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Financial Report Analysis - Essay Example

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As per the company's financial statements, Tesco Plc's capital structure comprises about 64% equity finance and 36% debt finance. Therefore, it can be said that the company uses a mix of debt capital and equity capital to finance its business operation. It does not over rely on the externally borrowed funds and has sufficient equity funds available to meet various financial needs of the business…
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Financial Report Analysis
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Download file to see previous pages The company has been listed on the major stock markets around the world for years. The major benefit of floating a company's shares in the stock market is that the company's shares become available to general public, which in turn helps a company to generate more equity finance for the company without any liability. This is the reason Tesco Plc does not need much of debt finance to fund its business operations. It has more of equity finance readily available inside the company without having to pay any interest and without any liability to pay off the amount in future. It has transformed its entire capital structure and as evident from its annual reports for the last three years, the company has been minimizing the extent of external debt used for financing. Thus, issuance of shares publicly and stock market listing is very useful for a company in increasing the financing options to obtain necessary funds for the business.
Listing in stock market is very beneficial to a company's shareholders. It enhances the liquidity of shares owned by the shareholders, hence they become more marketable as the shares can easily be bought and sold in the stock market. It becomes more convenient for the shareholders to determine the market value of shares in their hands. Apart from these benefits, the shareholders get an opportunity to obtain financial gains out of the shares they own other than the dividends paid by the company and the opportunity is the Earning per Share of the company's shares. Tesco Plc's EPS has had an increasing trend over the years and it is one of the major benefits of stock market listing to the shareholders of the company.
Deciding the Mix of Debt and Equity Finance
When deciding upon the mix of suitable debt and equity finance, a company needs to consider a lot of issues. Some of them are listed below:
The extent of ownership and control the company is ready to sacrifice.
The different types of financing options available to the company and the cost of financing
The amount of cash available to pay off the borrowed money and interest payment
Word count: 495 words
QUESTION 2
Importance of Cash
According to Bernstein Leopold A. (1993, p129), "Cash is considered the most liquid of assets. In fact, it represents the starting point, as well as the finish line, of what is known as the accounting cycle"
Cash is the life blood of any business activity. No business can run without the sufficient availability of cash to run its operations. Cash is needed in the company to meet its various short terms needs, payments of current liabilities and meeting day to day business expenses. Cash also forms a vital part of the working capital, which determines the health of a company in terms of short-term liquidity.
Tesco Plc- Cash Management Policy
A company can manage its cash and cash equivalent assets by controlling the payment collection methods, curbing unnecessary expenses and utilizing the uninvested cash lying in the company. Tesco Plc has described its supplier payment policy in its Directors' report section of the annual report. Also, the company's cash management can be assessed with the help of the cash flow statement. However, the company has not displayed any ...Download file to see next pagesRead More
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