leading international retailers with its core business as in retailing of grocery. The company offers a huge range of products including food items, general merchandise, accessories, household items, and electrical products. In addition to its core business the company also provides financial services including insurance and retail banking. The company has also recently initiated its telecom and data manager and distributions business lines (Bloomberg 2012). The company sells its products and services through its physical stores and also online ecommerce solutions to its millions of customers worldwide. The company operates for achieving its visions that is “to create value for customers to earn their lifetime loyalty” (Tesco Plc., 2011) and deliver its values “no one tries harder for customers and treat people how we like to be treated” (Tesco Plc. 2011). Auditors Report and its Importance The auditors of Tesco Plc are from the London office of PricewarehouseCoopers LLP. The independent auditor’s report briefly provides the responsibilities of directors and auditors along with the scope of the audit of the financial statements. The opinion of the independent auditors indicated that the company’s financial statements have been prepared according to IFRSs, which have been adopted by the EU and the information provided by the company represents true and fair view of the company’s operations and other affairs. The opinion of the external auditors also indicate that the directors report has been prepared in accordance with the requirements under the Companies Act 2006 however there are certain exceptions which the auditors have noted and reported. These exceptions are related to certain disclosures of Director’s compensation that are viewed not to fulfil the requirements of the law and there are some elements of information which auditors did not receive from the company for completion of the audit. The importance of external auditors report is significant as they are viewed by shareholders and other stakeholders as responsible for checking the validity and completeness of the information provided by companies in their financial statements and other related documents and the report provided by external auditors provide means for assessing the company’s current financial standing by outside world. Financial Ratio Analysis The financial ratio analysis of Tesco Plc has been performed based on the financial information provided by the Group in its consolidated financial statements for the years ending February 2010 and 2011. The findings of the ratio analysis is presented in the following table: Ratio Expression 2011 2010 2011 2010 Industry Result Result Average ROE Net Profit / Total Equity 2671/16623 2336/14681 16.07% 15.91% 19%         Gross profit margin Gross Profit / Sales Revenue 5060/60931 4607/56910 8.30% 8.10% 10%         Net profit margin Net Profit / Sales Revenue 2671/60931 2336/56910 4.38% 4.10% 3%         Current ratio Current Assets / Current Liabilities 11,869/17,731 11,765/16,015 0.67 0.73 1.7 Inventory turnover period 365/(Cost of Sales/Inventory) 365/(55,871/3,162)) 365/(52,303/2,729) 21 19 50 days Payables’ turnover period 365/(Cost of Sales / Trade Payables) 365/(55,871/10,484) 365/(52,303/9,442) 68 66 20 days Gearing ratio Total Debt/ (17,731+12,852)/16,623 (16,015+15,327)/14,681 1.84 2.13 4% Total Equity P/E ratio Price per Share / Earnings per Share 401.90/33.10 419.70/29.33 12 14 9.0 x Share Price Source: (Yahoo! FInance, 2010-11) Financial information Source: (Tesco Plc., 2011) Horizontal Analysis Horizontal analysis is performed for the following financial items to indicate whether they have increased or decreased.   2011 2010 % Change Sales 60,931 56,910 7% Increase Operating Profit 3,811 3,457 10% Increase Share Price 401.9 419.7 -4% Decrease Discussion of Results The findings from both financial ratio analysis and horizontal analysis provide great insight into the company’s performance over a period of two years. The Group has been able to post a significant increase in its revenues that is 7% jump in 2011 as compared to 2010. This is mainly due to the overall growth in the company’s business both in the UK and international markets. The company’s operating profits are up by 10% in 2011 as the company was able to earn more profits on property related items and significant rise in sales revenue in the last one year. Poor economic conditions and weak sentiments prevailing in the UK capital markets have not pushed the company’s stock price significantly. However, a small decrement of 4% has been noted in its share price from 2010 to 2011. The financial performance analysis covered by the financial ratio analysis can be discussed under the following ratio categories headings. Profitability The company’s profitability position is assessed using three useful financial