Student ID

: 1232941

Student Name

: Manasi J S

Subject

: Accounting and Financial Management

Subject Number

: 7AC002

Activity title

: Assignment - Accounting and Financial Management

Due Date

: 21.04.2013

Date Submitted

: 16.04.2013

Table of contents

CHAPTER 1 : EXECUTIVE SUMMARY ...................................................................................................... 3 CHAPTER 2 COMPANY PROFILE............................................................................................................. 4 Profitability ratios ......................................................................................................................... 14 CHAPTER 4 : SOURCES OF FINANCE ...................................................................................................... 19 The approach to growth and returns .......................................................................................... 21 CONCLUSION......................................................................................................................................... 22

TESCO PLC

EVALUATION OF FINANCIAL PERFORMANCE OF TESCO PLC FOR 2012- 2013

CHAPTER 1 : EXECUTIVE SUMMARY

This report aims to analyse the financial position of Tesco Plc from a prospective investors point of view. The analysis is based on the recent financial statements available for Tesco. TESCO PLC is a largest grocery retail business segment which primary deals with food, general merchandise, clothing and electrical products. It is worlds largest retailers with over 530,000 employees with presence in 12 countries and serving millions of customers a week. This research paper aims to evaluate the companys overall f inancial position of the firm during the year 2011-2012 and 2012-2013. Through the analysis it was identified that the group finances its operations with combination of retained profits, long term and medium term debt capital market, commercial paper, bank borrowings and leases. Through analysing the policy of the firm, it was found that the company follow the debt maturity profile. It maintains a commercial paper programme of 2 billion and USD 4 billion. It also has a bank facility of 2.725 billion of which 2.6 billion of revolving credit facilities which will mature in August 2018 and 0.125 billion of bilateral credit facilities with a maturity period of December 2015

CHAPTER 2 COMPANY PROFILE

Tesco Plc is headquartered in Cheshunt, Hertfordshire, England, United Kingdom. It is a British multinational grocery and general merchandise retailer. It was founded by Jack Cohen in 1919 as a group of market stalls. The name Tesco was appeared in 1924 after Cohen purchased a shipment of tea from T.E Stockwell and combined those initials with the first two letters of his surname Tesco is the worlds second largest retailer measured by profits and third largest retailer measured by revenue. Tesco is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalisation of approximately 24.4 billion as of 15 January 2012, the 15th-largest of any company with a primary listing on the London Stock Exchange. (Source:

http://en.wikipedia.org/wiki/Tesco). Tesco is operating all over 14 countries and also employing almost 530000 people and serving millions of people every week in stores and online. Tesco international operations are in Europe, Asia and United States. Subsidiaries of Tesco are Tesco Stores Ltd, Tesco Bank and Tesco mobile. Tesco plc has grown through organic and in-organic growth in the past. Organic growth is when a company strives to increase its output/production in order to attain greater profits. In this the company does not expand by means of mergers or acquisitions but carries on its course of business. This is generally termed as the most reliable way of growth for the companies. It is also a prime indicator of how effectively the management has used it resources. The company benefits from increased revenue which could refer to an increase in customer base and market share. Organic growth does not need outside investment and is safer than brisk growth. This is due to the tried and tested business models where the profits are reinvested into the company avoiding outside sources of finance. Vision The characteristics which are central to the vision of the business are, they built around customers and colleagues, high-quality assets around the world and multiple opportunities for growth and these characteristics are central to our Vision for the business

Tesco wants to be the most highly valued business by: the customers they serve, the communities in which they operate their loyal and committed colleagues and their shareholders. For these things to be possible the Vision for the business has five elements each of them describes the sort of company Tesco aspires to be. Board of Directors Sir Richard Broadbent :- Non-executive Chairman Philip Clarke :- Group Chief Executive Laurie Mcllwee :- Chief Financial Officer Patrick Cescau :- Senior Independent Director Gareth Bullock :- Non-executive Director Stuart Chambers :- Non-executive Director Olivia Garfield :- Non-executive Director Ken Hanna :- Non-executive Director Deanna Oppenheimer :- Non-executive Director Jacqueline Tammenoms Bakker :- Non-executive Director Jonathan Lloyd :- Company Secretary

Stakeholders Customers Colleagues Investors Industry Local communities Suppliers

Corporate objectives
Offers the best value of money and the most competitive prices to the customers. Meeting the needs of customers by constantly seeking, and acting on, their opinions regarding innovation, product quality, choice, store facilities and service.
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 Providing shareholders with progressive returns on their investment improving profitability through investment in efficient stores and distribution depots, in productivity improvements and in new technology. Working closely with suppliers to build long term business relationships based on strict quality and price criteria. Participating in the formulation of national food industry policies on key issues such as health, nutrition, hygiene, safety and animal welfare. Supporting the well-being of the community and the protection of the environment.

