Tesco Financial Analysis

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Executive Summary:

This report aims to analyze the financial position of TESCO PLC from the point of view an investor who seeks to evaluate the prospects of buying shares of a company in food and retailing sector. The potential investor has selected TESCO PLC and has asked the author to analyze the investment prospects and present a report on the same.

The analysis shall be based on the most recent annual financial statements available for TESCO and of other companies in the same industry. The analysis will not take into account the half yearly and quarterly financial data and updates issued.

The scope of analysis shall be limited to the financial strengths and weakness of the company through its financial statements of the last year and previous years and by a comparison within the retailing industry. The scope does not include the strategic strengths and SWOT analysis of the company however risks or opportunity factors related with company’s financial weakness or strengths shall be reviewed in this report.

The structure of the report is as follows:

After a brief introduction of the company, the report outlines the methodology employed for financial analysis and steps involved. Following the methodology, the main sections of the report then discuss various aspects of the financial analysis including accounting principles of the company, quality of financial statements and financial performance study through ratio analysis. Based on the given analysis, the report ends with a conclusion and a recommendation for the potential investor.

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Introduction of the Company and Sector: TESCO PLC is one of the world’s leading international retailers. With a turnover of GBP 42.6 billion for year 2006, it is the largest British retailer and the world’s third largest retailer behind Wal-Mart (USA) and Carrefour (France). TESCO controls 30% of the grocery market in the UK, which is approximate to the combined market share of its closest rivals, Asda and Sainsbury's. Apart from being the national leader in the food sector, TESCO sells almost everything books, CD/DVD/mini-discs, hi-fi and household appliances, household equipment, flowers, wine, apparel - the list goes on and on! With an eye to the future, Tesco has adapted to the rapid technological changes. It makes an astonishing profit from its on-line sales site Tesco.com. Tesco Express also owns gas [petrol] stations and provides financial services: a joint venture with the Royal Bank of Scotland enables it to offer life insurance and general insurance (home, car, pet, and travel), credit cards and advantageous loan and savings schemes. In addition to 1988 stores in UK, TESCO is well established in Ireland, Central Europe (Poland, Slovakia and the Czech Republic) and Asia (Thailand and South Korea) totalling to 1274 stores outside UK (as of 24 Feb 2007 – Annual Report 2007) The most recent financial statements of the company were issued on 16 April 2007 for the financial year closing on 24th Feb 2007. Groups Income Statement, Cash flow statement and Balance sheet are attached to this report in Appendix-A. The notes to financial statement are not included in the hard copy of this report however are available in the soft copy issued along with this report.

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