Business Ratios of Sainsbury Plc and Tesco Plc - Case Study Example

Ratios Analysis of Sainsbury Plc and Tesco Plc Introduction Financial statements are prepared in order to depict a true picture of the financial performance and position of a company. What company has acquired, lost and possesses, all are maintained in the financial statements. The amounts that are present in the financial statements can be used to determine the historical trend of a company. At the same time, it helps an analyst to compare the performance of a company along with its competitors. Despite of that, the figures and amounts presented in the financial statements can be pointless and cannot provide a rational foundation for comparing it with rivals and with the industry. It happens becomes of the limitations of financial statements. There can be many difference for industry and competitors due to which, it is practically not justified to make the analysis between the two companies. Therefore, the best way to through which precise financial comparison can be done is to perform the Ratio Analysis. Issues such as size of firms, absolute figures, differences in operating activities etc can be relaxed when financial positions are analyzed on the bases of ratios. Structure of Article This paper has been constructed in such a manner that ratio analysis of two UK listed companies Sainsbury Plc and Tesco Plc has been performed. Considering the size of the companies, it is evident that Tesco Plc is bigger in terms of size than Sainsbury Plc, therefore in order to bring both the companies on a common platform, ratio analysis has been conducted which will show the exact measure for both the companies. The introductory part of the paper emphasizes upon a brief description of the companies. Next part of the paper comprehensively focuses upon the meaning and interpretation of each of the ratio. The last part of the report conducts an analysis based upon the interpretation of the ratios. The major components of the ratios analysis, which have been calculated for both the companies include: i. Profitability Ratios ii. Efficiency Ratios iii. Liquidity Ratios iv. Financial Gearing Ratios v. Investment Ratios At the end, the calculations of the ratio analysis have been presented in the appendices of the paper. Sainsbury Plc In 1869, Mary Ann Sainsbury and John James established Sainsbury. It is also considered as the largest food retailer in U.K. The principles upon which the foundation of Sainsbury is based upon are high quality products, attention to details and excellent service. Nearly 440 stores of Sainsbury are present in U.K. These stores contain largest range and stock of products including around 23,000 of different products. Tesco Plc Tesco is one of the biggest retailers operating in U.K and other countries. It operates through more than 2,300 supermarkets and convenience stores. The total number of employees of Tesco Plc is approx. 326,000. Its core business lies within U.K. Apart from U.K, it also operates in Ireland, Poland, Hungary, Turkey, and Czech Slovakia. It also operates in some parts of Asia including Malaysia, Taiwan, Japan, Korea, Thailand etc. Apart from these physical stores, the company also operates through online shopping system. Ratio Analysis Under ratio analysis, different areas evaluate the financial performance of a company such as level of efficiency that is being managed, profitability that is being generated, liquidity position, stock performance, riskiness of the company, working capital management, utilization of assets etc. 1) Profitability Ratios i. Return on Ordinary Shareholder's Funds (ROSF) Return on Ordinary Shareholder's Funds is a measure of profitability. ROSF ratio is quoted as percentage by industry investors because industry and investors look at the size of Return on Ordinary Shareholder's Funds (ROSF) ratio. If the ratio is higher, it indicates that company has higher amount of profits available for its shareholders and is therefore, more profitable. It is calculated by the following mentioned formula: Return on Ordinary Shareholder's Funds (ROSF) = By looking at the chart of Profitability Ratios, it can be seen that an average Return on Ordinary Shareholder's Funds (ROSF) ratio of Sainsbury Plc is 15.53% whereas of Tesco Plc, it is 23.05%. As mentioned earlier, the higher the ratio, the more profitable a company is. In the case of Sainsbury Plc and Tesco Plc, it is quite apparent that the Return on Ordinary Shareholder's Funds (ROSF) ratio of Tesco Plc is higher which reveals that it is more profitable