Tesco Businesses

DUNNHUMB Y TESCO BANK

TESCO UK

TESCO CHINA TESCO INDIA

FRESH & EASY

TESCO MALAYSIA

TESCO KIPA

TESCO

TESCO KOREA

TESCO SLOVAKIA TESCO POLAND TESCO TESCO IRELAND HUNGARY

TESCO LOTUS TESCO CZECH REPUBLIC

Important Highlights of Tesco as on 2013

3.5bn trading profit year-on-year performance largely reflects UK reinvestment Final dividend maintained at 10.13p, giving full-year dividend of 14.76p Good progress in the UK, delivering improved results for customers and for Tesco Strong online performance: Group sales of over 3bn for the first time up 13% Confirming exit from the United States process well-advanced Clear approach to future growth, capital expenditure, returns and cash, providing clarity for shareholders
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Competitive strategies of Tesco. Inrecent years, Tesco has greatly diversified, extending its business lines from food into non-food, clothing, financial. services, and telecommunications Tesco launched "Operation Checkout," which included price reductions and centralized purchasing for all its stores. As a result, its market share rose by 4 Percent Tesco used its food brands "Finest" and "Value" to expand into non food items. Many British retailers attempting to build international businesses have failed. Tesco has responded to the need to be sensitive to local expectations in foreign countries by entering into joint ventures with local partners, such as Samsung Group in South Korea (Samsung-Tesco Homeplus), and Charoen Pokphand in Thailand (Tesco Lotus) Tesco announced that it was selling its operations in Taiwan to Carrefour and purchasing Carrefour stores in the Czech Republic and Slovakia. Both companies stated that they were concentrating their efforts in countries where they had strong market positions An inclusive offer is how Tesco describes its aspiration to appeal to upper, medium-, and low-income customers in the same stores. Tesco implemented the Clubcard rewards program to gather customer information, which is then used to cater to specific potential customer needs and wants. When shoppers sign up for the card, they automatically submit their ages, genders, and incomes Tescos marketing strategies involves entering in to foreign market through joint ventures , acquisitions and Greenfield investment

INDUSTRY ANALYSIS:

Strengths 1. Tesco holds a 13% share of the UK retail market. Its multi-format capability means that it will continue to grow share in food, while increasing space contribution from hypermarkets will allow it to drive a higher share in non-food. 2. Tesco has grown its non-food division to the extent that its revenues now total 23% of total group earnings. Tescos international business segment is growing steadily, and is predicted to contribute nearly a quarter of group profits over the next five years. If geographical spread continues to grow, this will ensure Tescos continued regional strength. 3. Tesco.com is the worlds biggest online supermarket and this year the group had sales of over 577 million, an increase of 29% on last year. Tesco online now operates in over 270 stores around the country, covering 96% of the UK. With over a million households nationwide having used the companys online services, the company has a strong platform to further develop this revenue stream. 4. Profits for Tescos operations in Europe, Asia and Ireland increased by 78% during the last fiscal year. The company has a strong brand image, and is associated with good quality, trustworthy goods that represent excellent value. Tescos innovative ways of improving the customer shopping experience, as well as its efforts to branch out into finance and insurance have also capitalized on this. 5. Tesco has developed a successful multiformat strategy that has accelerated its advantage. Its UK sales are now 71% larger than Sainsburys. Also the Competition
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Commissions report makes it very difficult for a competitor to challenge its scale and has effectively scuppered Wal-Marts chances of stealing UK leadership. Therefore, Tesco is in an enormously strong position in its domestic market.

Market share and performance of Tesco when compared to competitors According to the news reported in the The Gauardian dated 19th Novemeber 2013 , Britain's four biggest supermarkets all lost market share for the first time in at least a decade over the last three months as they continue to be squeezed by discounters and upmarket grocers. Tesco, Sainsbury's, Asda and Morrisons all lost ground to cut-price competitors led by Aldi and Lidl, which over the most recent weeks have together accounted for nearly 7% of the grocery market, according to the latest data from Kantar Worldpanel. Almost a third of British households visited a German-owned Aldi discount store in recent weeks. At the same time sales of the big supermarkets' luxury ranges have all been growing fast as squeezed shoppers try to treat themselves without eating out. Releasing Sainsbury's half year results last week, King repeatedly pointed out that Sainsbury's was the only one of the "big four" grocers to increase market share in the past year. While the supermarket continues to increase sales at 2.6% a much stronger pace than major rivals Tesco, Asda and Morrisons even Sainsbury's growth fell short of the overall market growth of 3.2%. It also looked weedy in comparison to impressive growth from Lidl and Aldi .

Aldi's sales rose a spectacular 31.1% in the 12 week period, compared to the same period a year before, while Lidl stepped up its growth to 13.8%. Much of Aldi's growth is coming from new stores but they are attracting shoppers away from the bigger grocers. Over the past year, Aldi and Lidl have added nearly 1 percentage point of market share in the UK equivalent to about 1bn taking their total grip on the market to nearly 7%. Aldi has led the way in stealing shoppers from rivals, particularly Tesco and Asda, according to research by analysts Verdict released 2013. The major supermarkets are also losing market share to premium players Waitrose and Marks & Spencer, both of which have ambitious plans to open new stores. Waitrose saw an 8.8% rise in sales in the 12 week period, contributing to an unbroken rise in market share since 2009, according to Kantar. The retailer is benefiting from an increasing interest in the quality of food in the wake of the horse meat scandal which broke early this year. Aldi and Lidl are trying to attract more up-market customers with advertising campaigns promoting luxury items such as Serrano ham and fresh lobster for Christmas. Lidl launched its first ever British television advertising campaign this month, several days before any of the major grocers' festive ads hit the small screen.

(http://www.theguardian.com/business/2013/nov/19/britain-supermarkets-market-sharefall-tesco-sainsburys-lidl, Britain's big supermarkets lose ground to cut-price rivals and upmarket grocers Viewed on 9th January 2014)

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CHAPTER 3 FINANCIAL ANALYSIS

Financial Statement Analysis
The financial statements provide prosperous information about the operational results of a business unit and much can be learned from a cautious examination of these statements. The main purpose of financial statement is for decision making. Financial analysis is the procedure of determining the significant operating and financial characteristics of a firm from accounting data. The profit and loss account and Balance sheet are indicators of two important factors- profitability and financial reliability.

