Analyse and evaluate the performance, liquidity and financial structure of Tesco plc over the three-year period 2013 – 2015
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TASK ONE
Analyse and evaluate the performance, liquidity and financial structure of Tesco plc over the three-year period 2013 – 2015.
You should use the accounting ratios shown below and any other information relevant to Tesco plc taken from the annual report and accounts for 2015 and any other source of evidence that you believe helps to explain the company’s performance and position.
You should also highlight any limitations in the use of accounting ratios that you found in your analysis and evaluation of the company over the three-year period. This may include reference to the movements in the company’s share price particularly in 2015.
This task contributes 30% to the overall coursework mark.
Word limit 300 Words
TESCO PLC
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2015 2014 2013
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Performance ratios
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Pre-tax profit margin ( % ) ( 10.2 ) 3.6 3.0
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Return on total assets ( % ) ( 14.1 ) 4.5 3.9
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Return on capital ( % ) ( 25.6 ) 7.9 6.3
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Liquidity ratios
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Current ratio ( : 1 ) 0.60 0.73 0.65
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Acid test ratio ( : 1 ) 0.45 0.56 0.45
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Stocks/ sales ( % ) 4.80 5.60 5.80
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Gearing ratio
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Total debt/ net worth ( % ) 415.7 110.8 144.6
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Source: Key Note Financial Database
SOURCES AND HYPERLINKS
Tesco plc Annual Report and Accounts 2015
http://www.tescoplc.com/files/pdf/reports/ar15/download_annual_report.pdf
Understanding Tesco plc
http://www.tescoplc.com/index.asp?pageid=656
Key Note Financial Database
https://0-www.keynote.co.uk.emu.londonmet.ac.uk/company-report/financials/key-ratio/00445790
Tesco settles US lawsuit over profit overstatement BBC Business
26 November 2015
http://www.bbc.co.uk/news/business-34930313
TASK TWO
Senior management at LMU Plc have identified that there is a strategic need for a replacement machine to be acquired in one of its production departments. They have to make a choice between two models of the machine they have in mind. Model 1 is called Super and model 2 is called Deluxe. They are unsure as to which of the two models they should buy. They have given you the following profiles of the two models.
Super Deluxe
Cost £500,000 £800,000
Net Cash Inflow £ £
Year 1 250,000 150,000
2 100,000 200,000
3 100,000 250,000
4 50,000 100,000
5 150,000 100,000
6 100,000 250,000
Scrap value 20,000 80,000
Cost of Capital 12%
They want you to appraise the two prospective projects using the following investment appraisal techniques:
(i) Payback
(ii) Accounting rate of Return
(iii) Net Present Value
(iv) Internal Rate of Return
You are told that funds are only available for only one model.
Required
(a) Write a report to the senior management of the company explaining how each of the aforementioned techniques works. Your report should include the advantages and disadvantages of each technique. 50% 500 Words
(b) Explain briefly which machine you would recommend to senior management of LMU Plc under each technique and state your reason why you would recommend that machine. 20% 200 Words
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