Company Analysis Choose a public company that has inventory and receivables for

Question

Company Analysis Choose a public company that has inventory and receivables for the following project. Verify with the instructor if your company is acceptable for the assignment. Once your company has been approved, visit their web site, on their home page find; Investor Relations, Annual Report (the most current) Financial Statements, Consolidated Income Statement, Consolidated Balance Sheet and Consolidaterd Cash Flow Statement. The three sources (Income Statement, Balance Sheet and Cash Flow Statement) from you company's web site must be used to complete the following The paper can be completed on either Excel or Word. If you use Excel, be observant to the print areas, (example sentences should fit in the proper page). If you have any questions contact the instructor for clarification. A. Introduction (6 Points) L Short introduction explaining the industry of your company, brief history of the company and the product/service of your company. The introduction can be concise and written in two paragraphs. B. Liquidity (12 Points) i. Calculate the current ratio and quick ratio for two years (show your work). i. Comment on the trend of your ratios. ili. Explain why a bank loan officer will have a higher regard for the quick ratio when understanding the liquidity of a company C. Activity ratios (19 Points) i. Calculate the days inventory on hand for two years (show your work) ii. Calculate the days to collect AR ili. Comment on the trend of your ratios. iv. Explain how improving the day's inventory on hand will affect the financial impact for the company. Prepare a graph comparing the Days Inventory on Hand and Days to Collect AR (use headings and data labels). v. D. Profit ratios(19 Points) Calculate the gross profit margin for three years (show your work). and data labels) identify strengths and weaknesses for the company improve the gross profit margin for the company. i. i. Prepare a graph for the gross profit margin, comparing each year (use headings il. Explain the meaning of this ratio and how management will use this ratio to iv. Give a specific idea that you would recommend to the company which wil

Explanation / Answer

TESCO is a British owned supermarket whose trading traverses the globe

It is a MNC having stores in over 12 countries across Asia and Europe and is considered one of the third largest in the world.

It was founded in 1919 by Jack Cohen and is headquartered in Hertfordshire.

It is considered as a high-volume, low-cost retailer specializing in super and hyper markets but also ventured not so successfully into other areas in Banking & Finance, retailing of books, clothing, electronics, furniture, toys, petrol and software, and also telecoms and internet services

Tesco is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. It had a market capitalization of approximately £18.1 billion as of 22 April 2015, the 28th-largest of any company with a primary listing on the London Stock Exchange

Financial Performance : The strategy of the organisation to occupy many types of industries has not brought much fortunes. It has survived all the downturns of economy and from the following reports one can gather data on the strategy of “biting more than one chew”! Overall they must be commended for surviving the rocking boat!

All figures below are for the Tesco's financial years, which run for 52- or 53-week periods to late February. Up to 27 February 2007 period end the numbers include non-UK and Ireland results for the year ended on 31 December 2006 in the accounting year. The figures in the table below include 52 weeks/12 months of turnover for both sides of the business as this provides the best comparative.

52/3 weeks ended

Turnover (£m)

Profit before tax (£m)

Profit for year (£m)

Basic EPS

25 February 2017

55,917

145

(54)

(0.49)

28 February 2016

53,933

202

129

1.70

28 February 2015

62,284

(6,376)

(5,766)

(70.82)

22 February 2014

70,894

3,054

2,259

32.05

LIQUIDITY

2017

2016

COMMENTS

i

CURRENT RATIO CA/CL

15076/19234

.78

14448/17866

.8

IS FAIRLY ALRIGHT BUT WORRYING

ii

ACID TEST

15076-284 /19234 =.76

14448-57 /17866= .8

SHOWS THAT THE COMPANY IS STILL SOLVENT

iii

WHY BANK’S ACCEPT ACID TEST IN PREFERNCE TO CURRNT RATIO?

INVENTORY IN ANY COMPANY IS HIGH IF MUCH IS DEPENDENT ON CARRYING STOCKS AND NOT TO LOSE A SALE. BUT TH ISSUE IS THE VALUE THAT THE BANK CAN DEPEND ON. THUS IT IS SAFER FOR THE BANK TO DEPEND ON ACID TEST RATHER THAN DEPEND ON CURRENT RATIO

ACTIVITY

I)INVENTORY DAYS

COS/AV INV

53015/2301 = 23 TIMES

15 DAYS

51089/2430=21 TIMES

17 DAYS

Ii AR DAYS

AR X 365/SALES

1475 X365/55917

9 DAYS

1406 X 365/53933

9.5 DAYS

Iii TREND

IF HEALTHY FOR A SUPERMARKET

Iv HOLD MORE?

NO, IT IS A GOOD EOQ

vGRAPH

( NOT POSSIBLE)

PROFITABILITY

I GP MARGIN

GP/SALES

2902/55917

5%

2844/53933

5%

Ii GRAPH

NOT POSSIBLE

Iii COMMENT

VERY LOW, AND SURVIVAL IS ALMOST IMPOSSIBLE

Iv IMPROVE?

v) NET SALES/PPE

N SALES/ PPE

55917/30436

1.8

53933/29220

1.8

vi)COMMENT ON above

THIS SHOWS THE $SALES WHICH IS BEING CONTRIBUTED BY THE PPE IS A GOOD RATIO ON HOW THE ASSETS ARE WORKING TO EARN REVENUE

HORIZONTAL ANALYSIS

I)NET SALES

55917

53933

II)GP

2902

2844

III)OPERATING INCOME

1017

1072

IV) SW

STRENGTHS

HIGH SALES

WEAKENSESS

MARGIN IS ONLY 5%

I) Vertical position

2017

2016

CGS

53015

51089

OPERATING EXPENSES

1885

1772

NET INCOME

1017

1072

II) SW

STRENGTH

HIGH SALES

WEAKNESS

COST IS VERY HIGH DUE TO COMPETITION

III) GRAPH

(NOT POSSIBLE)

G) Focus would be on the “Cash” which is not realistic. Net Debt is carrying a risk

Also the subsidiaries which are “loss making enterprises” which should be looked as dead losses and written off.

H) The main issue in TESCO is the losses and cash negative balances even though it is a supermarket and should be a “cash cow” So the focus should be on the worrying issue of where the cash is going.

52/3 weeks ended

Turnover (£m)

Profit before tax (£m)

Profit for year (£m)

Basic EPS

25 February 2017

55,917

145

(54)

(0.49)

28 February 2016

53,933

202

129

1.70

28 February 2015

62,284

(6,376)

(5,766)

(70.82)

22 February 2014

70,894

3,054

2,259

32.05

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