Financial Analysis of Tesco Supermarket Research Paper

Financial Analysis of Tesco Supermarket - Research Paper Example For a potential investor, the stock of Tesco Plc is strongly recommended as better investment than its rival because it provides higher gains in the long-run. The performance of a business organization is quantitatively reflected in its financial statements. Ascertaining the financial health of a company has become important to different decision makers like managers, stockholders, potential investors and creditors. As such, it becomes important to evaluate the financial situation of any business organization to identify their relative strengths and weaknesses. In order to accomplish this task, this report will utilize financial ratio analysis. From its humble beginning as a one-man business in 1919, Tesco is now highly regarded for its size and strength in the global retailing industry. Tesco is engaged in international grocery and general merchandising retail chain. It is named as the largest retailer in Britain in terms of global sales and domestic market share. During 2006, it is estimated that in every 8 spent is UK retail sales, 1 is spent on Tesco indicating its strong foothold of the market (Tesco Plc 2007). The success of Tesco is based on a fourfold long term growth strategy: "to grow the core UK business; to become a successful international retailer; to be as strong in food as in non-food; and to develop retailing services such as Tesco personal finance, Telecoms; and Tesco.com" (Tesco Plc). With this, Tesco has established presence in international markets such as Ireland, Hungary, Poland, Czech Republic, Slovakia, Turkey, Thailand, South Korea, Taiwan, Malaysia, Japan, and China and has complemented its core business with retailer service business such as online shopping, personal finance, and telecoms. In order to comply with regulatory requirements, Tesco has adopted the International Financial Reporting Standards (IFRS) in preparing its financial statements in the fiscal year 2005 (from UK GAAP). The adoption of IFRS is expected to lower the reported turnover and net income and increase debt. As with any other business organization, the company also recognizes the presence of risks and uncertainties in its operations. Financially, Tesco is facing challenges in "the availability of fund to meet business needs, the risk of default by counter-parties to financial transactions, and fluctuations in interest and foreign exchange rates" (Tesco Plc 2007). In order to ensure fund availability, Tesco employs policy which includes smoothing the debt maturity profile, arranging funding ahead of requirements and

Caterpillar's Strength in Surviving the Most Recent Global Economic Essay

Caterpillar's Strength in Surviving the Most Recent Global Economic - Essay Example Caterpillar continuously maintained its core competency and followed strategic measures to sustain its state of success in the market of global competition. In the late 1990s, the company was seen to improve more and diversify into engine production, finance, re-engineering and logistics which although showed signs of enhancement in the company’s profits, but at the same time, created concerns over rising debts that could pose troubles for the company in the approaching recession of 2008. Nevertheless, Caterpillar successfully survived the recession and maintained its position in the market (BMAN20002 Caterpillar Inc. Case, pp.1-4). This research study would thus reflect on the company’s strength in terms of its core competency as well as strategic business policies that might have aided the company to survive through the phase of recession. Performance of the company before and after the recession of 2008: The performance of the company before and after the recession c an be studied by going through some of the financials of the company. For this purpose, the financials of last four years, comprising the period between 2007 and 2010, have been taken into consideration. The case study indicates that the company had improved its performance in the late 1990s. From a period of 1980 till 2007, the company’s results showed fluctuations but an overall increase in its net sales came about moving from as low as $10000m to $50000m, and the operating profit margins ranging from a negative percentage to as high as 15 percent (BMAN20002 Caterpillar Inc. Case, p.6). The gross profit, the operating income, and the net income of the company from 2007 till 2010 are represented in Exhibit 1 below: Exhibit 1. Gross profit, Operating income and Net income of Caterpillar Company from December 2007 till December 2010 (Bloomberg Business Week, 2011). (In millions of US Dollars) December 31, 2007 (USD) December 31, 2008 (USD) December 31, 2009 (USD) December 31, 2010 (USD) Gross profit 11,200.0 11,756.0 7,465.0 11,307.0 Operating income 4,921.0 4,478.0 1,305.0 3,996.0 Net Income 3,541.0 3,557.0 895.0 2,700.0 Thus if the profits and income as represented for the period before and after the recession are considered, it can be found that the company had suffered losses from the period between 2008 and 2009; however the results improved thereafter reflecting that the company had successfully survived the recession. The return on the company’s equity for the period before and after the recession can be represented through the following table: Exhibit 2. Return on Equity (ROE) of Caterpillar Company for the period from December 2007 till December 2010 (Bloomberg Business Week, 2011). (In millions of US Dollars) December 31, 2007 (USD) December 31, 2008 (USD) December 31, 2009 (USD) December 31, 2010 (USD) Net Income 3,541.0 3,557.0 895.0 2,700.0 Equity 8,996.0 6,714.0 9,300.0 11,325.0 ROE (Net Income / Equity) (in %) 0.39 0.53 0.10 0.24 Th e return on equity had been reasonably low over the last four years. However after the recession the percentage had fallen very low which can be found to be improving sooner as reflected through the results of December 2010. The debt issued by the company can be represented through the following chart that would show whether the company had to face troubles owing to increasing debt amounts. Figure 1. Debts issued