Objectives of financial analysis

To calculate the earning capacity of the firm. To guage the financial performance and financial position of the firm. To find out the long term liquidity of the funds. To evaluate the solvency of the firm. To find out the debt capacity of the firm. To choose future prospects of the firm. To identify the progress of the firm To calculate the efficiency of operations.

Methods of Financial Analysis

Ratio Analysis Comparative financial statement analysis Comparative Balance Sheet Comparative Income Statement Common size statement analysis Common size balance sheet Common size income statement

Ratio Analysis
Ratio Analysis is one of the important tools of financial analysis. It aims at making quantitative information for decision making. Some ratios indicate the trend or progress or downfall of the firm. It helps the financial management in evaluating the financial position and performance of the firm.

YEAR Current Ratio Quick Ratio

2012 0.67times 0.37times

11

2013 0.69times 0.41times

Stock Turnover Ratio Stock Days Gross Profit Ratio Net Profit Margin Return on Capital Employed Asset Turnover Ratio Return on Assets Return on Equity Liquidity Ratios

17.54 times 20.81days 8.15% 6.3% 22.68% 1.32 times 5.73% 16.30%

16.55 times 22.06 days 6.31% 3.4% 11.76% 1.28 times 0.25% 0.72%

Liquidity is the capacity of the firm to meets its current liabilities as they fall due. The following are the important liquidity ratios: Current Ratio: Current ratio is the most common ratio for calculating liquidity. It signifies the ratio of current asset to current liabilities. It is also called working capital ratio. Current ratio = Current Asset/ Current Liabilities

Year Current Ratio

2012 (Amt in m) 12,863/19,249 0.67times

2013(Amt in m) 13,096/18,985 0.69 times

Interpretation The standard norm of current ratio is 2:1, it is considered as an ideal one. So the current ratio of Tesco is not satisfactory. The bve figure shows that the trend in the current ratio does not reach the standard; low ratio indicates inadequate working capital. Current ratio of Tesco has a slight increase as compared to the previous year i.e. from 0.67 to 0.69 which means that Tescos ability to pay its short term debt is increasing.

Quick Ratio: Quick ratio is also known as Acid Test Ratio or Liquidity Ratio. It is the relationship between quick assets to current liabilities. Quick ratio = (Current asset-stock)/ Current Liabilities
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Year Quick Ratio

2012 (Amt in m) (12,863-3598)/ 19,249 0.48 times

2013 (Amt in m) (13,0963744)/ 18,985 0.49 times

Interpretation The satisfactory level of Quick ratio is considered as 1:1. But the ratio level in both years are less than 1:1 which means the quick assets does not have the ability to pay off their liabilities. A company would not want their quick ratio less than 1:1 because this period may badly affect the ability to pay off their current debt. Financial Risk/Working Capital Management Ratios Stock Turnover Ratio: This ratio shows whether investment in inventory is efficiently used or not. It explains whether investment in inventories is within proper limits or not. There is no standard ratio for inventory turnover. Each field and kind of business has its own standard. Stock Turnover ratio = Cost of goods sold/Average stock

Year Stock turnover

2012 (Amt in m) 58519/3,598 16.26 times

2013 (Amt in m) 60737/3,744 16.22 times

Interpretation Tesco is doing a good job in managing their inventories. Comparing with the previous year there is a slight difference in the ratio. There is no standard ratio for the inventory turnover. The ratio levels relatively close to each other, so the difference in the ratio level cannot be considered as low. Stock days: It shows how many days of stock (inventory) are held on average. Stock days = Number of days in a year/Stock turnover

Year Stock days

2012 (Amt in m) 365/16.26

13

2013 (Amt in m) 365/16.22 22.50 days

22.45 days

Profitability ratios Gross Profit Ratio: The ratio expresses the relationship between gross profit and sales. The ratio helps in determining whether the average percentage of mark up on the goods is maintained or not. Gross profit ratio = Gross profit/ net sales*100 2012 (Amt in m) 2013 (Amt in m) Gross Profit 5397 Sales 63916

4089 64826

Year Gross profit margin Interpretation

2012 (Amt in m) 5,397/63,916*100 8.44%

2013 (Amt in m) 4,089/64,826*100 6.31%

The table shows the gross profit ratio reduced in 2013. It indicates that the company was not much successful in managing their operations than the previous year. The decrease in the gross profit ratio is due to the increase in the cost of goods without a corresponding increase in the selling price of the goods sold. Net Profit Ratio : This ratio is also called as the net profit to sales or net profit margin ratio. This ratio is used to measure the overall profitability of the business. Net profit margin = Net profit before tax/Sales*100 2012 (Amt in m) 2013 (Amt in m) Net profit before tax 4038 Sales 63916

1960 64826

Year Net Profit margin

2012 (Amt in m) 4038/63,916*100 6.31%

2013 (Amt in m) 1,960/64,826*100 3%

Interpretation Net profit margin is the indicator of how efficient a company is and how well it controls its costs. The Net profit margin of Tesco in 2013 is reduced; it shows that the efficiency of the company is lesser in comparison with the previous year. The low profit margin indicates the low margin of safety.
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Return on Capital Employed: This ratio is also known as Return On Investment (ROI). The primary objective of making investment in any business is to obtain satisfactory return on capital invested. ROCE = Profit before interest and tax/ Capital, reserves and long-term liabilities*100

Year ROCE

2012 (Amt in m) 4038/17801*100 22.68%

2013 (Amt in m) 1960/16661*100 11.76%

Interpretation This ratio shows how productively a business is using its capital by relating overall profit performance to the amount of capital employed in business. Here the return on capital employed in 2013 is lesser than 2012. ROCE is a relative profit measurement that demonstrates the return the business is generating from its gross assets. ROCE decreased during the year, reflecting the trading profit performance. Asset Turnover Ratio: This ratio shows the efficiency of an entitys capacity to use its assets to generate sales. Asset Turnover Ratio = Sales/ Total Assets