as compared to Sainsbury. ii. Return on Capital Employed (ROCE) This ratio, expressed in term of percentage, explains the return or profitability that is being acquired from the capital that the firm has employed into its business. Capital employed equals firm’s non-current liabilities and equity. It can be calculated by this formula: Return on Capital Employed = ROCE must be greater than the rate of borrowings of a company otherwise; the earnings of shareholders might reduce. ROCE of Sainsbury is an average of 8.81% whereas ROCE of Tesco Plc is 12.65%. ROCE of Tesco Plc is higher than Sainsbury Plc, which means that Tesco Plc is utilizing its capital more efficiently than Sainsbury Plc. iii. Operating Profit Margin This ratio is of primary importance since it provides an understanding of the level of profitability that is being managed and the analyst quickly understands the position of company without any hassle. This ratio is calculated by the following formula: Operating Profit Margin = If observed closely, the formula of Operating Profit Margin infers the ratio of net income with respect to the revenues explained in percentage terms. For example, if a company is earning 7% of Operating Profit Margin, then it means that the company has total sales of 7%. The Operating Profit Margin ratio of Sainsbury Plc for the year 2012, 2011, and 2010 are 3.92%, 4.03%, and 3.56% respectively. This ratio for Tesco Plc for the same three years is 6.17%, 6.25%, and 6.07%. The Operating Profit Margin ratio reveals that profitability position of Sainsbury is not good as Tesco. Tesco is yielding higher returns as compared to Sainsbury. iv. Gross Profit Margin Gross Profit Margin measures the ability of a company to control the cost of production and inventories and to pass along the increase in price to customers through sales. In other words, it measures the efficiency of the company in running its production processes. A higher Gross Profit Margin ratio indicates that as long as the company is controlling its overhead costs, it can make reasonable profit. A low G.P margin indicates that company is unable to keep a control over its production costs. For the past three years, Sainsbury is maintaining an average of 5.4% of Gross Profit Margin whereas Tesco has the Gross Profit Margin of 8.15%, 8.3%, and 8.10% for the past three years respectively. As mentioned above, the higher, the gross profit margin, the better for the business. Since the gross profit margin ratio of Tesco is higher than that of Sainsbury, therefore Sainsbury is generating low level of revenues to pay off its production cost. Gross Profit Margin = Profitability Ratios Sainsbury Tesco 2012 2011 2010 2012 2011 2010 Return on Ordinary Shareholder's Funds (ROSF) 15.53% 15.69% 14.30% 22.42% 23.05% 23.68% Return on Capital Employed (ROCE) 9.50% 10.06% 8.81% 12.65% 12.97% 11.55% Operating Profit Margin 3.92% 4.03% 3.56% 6.17% 6.25% 6.07% Gross Profit Margin 5.43% 5.50% 5.42% 8.15% 8.30% 8.10% 2) Efficiency Ratios Efficiency ratios measure the efficiency of the company in utilizing its assets and liabilities. Following are some major efficiency ratios. i. Average Inventory Turnover Period Average Inventory Turnover Period measures the number of times inventory is being used or sold. A low turnover ratio indicates poor sales of a company. It further indicates that the company is having excessive inventory whereas a high ratio indicates strong sales of the company. It can be calculated by the following formula: Average Inventory Turnover Period = By examining the average inventory turnover period for both the companies, we can see that average inventory turnover period for Sainsbury is 15, 14 and 12 times for years 2012, 2011 and 2010 respectively, whereas average inventory period for Tesco is 20, 18, and 17 times for the three years. As stated earlier, a low turnover rate indicates poor sales of company. In case of these two companies, it is quite evident that inventory turnover period for Sainsbury is unfavorable as compared to Tesco and Tesco is more efficient in selling out its inventory. ii. Average Settlement period for Trade Receivables It is an efficiency ratio, which measures how efficient a business is in collecting its receivables. It measures the average number of times a company collects its trade receivables over the period of usually in a year. It can be calculated by the following formula: Average Settlement period for Trade Receivables = Sainsbury collects its receivable 4 times a year whereas Tesco collects its receivable on an average of 13 times