Tesco's Optimal Capital Structure

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4. ANALYSIS OF TESCO’S FINANCIAL PERFORMANCE AND CAPITAL STRCUTURE

In this chapter, a brief review of Tesco’s financial performance will be given and, meanwhile, its current capital structure will be discussed. Moreover, factors of significant influence on the company’s capital structure are identified. Also, some recommendations on the company’s strategic development and optimal capital structure are suggested. As a good example of the UK’s supermarket chain, it is believed that the implication of the research on Tesco plc could provide a further insight of the retail industry.

4.1 INTRODUCTION
After several years of rapid and steady business growth, Tesco plc seeks to boost its production and to compete in international market, taking advantages of the growing food market and its’ competitive workforce and management. Its’ active and progressive business practice enable the firm to maintain a sustainable growth.

Figure 4.1.1 UK Grocery Market Share-12 weeks ending 26 March, 2006
Source: TNS Wordpanel, March 2006
With regarding to financial performance, Tesco plc serves as the largest British retailer by both global sales and domestic market share with profits exceeding 2 billion pounds. It has achieved substantial growth over the past five years in terms of turnover and group operating profit. In 1995 Tesco first overtook Sainsbury’s to become the UK’s largest supermarket. In 2004 Tesco occupied 28% of the UK grocery retail market and its enormous share is still growing. By February 2006, it had increased to a massive 36%, around 14 % higher than its nearest rival, Asda. At 28th, February 2004 the firm was reported to produce worldwide group turnover of over £47 billion and profits of over £2.1 billion. As the UK’s leading supermarket operator, it has employed around 300,000 full- and part-time staff worldwide. Across all categories, over £1 in every £8 of UK retail sales is spent at Tesco. As more space and growing market are created, around...
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