Year Asset Turnover

2012 (Amt in m) 63916/50781 1.3times

2013 (Amt in m) 64,826/50129 1.3times

Interpretation Asset turnover ratios in both the years are similar. return on Assets: It is an indicator of how profitable a company is relation to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. it is calculated by dividing a company's annual earnings by its total assets ROA = Net profit / Total Assets*100 2012 (Amt in m)
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2013 (Amt in m)

Net Profit after tax Total assets

2814 50781

120 50129

Year ROA Interpretation

2012 (Amt in m) 2,814/50781*100 5.54%

2013 (Amt in m) 120/50129 *100 0.24%

The return on asset in 2013 is lower than the previous year which means the company has to focus more to generate more revenue.

Return on Equity: This ratio indicates the return earned on the book value of the equity share holders equity. Owners are more interested with this since it indicates the success of the company. ROE = Profit after tax/ Share Capital + Reserves*100 2012 (Amt in m) 2013 (Amt in m) 2814 17801 120 16661

Net Profit after tax Share capital & Reserves

Year ROE

2012 (Amt in m) 2,814/17801 16%

2013 (Amt in m) 120/16661 0.74%

Interpretation Return on equity in 2013 is 0 .74% which is lower than the previous year i.e. in 2012 the ROE is 16%, which indicates that the return produced for the shareholders are decreasing.

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Comparative financial statement analysis The preparation of comparative financial statements is an important device of horizontal financial analysis. Financial data becomes more meaningful when compared with similar data for a previous period or a number of prior periods. These statements are very helpful in measuring the effects of the conduct of a business during the period under consideration. Comparative Balance Sheet

The comparative Balance sheet analysis is the study of the trend of the similar items, collection of items and computed items in two or more Balance Sheets of the same business enterprise on different dates. The changes in the periodic Balance sheet items reflect the conduct of the business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of the period and these changes can help in forming an opinion about the progress of the enterprise.

Table 6 explain Comparative Balance sheet of Tesco Plc Interpretation The comparative Balance sheet shows the increase or decrease of the assets and liabilities and the amount of increase or decrease. If the current assets increases and current liabilities decrease the cash will decrease and if the current assets decreases and current liabilities increase the cash will increases here the current asset increased by 1.81%. Fixed assets reduced in 2013 compared to the previous year by 3.23% In case of current liabilities, there is a decrease of 1.37% so there is also decrease in the cash. Non-current assets were reduced by.036

Comparative Income Statement

Comparative Income Statement is a statement prepared to get an idea of the progress of a business over a period of time. The changes in absolute data in money values and percentages can be determined to analyse the profitability of a business. Refer Table 7 : represent Comparative Income Statement of Tesco Plc Interpretation The table shows that the net sale was increased by 1.42%in 2013 and the cost of sales also increased. Gross profit rate was decreased by 24.24%. Operating profit and net profit also decreased by 48% and 95.73 respectively in 2013.It shows that the profitability of the company was not in a good condition.
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Common Size statement analysis Common size statements are prepared to show the relationship of different individual items with some common items. These are the comparative statements that give only the vertical percentage ratio for financial data without giving rupee values. Common Size Balance Sheet

It is a statement in which Balance sheet items are expressed as percentage of each asset to total of assets and percentage of each liability to total of liabilities.

Refer table 8 Common Size Balance Sheet of Tesco Plc Interpretation In common size analysis the percentage of each assets are calculated to its total assets and liabilities to the total liabilities. In 2012 the percentage of fixed asset is 66.7% of total assets and in 2013 the percentage is 65.5. In the case of current assets the percentages is 33.34 and 34.49 in 2012 and 2013 respectively. Current liabilities are of 51.95% in 2012 and 53.26% in 2013.

Common Size Income Statement

A Common Size Income Statement is a statement in which each item of expense is shown as a percentage of net sales. A significant relationship can be established between items of income statement and volume of sales. Increase in sales will certainly increase the selling expense not the administration and financial expenses which are mostly fixed in nature. In case the volume of sales increases to a considerable extent, administration and financial expenses may also go up. Refer table 9 Common Size Income Statement of Tesco Plc

Interpretation Each item in common size income statement is expressed as a percentage of net sales. Gross profit is of 8.44% of net sales in 2012 and 6.31 % in 2013. Operating profits are of 0 .26% and 0.27% in 2012 and 2013 respectively. The profit of the year is 4.40% in 2012 and 0.01% in 2013.

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CHAPTER 4 : SOURCES OF FINANCE

Financial discipline of TESCO for the future The Tesco of the future will pursue more focused growth, consume less capital and generate more free cash flow. Making this transformation in all its aspects will of course not be without its challenges.

