Tescos annual report - Essay Example

Customers bought over two million bags of barbecue fuel in the summer, and Christmas decoration sales were up by over 37% from the previous year. What will be interesting will be to see if this rise in non-food sales across the board will continue to grow on a year-by-year basis, or if at some point they will level off with only small incremental gains to be had. The underlying profit rose from 1832 (in 2004) to 2064 (in millions) (in 2005) and that rise is even more impressive since 2004 numbers were based on a 53 week year and 2005 was based on a 52 week year.

The return on capital employed has not been 11% or higher since 2001, but in 2005 it was 11.5%. Earnings per share was also significantly higher and has been growing every year since 2001. In 2005 the earnings per share were 18.30 as compared to 10.66 in 2001. Last years earnings per share were 16.31. The increase from 16.31 to 18.30 represents an almost 17% higher earnings per share in one year. It would seem that the company's objective of focusing on superstores instead of smaller stores is working, especially in the UK.

The overall number of stores in the UK dropped from 1,878 to 1,780 while the total sales area (in square feet) went from 23,291,000 to 24,207,000, which is an increase of almost 1 million square feet while closing almost 100 stores. The same scenario was taking place in the company's international markets, with one major difference. The company maintains only 554 international stores but has more square footage that than all the UK stores combined with 24,928,000 square feet. This is a significant difference.

If each square foot generates the same amount of sales then international sales in the future are going to be significantly higher than UK sales, with not as much overhead or expenses. The Chairman's statement reflects the company's growth and aggressive style in an optimistic writing. He touts the fact that they have added two new non-executives to the Board, and that both were woman. He, and the company, faces shareholders and a public that are more discerning and political than ever before and has to manipulate the opinions held by those masses to maintain the edge developed over the company's competitors.

By adding two women to the Board the company portrays its willingness to facilitate gender equity. The Chairman also touts how much the shareholders benefit from an investment in the company. The Chairman, and the Board, would certainly not wish to see a downswing in investor sentiment, with the resulting sales of shares that would lower the share prices, so he would present even bad news in a way that would seem positive, not that he would have had to with the numbers that Tesco has been generating.

The numbers regarding cash flow are also strong. Net cash flow rose from 2,942 to 3,004 from 2004 to 2005 and the stronger number is reflected throughout the entire cash flow analysis. The cash inflow went from a negative (137) to a positive 259 (in millions). The company spent almost the same amount in 2005 as they did in 2004 to acquire tangible fixed assets. The company had less of a decrease in net debt than the year before, but it was still a substantial increase dropping from 4,090 to 3,842.

That is a significant decrease in debt. As for the contributions made from each sector, as