TESCO - Profitability, Liquidity, and Asset Management - Assignment Example

The paper “TESCO - Profitability, Liquidity, and Asset Management“ is a  brief variant on assignment on finance & accounting. TESCO is a leading multinational company that deals with a range of general and retail general merchandise that operates superstore, supermarkets, and hypermarkets. It the third largest retail store in England. It started off as a grocery center and later diversified into other general items such as clothes, electronics, software, and books among others.

After the preparation of the financial statements by the accountant, it is a statutory requirement that these statements be audited by an independent party. The essence of this procedure is to ascertain that the preparation has been in accordance with the accounting standards and principles in place. These auditors should also write a report that states their view if the statements present a true and fair view of the company’s performance. They also ascertain whether the statements are understandable or whether they represent enough information to the users. The auditor’s report reveals that there was an overstatement of the commercial profits. After examining the financial statements, the auditors affirmed that the statements represented were fair and

Profitability

• Return on equity (ROE)
• Gross profit margin
• Net profit margin

Liquidity

• Current ratio

Asset Management

• Inventory (stock)turnover period
• Trade payables’ (creditors’)turnover period

Other

• Gearing ratio
• Price-earnings ratio

In 2013/2014, the total sales figure was £70,894 million and in the 2014/2015 year, the amount rose to £89,654 million. The percentage rise in the sales amount was 26.5%. The operating profit of the 2013/2014 year was £2,631 which later dropped to (£5,792) million in fiscal year 2014/2015. This represented a 320.1% decrease.

Share Price
The share price for the 2013/2014 fiscal year was 5 pounds which remained at the same price of 5pounds in the fiscal year 2014/2015. This represented no movement of the share price.

Answer:
The ROE has increased from 4.1% to 13.6% which is very favorable to the investors. The increase has been due to an increase in revenues generated from the sales and other investment options. Compared to the industrial average, the ROE is doing fairly well. The gross profit margin has risen from last year to a 9.2% value. Compared to the industry average of 10%, it is doing quite well and it will be a good sign to the investors about the company. The net profit margin is doing well because it is currently at 8% as compared to the industrial average of 3%. This gives the investors confidence in the management of the organization. The current ratio is doing very well since it is above the current industry average of 1.7 x. This is a very good sign for the investors since the company is liquid enough.

The inventory turnover period is way below the industry average which is a good thing because they collect their debts on time to facilitate better management and less loss of bad debts. The payables turnover period is also above the industrial average and therefore, this means that they pay off their creditors late compared to other firms which brings about less confidence of the creditors to the firm while giving it credit.

The gearing ratio, on the other hand, is below the industry average which means that the firm is doing well in terms of repaying long term commitments to creditors. This means that they will be preferred by investors due to their portray of efficient resource management. The price-earnings ratio is very high as compared with the industrial average and this is a good sign of the investment opportunities available.