1. Current Performance of TESCO Group Sales Tesco plc is a well known international grocery and general merchandising retail chain based in Britain. In the financial year2012-13 it has a turnover of 72. 4 billion with a group trading profit of 3.5 billion. The financial statistics for the group sales are as follows: 2012-13 Group Sales Add UK : 48216m Asia : 12317m Europe : 10809m Tesco Bank : 1021m Group Revenue Group trading profit Add UK : 2,272m Asia : 661m Europe: 329m Tesco Bank : 191m 2011-12 Increase/Dec rease 72,035 328

72,363m

Add UK : 47,355m Asia: 11,627m Europe: 11,371m US: 638m Tesco Bank: 1,044m 64,539 3,761 Add UK : 2,480m Asia : 737m Europe: 529m US (loss): (153) m Tesco Bank : 168m 287 -308

64,826m 3,453m

Underlying profit before tax 3,549 3,915 -366 Underlying diluted earnings 35.97p 37.41 -1.44 per share ROCE 12.7 Capex 3.0bn Source http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_201213_results_statement.pdf While comparing the financial year 2013 with the previous year 2012, it was found that the group sale increased by 1.3% and follows a constant growth rate of2.5%. However the group trading profit declined by 13%.
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The impact on group trading profit is as follows : UK Asia Eureope Tesco Bank (8.3) % (10.3)% (37.8)% (15.1)% Source http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_201213_results_statement.pdf

Group trading profit declined by (13.0)%, reflecting investment in the UK, the impact of regulatory changes in South Korea and the challenging economic conditions in Europe. This trading performance coupled with reduced JV income and higher net finance costs led to a decline in Group underlying profit before tax of (14.5)%

According to Philip Clarke, the Chief Executive of Tesco group, the main objective of the group is set out for sustainable and disciplined growth. The business environment in UK remains controllable in nature even though faced a small discernible impact on frozen and chilled convience food sales. But outside the UK the business environment remain challenging especially in regulatory matters.

UK Tesco have made the investment as they planned and it has led to a clear improvement in their performance, both in absolute terms and relative to the market. Total sales rose by 2.6% excluding petrol, and like-for-like performance improved during the course of the year. The plan laid out by Tesco last year had described the impact of the investment in terms of a rebasing of trading margin to 5.2% and the progress they have made in the UK has been achieved whilst delivering a margin absolutely in line with these expectations. Asia The performance of Asia was in line with expectations and was dominated by the South Korean regulatory changes concerning trading hours. Sales of Asia were reduced by 0.2% i.e. from the constant rate of 6.1% to 5.9%. Asias revenue (excluding VAT, impact o f IFRIC 13) was also have fluctuated from the constant rate of 6.2% to 6.0%.

Europe Markets in Europe remain fundamentally attractive; this years performance of Tesco was disappointing. The company faced significant headwinds throughout the year, as
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macroeconomic uncertainties continued to impact businesses. This had a particularly marked impact on the general merchandise businesses across the region, holding back the overall like-for-like sales performance. Tesco Bank Tesco made progress through the year in banking products, with good growth in both customer accounts and balances. Our insurance business was held back by a very challenging market, with strong downward price pressure in motor insurance. Throughout this period, we focused on ensuring we offer the best products and prices to our loyal Club card customers. In recent years, the Banks profit has been impacted by a couple of non -trading factors the first, fair value releases and the second, the run-off of our legacy insurance agreement with Direct Line Group. Before these, profits grew well and are up 13% with a particularly pleasing performance in customer lending. Tesco Bank

DIVIDEND The offset of business in one direction is not effecting the overall growth of the firm. The current year 2013, also the company paid a final dividend of 10.13 p per share. This demonstrate the confidence among the investors and the shows the growth strategy Future Prospects of the company By implementing financial discipline , the TESCO PLC aims in driving sustainable growth by giving priorities in three segment : 1. Continuing to strengthen the UK business 2. Sustainable growth through multichannel. 3. Pursuing disciplined international growth

This means that, in the current economic environment, investors can expect us to deliver:

Mid-single digit trading profit growth Return on capital employed within a range of 12% to 15% Dividend growth, broadly in line with underlying earnings*, with a target cover of more than 2 times

The approach to growth and returns

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key financial areas of Financial Appraisal of a loan request

Normally five stages are involved while assessing loan request by the bank. They are
1. Identification of the customer : before assessing the loan application, the banker will evaluate the identiy of the customer and the nature of business of the customer 2. Assessing the application by the customer 3. Review of application 4. Evaluation 5. Monitoring and control

At the time of assessing and review of the application the bank adopts two methods: 1. Financial appriasl methods 2. Non financial appraisal methods

The financial appraisal by the bank focused on mainly three broad area Financial structure of the firm Liquidity of the firm Profitability

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1. Financial structure of Tesco Equity capital Increase/Decrease Amount 1 56 440 -1629 Percentage % 0.25 1.13 179.59 -13.39

2012 Amt in m Share Capital Share premium All other reserves Retained earnings Equity contributed to parent company 402 4964 245 12164 17801

2013 Amt in m 403 5020 685 10535 16661

During the financial year, 19 million (2012: 23 million) ordinary shares of 5p each were issued in relation to share options for an aggregate consideration of 57m (2012: 69m). During the financial year, 4 million (2012: 33 million) shares of 5p each were issued in relation to share bonus awards for an aggregate consideration of 0.2m (2012: 1.6m). Between 24 February 2013 and 12 April 2013 options over 1,288,429 ordinary shares were exercised under the terms of the Savings-related Share Option Scheme (1981) and the Irish Savings-related Share Options Scheme (2000). Between 24 February 2013 and 12 April 2013 options over 2,741,490 ordinary shares have been exercised under the terms of the Executive Share Option Schemes (1994 and 1996) and the Discretionary Share Option Plan (2004). As at 23 February 2013, the Directors were authorised to purchase up to a maximum in aggregate of 804.0 million (2012: 803.6 million) ordinary shares.