ratios. The results show that the company’s Return on equity (ROE) has improved slightly by only 0.16% in 2011 and currently stands at 16.07%. This is less than the industry standard of 19%, which implies that the Group must work on its profitable business segments to increase its earnings. The Group’s gross profit margin is 8.30% in 2011 as compared to 8.10% in 2010; however, it remains lower than the industry standard of 10%. Moreover, the Group’s net profit margin has also increased slightly in the year 2011. As compared to the industry average the company appears to be performing better. The overall profitability position of the company can therefore be suggested to be strong and the company has achieved great growth rates both in its domestic UK market and international markets particularly Asia and US. Liquidity The liquidity or short -term financial position of the company has been evaluated using current ratio. Current ratio is the ratio of the Group’s current assets to current liabilities and has a value of 0.67 in 2011 as compared to little higher value of 0.73 in 2010. This indicates a weak liquidity position of the company as the current ratio value is less than the psychological level of 1 (Ehrlich and Fanelli 2012) and also it is lower than the industry average of 1.7. Further analysis show that the Group is holding larger inventory and it has issued high value of loans to customers in 2011 as compared to 2010 which makes the overall position of the company less liquid and it could face financial difficulties if a major proportion of its current assets are not converted into sales or realized. Asset Management The company is able to convert its inventory into sales in just 21 days in 2011 as compared to 19 days in 2010. This makes the company quite efficient in comparison to the industry average of 50 days. On the other hand, the company is taking longer period to pay its payable liability holders. It took 68 days in 2011 and 66 days in 2010 whereas the industry average is just 20 days. Other The solvency position of the company is determined by the gearing ratio, which is the ratio of total debts to total equity. The ratio value is 1.84 in 2011, which is down from 2.13 in 2010. Although the company has made significant cut down in its dependency on external financing by reducing both current and non-current borrowings but the gearing of the company has remained weak. DuPont Analysis The company’s profitability ROE can be assessed using DuPont Ratio as follows: DuPont Ratio: (Profit margin)*(Asset turnover)*(Equity multiplier) DuPont Ratio: (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)= (Net Profit/Equity) The results for both 2011 and 2010 are provided below. DuPont Ratio: (2,671/60,931)*(60,931/(35,337+11,869))*((35,337+11,869)/16,623) =16.07% 2010 DuPont Ratio: (2,336/56,910)*(56,910/(34,258+11,765))*((34,258+11,765)/14,681) =15.91% These results coincide with the ratio values obtained via financial ratio analysis above. Based on the components of DuPont Ratio it could be suggested that major contributor of this ratio is the equity multiplier, which is the ratio of assets to equity. This implies that the company has high value of assets for the equity that the company has invested in its business. This signals a positive sign that the company has been able to accumulate assets over the years of its operations, which can be suggested to be majorly financed by the earnings that the company has achieved. Also it can be stated that the financial elements, which are include in the numerator of three different component ratios are of greater importance as the company must make higher sales from its assets to generate high net profits to be distributed to shareholders or invested back into the company. List of References Bloomberg., 2012. Tesco Plc (Tsco:London). [Online] Available from Bloomberg BusinessWeek: [Accessed on May 2, 2012] Sofat, R. and Hiro, P., 2008. Basic Accounting. New Delhi: PHI Learning Pvt. Ltd. Tesco Plc., 2011. Annual Report 2011. Cheshunt, Hertfordshire: Tesco Plc. Yahoo! FInance., 2010-11, February. Historical Prices: Tesco Plc. [Online] Available from Yahoo! FInance: [Accessed on May 2, 2012] Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Financial Information: Coursework Assignment Essay”, n.d.)
Financial Information: Coursework Assignment Essay. Retrieved from https://studentshare.org/finance-accounting/1450382-financial-information-coursework-assignment
(Financial Information: Coursework Assignment Essay)
Financial Information: Coursework Assignment Essay. https://studentshare.org/finance-accounting/1450382-financial-information-coursework-assignment.
“Financial Information: Coursework Assignment Essay”, n.d. https://studentshare.org/finance-accounting/1450382-financial-information-coursework-assignment.
  • Cited: 0 times

