Financial Performance Evaluation of Tesco.

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Oxford Brookes University

RESEARCH AND ANALYSIS REPORT

TOPIC 8

AN ANALYSIS OF THE BUSINESS AND FINANCIAL PERFORMANCE OF

TESCO PLC

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(6444 words)
MARCH 2008

1. INTRODUCTION

1.1 TOPIC CHOSEN
This research analyses the financial situation of Tesco Plc; topic number 8. The analysis is carried from an investor’s point of view and will be achieved by evaluating key financial ratios, past trends and other key aspects with an aim to serve the current and prospective future investors in making investment decision. As the financial aspect is just a quantitative measure and cannot always give the true picture, so it is important to look at the qualitative aspect as well. Thus, this research will also look at the qualitative side of the story. In this report, the financial situation of Tesco Plc has been compared with one of its close competitor J Sainsbury Plc and looks at the last 3 years of both the companies.

1.2 REASON FOR CHOOSING THE TOPIC
Tesco is currently market leader in the field of supermarket retail industry with group profit of £2803 million for the year ending 2008 and with maximum market share of around 31% in UK, so it was a natural choice for me to choose Tesco and this topic as I had always had an interest in retail sector and a keen interest on this business and wish to develop my career in this field. And also to add to the fact that, as an ACCA student, analysing the business and financial performance of a company will provide me with the opportunity to enhance my ability and increase my knowledge in accounting and financial field and the situation and strategy a company needs to adopt to be successful. J Sainsbury Plc was chosen as Tesco’s comparator because of the fact that it has always traditionally been the Tesco’s competitor and is also the third largest retail store in UK with market share of 16%. Tesco is not just a food retail store anymore and truly defines the meaning of shopping under one roof, offering various product such as furniture and DIY, electrical, mobile, financial service etc. Tesco was also the topic for my research as it has always been in the news and the talking point with it being involved in 13 countries throughout the world (UK, Ireland, Czech Republic, Poland, Slovakia, Hungary, Turkey, China, Japan, South Korea, Malaysia, Thailand and United States). Its continuous expansion plan has always attracted the news and its debut in US on 7th November, 2007 was a major development in Tesco’s history. US has always proved to be a challenging ground for UK companies and the fact that even Sainsbury had to pull out from US makes its even more interesting, as to whether Tesco’s venture is going to be successful or not. Tesco opened its store in California, US with the name, “Fresh & Easy”. “Tesco is breaking with tradition by moving into the hard-discount market in an effort to build a substantial US convenience chain that could hit 1000 stores with the next five years”, www.ft.com , published on December 2, 2007. But for Tesco, plans have not been going according to the plan. According to the recent article on www.timesonline.co.uk , Tesco has 113 outlets and plans to open even more but has been put out back due to recession by atleast 6 months. But in a recent article(February 22, 2009) on “The Sunday Times”, Tesco admitted that it had gone wrong in US which read as “The head of Tesco’s US operation, Fresh & Easy, has said its early market research was mistaken and it may make big changes to the stores” with the heading “Tesco admits: We got it wrong in US.” Tesco is also trying to enter new market again, with India being the highlight of all. According to the www.telegrapgh.co.uk , Tesco is trying to enter the £150 billion a year store sector in India with possible talks of joint venture with Tata Sons, a part of the Tata group. After all this, I was even more interested in Tesco Plc as my topic for this research.

1.3 AIM AND OBJECTIVE OF THE REPORT...
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