While analysing the equity capital structure the company follows a strong financial structure

Debt

Current financial cost and net debt : The total borrowings of the firms are as follows. Total borrowings 2013
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2012

In millions Current Non current 766 10068

In millions 1838 9911

The current boorwoing include the bank loans , overdraft, loans from joint venture and other financial lease. And the non current borrowings incorporates with long term loans and bonds From a lenders point of view if we look into the group sales , there was an increase by 1.3 % to 72.4bn. At constant exchange rates, sales increased by 2.5% (including petrol) and 3.1% (excluding petrol. During the financial year 2012- 2013 , the existing borrowing was increased due to resitriction in opening hours in Korean market, deteriorating of economic environments in Cenrtal Europe and partial closing down of operation in US market. The major impact of gross profit was due to the following reasons ; UK property write-down of (804)m, following an in-depth review of our forward pipeline Goodwill impairment of (495)m, reflecting the impact of differing growth prospects in Poland, the Czech Republic Increase of (115)m in provision for potential Payment Protection Insurance claims against Tesco Bank 2013 In millions Profit before tax Net finance cost Cash generated from operation Changes of net debt 1960 282 3813 6597 2012 In millions 4038 235 5685 6838

Net finance costs increased to 282m, from 235m last year, largely due to the revaluation of the liability relating to the purchase of the minority interest in our Korean business in July 2011. While analysing the cash flow statement it was found that there was a reduction of 2.9bn (2011/12: 3.8bn) on cash from operating activities. It was reduced with overall increase in working capital. The increase in working capital was due to the result of regulatory impacts in the economy. However as an strategy to improve the cash flow it has opened the Tesco Lotus Retail Growth Freehold and Leasehold Property Fund (TLGF) with 17 malls in Thailand in March 2012

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Geraring ratio

Gearing ratio % Debt ratio Debt to equity ratio

39.6 % 46.98 .44

Gearing ratio means the proportion of net assets financed through debt rather than equity, calculated as net debt divided by total equity. The gearing ratio of remained relatively flat reflecting stable debt position and growing investment in assets. When comparing the debt ratio and debt to equity ratio, the company is in a strong financial position to acquire more loan. It has debt ratio of 46.98

Evaluation on share price :

Tesco reported weak trading figures for the vital Christmas period with UK like-for-like sales falling 2.4%. The market expected sales to decline on average by 1.5% so this result is worse than expected and comes against the backdrop of strong sales growth at rival, Sainsburys, who reported a 0.2% rise in third quarter like-for-like sales yesterday. The market range for Tesco sales performances was between a 0.5% fall and 2.5% fall and so their performance lies at the very bottom end of market forecasts.The UK performance was impacted by a weaker grocery market and a tough comparative. Tesco now expects to report full year results in line with the current market consensus range, which is 3.15bn to 3.41bn (mean estimate 3.33bn. Tesco also suffered declines in like for like sales internationally by -2.2%, a figure which was negatively impacted by foreign exchange movements. Before FX impact, sales declined by 0.6% internationally with trading in Asia falling by 0.6% and Europe declining 0.8%. Trading Tesco shares Spread betting and CFD trading Tesco shares of late has been somewhat of a challenge. The failure to break above the 390p level over much of 2013 added pressure on the stock, and traders were happy to short the share price back down to support levels of around 320p.

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CONCLUSION
While going through the fiancnial statement analysis , it was found that the company is flourishing despite of downturn in UK and Worlds economy. Having an experience of more than 100 years, it is enjoying a good market share in the business. Tesco earns great respect and benefits from its loyal customers. This has helped the company to stay profitable and keep a positive position even in its troubled times. Things are still looking encouraging for company even though recession has done much harm to the economy and the businesses in general.

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Appendices
1 current ratio

2012 Amt in m Current Assets: Inventories Trade & other receivables Loans & advances to customers Derivative financial instruments Current tax assets Short term investments Cash & cash equivalents Other Assets Total Current Assets Current Liabilities Trade& other payables Financial liabilities: Borrowings Derivative financial instruments & other liabilities Customer deposits & deposits by bank Current tax liabilities Provisions Other Liabilities Total current liabilities 3598 2657 2502 41 7 1,243 2305 510 12863 11234 1838 128 5465 416 99 69 19249

2013 Amt in m 3744 2525 3094 58 10 522 2512 631 13096 11094 766 121 6015 519 188 282 18985

2. Quick ratio

2012 (Amt in m) Total Current Assets Less: Inventories

28

12863 -3598

2013 (Amt in m) 13096 -3744

Quick Assets Current Liabilities

9265 19249

9352 18985

3. Stock turnover ratio

2012 (Amt in m) Cost of goods sold Average stock 58519 3598

2013 (Amt in m) 60737 3744

4. Return on Capital employed

2012 (Amt in m) Share Capital Share premium All other reserves Retained earnings Non-controlling interests Total Profit before interest & tax
5. asset Turnover ratio

2013 (Amt in m) 402 4964 245 12164 26 17801 4038 403 5020 685 10535 18 16661 1960

2012 (Amt in m) Total Current Assets Fixed Assets: Property, plant & equipment Total Fixed Assets Non-current Assets Goodwill & other intangible assets Investment property Investments in joint ventures & associates Other investments Loans & Advances to customers
29

2013 (Amt in m) 13096 24870 24870 4362 2001 494 818 2465

12863 25710 25710 4618 1991 423 1526 1901

Derivative financial instruments Deferred tax assets Total noncurrent assets Total Assets(Current assets + Fixed assets +non- current assets) Sales