CHECK THESE SAMPLES OF Principal Activities of Tesco, Auditors Report and Its Importance

How UK Companies' Mechanisms Affect Corporate Governance

BARR PLC 65 Conclusion and Recommendation 70 Bibliography 77 Appendices Introduction Board governance mechanism haves experienced the focus of a range of reports in the United Kingdom, especially the Cadbury report (1992)1 and the Hampel report (1998)2.... However, from these reports along with the support of Green bury report (1996)3 came the Combined Code of best practice.... Table of Content Introduction 5 Literature Review 8 Methodology 11 UNILEVER PLC 13 TATE & LYLE PLC 18 tesco PLC 21 THORNTONS PLC 24 SAINSBURY PLC 27 SABMILLER PLC 32 MORRISON PLC 35 MARKS & SPENCER PLC 38 DIAGEO PLC 41 DIARY CREST GROUP PLC 44 CRANSWICK PLC 47 BRITVIC PLC 51 BOOKER GROUP PLC 55 ASSOCIATED BRITISH FOODS PLC 61 A....
55 Pages (13750 words) Dissertation

TESCO Annual Report 2011

In realization of the impossibility of covering every aspect of its activities, TESCO has instead set out principles of business ethics that have to be applied by every team member of tesco.... The group policy of tesco is not to use derivatives for the trading purposes; rather some derivatives do not qualify for hedging financial risk which is brought about by global financial crisis.... TESCO realizes the importance of establishing cordial relationships with its customers, business partners, employees, suppliers, and the community that it serves....
7 Pages (1750 words) Coursework

Financial Instruments Disclosure

A controversial issue related to financial instruments is its valuation at fair value.... tesco Plc 35 3.... tesco Plc 42 3.... Full disclosure of financial instruments refers to the exposure of all the necessary information followed while taking decisions, which would provide the investors with reasonable assurance and belief on the activities performed by the organization....
48 Pages (12000 words) Dissertation

Financial Performance of Tesco and Sainsbury

From the paper "Financial Performance of tesco and Sainsbury", the annual reports of companies are divided into various sections, but the most important are: Directors' Report, Auditor's Report, Consolidated Profit and Loss Account, Balance Sheet, and Statement of Cashflows.... ESCO PLC-- RATIO ANALYSISThe financial performance and position of tesco Plc can be assessed with the help of ratio analysis for the last three years.... ERFORMANCEThe performance of tesco Plc over the last three years can be assessed by the following ratio: ...
10 Pages (2500 words) Assignment

Strategic Managment - Corporate Governance

It is imperative for a publicly traded company to give a note of confidence on its performance and abilities to the stake holders.... On the other are its deep rooted social and environmental commitments to the buyers, suppliers, and the community it works in.... Corporate Social Responsibility is that aspect of Corporate Governance that ensures that a company fulfills its social and obligations besides increasing its profits....
12 Pages (3000 words) Essay

UK Annual Reports and Accounts

Annual report of tesco plc, a UK company, provides information under the categories of Chief Executive's Statement, Report of the directors that contain business review, general information, and report on corporate governance, Directors' Remuneration Report, and Financial Statements that include a statement of directors' responsibility, independent auditor's report, group financial statements including notes thereto, parent company's financial statements and independent auditor's report on that....
7 Pages (1750 words) Assignment

Conceptual Frameworks in Accounting

Accounting is able to convey the message of the business and its performance.... Though this one definition cannot define wholly what accounting is as its users differ on what is accounting according to David Solomon's accounting theory presents objective representation of the true In this view, Tinker was in support that accounting is not through which a language to communicate (W Schweiker (1992) ... The first assumption is the economic entity assumption this operates under the banner that the economic activities between the business and the owner is different this does not refer to the final adjustment of many activities as owners try to use this principle to their advantage This has been used by managers by hiding a lot of cash in different countries and avoid some checks and balances in their countries (G Morgan (1982)....
7 Pages (1750 words) Essay

Accounting Policies and Procedures Followed by J Sainsbury Plc and Tesco Plc

8 of tesco Plc, for the year 2009.... The paper "Accounting Policies and Procedures Followed by J Sainsbury Plc and Tesco Plc" compares the financial ratios relating to fixed assets; operating profit; Property, Plant & Equipment and Provision; liquidity, profitability, gearing, and investment of famous Shop online compared to its rival.... It highlights whether the company is capable of meeting its short term obligations.... Current and quick ratios of J Sainsbury Plc has been compared to its rival Tesco Plc have been calculated under the liquidity head....
8 Pages (2000 words) Statistics Project
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us