1726 23 12208 50781 63916

1965 58 12163 50129 64,826

6. Comparative balance sheet

2012 Amt in m Current Assets: Inventories Trade & other receivables Loans & advances to customers Derivative financial instruments Current tax assets Short term investments Cash & cash equivalents Other Assets Total Current Assets Fixed Assets: Property, plant & equipment Total Fixed Assets Non-current Assets Goodwill & other intangible assets Investment property Investments in joint ventures & associates Other investments Loans & Advances to customers Derivative financial instruments Deferred tax assets Total noncurrent assets Total Assets Current Liabilities Trade& other payables Financial liabilities: Borrowings 3598 2657 2502 41 7 1,243 2305 510 12863 25710 25710 4618 1991 423 1526 1901 1726 23 12208 50781 11234 1838
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2013 Amt in m 3744 2525 3094 58 10 522 2512 631 13096 24870 24870 4362 2001 494 818 2465 1965 58 12163 50129 11094 766

Increase/Decrease Amount 146 -132 592 17 3 -721 201 121 233 -840 -830 -256 10 71 -708 564 239 35 -45 -652 -140 -1072 Percentage % 4.06 -4.96 23.66 41.46 42.86 -58.00 8.72 23.72 1.81 -3.26 -3.23 -5.54 0.50 16.78 -46.39 29.67 13.85 -0.36 -1.28 -1.25 -58.32

Derivative financial instruments & other liabilities Customer deposits & deposits by bank Current tax liabilities Provisions Other Liabilities Total current liabilities Non-current liabilities Financial liabilities: Borrowings Derivative financial instruments and other liabilities Post-employment benefit obligations Deferred tax liabilities Provisions Total non-current liabilities Share Capital Share premium All other reserves Retained earnings Non controlling interest Total Total Liabilities

128 5465 416 99 69 19249

121 6015 519 188 282 18985

-7 550 103 89 -264

-5.47 10.06 24.76 89.89 -1.37

9,911 688 1,872 1,160 100 13731 402 4964 245 12164 26 17801 50781

10,068 759 2,378 1,006 272 14483 403 5020 685 10535 18 16661 50129

157 71 506 -154 172 752 1 56 440 -1629 -8 -1140 -652

1.58 10.31 27.02 -13.26 5.48 0.25 1.13 179.59 -13.39 -30.76 -6.40 -1.28

7. Comparative income statement

Net Sales Less: Cost of sales Gross Profit (A) Operating expenses Administrative expenses P/L arising on property related items Total operating expenses (B) Operating Profit (A-B) Add: Share of post tax profits of Joint Venture & associates

2012 Amt in m 63916 58519 5397 1612 -397 1215 4182 91

2013 Amt in m 64826 60737 4089 1562 339 1901 2188 54

Increase/Decrease Amount 910 2218 -1308 -50 58 686 -1994 -37 Percentage % 1.42 3.79 -24.24 -3.10 14.61 56.46 -47.68 -40.66

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Financial Income Less: Finance cost Profit before tax Less: Taxation Profit for the year from continued operations Discontinued operations: Loss of the year from discontinued operations Profit for the year

176 4449 411 4038 874 3164

177 2419 459 1960 574 1386

-1 -2030 48 -2078 -300 -1778

-0.56 -45.62 11.67 -51.46 -34.32 -56.19

350 2814

1266 -120

916 2694 -95.73

8. common size balance sheet

2012 Amount (in m) Fixed Assets: Property, plant & equipment Total Fixed Assets Current Assets: Inventories Trade & other receivables Loans & advances to customers Derivative financial instruments Current tax assets Short term investments Cash & cash equivalents Other assets Total Current Assets Non-current Assets Goodwill & other intangible assets Investment property Investments in joint ventures & associates Other investments Percentage Amount (in m)

2013 Percentage

25710 25710 3598 2657 2502 41 7 1243 2305 510 12863

50.63 50.63 7.09 5.23 4.93 0.08 0.01 2.45 4.54 1.00 25.33

24870 24870 3744 2525 3094 58 10 522 2512 631 13096

49.61 49.61 7.47 5.04 6.17 0.11 0.02 1.04 5.01 1.26 26.12

4618 1991 423 1526

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9.09 3.92 0.83 3.00

4362 2001 494 818

8.70 3.99 0.99 1.63

Loans & Advances to customers Derivative financial instruments Deferred tax assets Total noncurrent assets Total Assets Current Liabilities Trade& other payables Financial liabilities: Borrowings Derivative financial instruments & other liabilities Customer deposits & deposits by bank Current tax liabilities Provisions Other Assets Total current liabilities Non-current liabilities Financial liabilities: Borrowings Derivative financial instruments and other liabilities Post-employment benefit obligations Deferred tax liabilities Provisions Total non-current liabilities Share Capital Share premium All other reserves Retained earnings Non controlling interest Total Total Liabilities & Equity

1901 1726 23 12208 50781 11234 1838

3.74 3.39 0.05 24.04 100 22.12 3.62

2465 1965 58 12163 50129 11094 766

4.91 3.92 0.12 24.26 100 22.13 1.53

128 5465 416 99 69 19249

0.25 10.76 0.82 0.19 0.14 37.90

121 6015 519 188 282 18985

0.24 11.99 1.03 0.38 0.57 37.87

9,911

19.52

10,068

20.08

688 1,872 1,160 100 13731 402 4964 245 12164 26 17801 50781

1.35 3.69 2.28 0.19 27.03 0.79 9.76 0.48 23.95 0.05 35.05 100

759 2,378 1,006 272 14483 403 5020 685 10535 18 16661 50129

1.51 4.74 2.00 0.54 28.89 0.80 10.01 1.37 21.02 0.04 33.24 100

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9. Common size income statement

2012

2013

Net Sales Less: Cost of sales Gross Profit (A) Operating expenses Administrative expenses P/L arising on property related items Total operating expenses (B) Operating Profit (A-B) Add: Share of post tax profits of Joint Venture & associates Financial Income Less: Finance cost Profit before tax Less: Taxation Loss of the year from discontinued operations Profit of the year

Amount Amount (in m) Percentage (in m) Percentage 63916 100 64826 100 58519 91.56 60737 93.69 5397 8.44 4089 6.31 1612 -397 1215 4182 91 176 411 4038 874 3164 (350) 2814 2.52 0.62 1.9 6.54 0.14 0.26 0.64 6.32 1.37 4.95 0.54 4.40 1562 339 1901 2188 54 177 459 1960 574 1386 (1266) 120 2.41 0.52 2.93 3.38 0.08 0.27 0.71 3.02 0.89 2.14 1.95 0.01

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Group Balance Sheet 23 February2013 (Amt in m) Non current assets Goodwill & other intangible assets Property, plant & equipment Investment property Investments in joint ventures & associates Other investments Loans & Advances to customers Derivative financial instruments Deferred tax assets Current assets Inventories Trade & other receivables Loans & advances to customers Derivative financial instruments Current tax assets Short term investments Cash & cash equivalents Assets of the disposal group and non-current assets classified as held for sale 4362 24870 2001 494 818 2465 1965 58 37033 3744 2525 3094 58 10 522 2512 12465 631 13096 Current liabilities Trade& other payables Financial liabilities: Borrowings Derivative financial instruments & other liabilities Customer deposits & deposits by bank Current tax liabilities Provisions Liabilities of the disposal group classified a held for sale
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25 February 2012 (Amt in m) 4618 25710 1991 423 1526 1901 1726 23 37918 3598 2657 2502 41 7 1,243 2305 12353 510 12863 (11234) (1838) (128) (5465) (416) (99) (19180) (69)

(11094) (766) (121) (6015) (519) (188) (18703) (282)

Net current liabilities Non-current liabilities Financial liabilities: Borrowings Derivative financial instruments and other liabilities Post-employment benefit obligations Deferred tax liabilities Provisions Net assets Equity Share Capital Share premium All other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity

(5889)

(6386)

(10,068) (759) (2,378) (1,006) (272) (14483) 16661 403 5020 685 10535 16643 18 16661

(9,911) (688) (1,872) (1,160) (100) (13731) 17801 402 4964 245 12164 17775 26 17801

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Group Income Statement

Year ended 23 February 2013

52 weeks 2013 (Amt in m) 64826 (60737) 4089 (1562) (339) 2188 54 177 (459) 1960 (574) 1386 (1266) 120

52 weeks 2012 (Amt in m) 63916 (58519) 5397 (1612) 397 4182 91 176 (411) 4038 (874) 3164 (350) 2814

Continuing operations Revenue Cost of sales Gross profit Administrative expenses Profit/losses arising on property related items Operating profit Share of post-tax profits of joint ventures and associates Finance income Finance costs Profit before tax Taxation Profit of the year from continuing operations Discontinued operations Loss for the year from discontinued operations Profit for the year

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Group Cash Flow Statement Year ended 23 February 2013 52 weeks 2013 (Amt in m) 3,873 (457) (579) 2,837 (72) 68 1,351 52 weeks 2013 (Amt in m) 5,688 (531) (749) 4,408 (65) 1,141

Cash flows from operating activities Cash generated from operations Interest paid Corporation tax paid Net cash generated from operating activities Cash flows from investing activities Acquisition/disposal of subsidiaries, net of cash acquired/disposed Proceeds from sale of joint ventures and associates Proceeds from sale of property, plant and equipment, investment property and non-current assets classified as held for sale Purchase of property, plant and equipment, investment property and non-current assets classified as held for sale Purchase of intangible assets Net (increase)/decrease in loans to joint ventures and associates Investments in joint ventures and associates Net proceeds from sale of/(investments in) short-term and other investments Dividends received from joint ventures and associates Interest received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of ordinary share capital Increase in borrowings Repayment of borrowings Repayment of obligations under finance leases Purchase of non-controlling interests Dividends paid to equity owners Dividends paid to non-controlling interests Own shares purchased Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents
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(2,619)

(3,374)

(368) (43) (158) 1,427 51 85 (278) 57 1,820 (3,022) (32) (4) (1,184) (2,365) 194

(334) 122 (49) (767) 40 103 (3,183) 69 2,905 (2,720) (45) (89) (1,180) (3) (303) (1,366) (141)

Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes Cash and cash equivalents including cash held in disposal group at the end of the year Cash held in disposal group Cash and cash equivalents at the end of the year

2,311 26 2,531 (19) 2,512

2,428 24 2,311 (6) 2,305

Bibliogarphy http://www.tescoplc.com/files/pdf/results/2013/prelim/prelim_201213_results_statement.pdf http://www.manishabraham.com/blog/tesco-plc-an-overview-of-performance-andstrategy-for-the-year-2013 http://www.tesco.com/investorInformation/report95/corpobj.html http://www.svtuition.org/2008/10/comparative-financial-statement.html http://opentuition.com/wp-content/blogs.dir/1/files/group-documents/29/1351808879RAP8Tesco.pdf http://financials.morningstar.com/ratios/r.html?t=TSCDY http://www.hl.co.uk/shares/shares-search-results/t/tesco-plc-ordinary-5p/financialstatements-and-reports http://www.tescoplc.com/index.asp?pageid=17&newsid=783

http://www.ivoryresearch.com/samples/business-essay-example-tesco-swot-pestel-porterfive-forces-and-value-chain-analysis/ http://www.cityindex.co.uk/market-analysis/market-news/22757302014/tesco-shares-turnvolatile-after-2-4-decline-in-uk-sales-over-christmas/

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