a year. It indicates that Tesco is more efficient in collecting its receivables from its debtor as compared to Sainsbury. iii. Average Settlement period for Trade Payables It measures the ratio of net purchases on accounts of a company to its average trade payables during the given period. It calculates short-term liquidity of a company. The higher the ratio, the quicker a company is in paying off its suppliers. Usually, the higher ratio of accounts payable turnover is favorable and vice versa. It can be calculated by the following formula. Average Settlement period for Trade Payables = Sainsbury maintains an average of 47 times, whereas Tesco maintains an average of 68 times a year. It means that Tesco is more efficient in paying off its suppliers as compared to Sainsbury. iv. Sales Revenues to Capital Employed This ratio determines the efficiency of a firm in generating sales by utilizing its assets. A higher ratio is preferable instead of a lower one. The formula for calculating sales revenue to capital employed is: Sales Revenues to Capital Employed = Sainsbury maintains an average of 2.4 whereas as Tesco maintain an average of 2.00 of this ratio. In this case, Sainsbury is more efficient in utilizing its assets to generate sales as compared to Tesco. v. Sales Revenue per Employee This ratio measures the average amount of revenue that is being generated by each employee of a firm. Ideally, a company prefers to have higher of this ratio since it determines high level of productivity. It can be calculated by the following formula: Sales Revenue per Employee = Taking an average of three years i.e. 2012, 2011 and 2010, Sainsbury has an average of £142 where as Tesco has an average of £123 each employee. It means that each employee of Sainsbury is contributing with earnings of £142 to the company, which is higher than Tesco. Additionally, employees of Sainsbury are more productive than Tesco are earning a higher amount for their company. Efficiency Ratios Sainsbury Tesco 2012 2011 2010 2012 2011 2010 Average Inventory Turnover Period 15.36 14.05 12.83 20.35 18.94 17.50 Average Settlement period for Trade Receivables 4.68 5.93 3.93 15.03 13.86 12.11 Average Settlement period for Trade Payables 47.44 47.53 47.67 69.17 68.49 65.89 Sales Revenues to Capital Employed 2.42 2.50 2.48 2.05 2.07 1.90 Sales Revenue Per Employee 148.63 142.58 136.74 124.19 123.66 120.55 3) Liquidity Ratios i. Current Ratio Current ratio is that liquidity ratio which measures the ability of business to pay off its current liabilities over the next business cycle or usually a period of 12 months. The higher the current ratio, the better is the ability of a company in paying off its current liabilities. Current ratio below 1 indicates that company might be having problems in paying off its bills. It is calculated by the following formula: Current Ratio = In the table of liquidity ratio, there is not much difference between the current ratios of Sainsbury and Tesco. Sainsbury maintains an average of 6.3 whereas Tesco maintains an average of 6.5. Therefore, it can be stated that Tesco is slightly better than Tesco in paying off its short term obligations. ii. Acid Test Ratio Acid test ratio determines the ability of a company to meet its short term obligations with immediate assets i.e. cash and cash equivalents, marketable securities. It provides a consecutive look of the company since it undertakes only the most-liquid current assets. Acid Test Ratio = Liquidity Sainsbury Tesco 2012 2011 2010 2012 2011 2010 Current Ratio 0.65 0.58 0.64 0.64 0.65 0.71 Acid Test Ratio 0.35 0.30 0.39 0.46 0.47 0.54 4) Financial Gearing i. Gearing Ratio Gearing ratio determines the percentage of capital injected that is financed by long-term financing or debt. The higher the gearing ratio, the more a company is dependent on long term financing as well as borrowing. On the other hand, the lower the ratio, the more a company is inclined towards equity financing. Higher gearing ratio is unfavorable because the greater proportion, (which a company acquires through equity financing), provides a cushion and is considered as financial strength. The gearing ratio is considered as very significant for investors. It is vital to vigilantly plan since it influences the ability of a company to keep a persistent dividend policy during complicated periods. Gearing Ratio is calculated by: Gearing Ratio = As mentioned earlier, the higher the gearing ratio, the more a firm is considered as risky. Taking the case of Sainsbury Plc and Tesco Plc, we can see that Sainsbury Plc maintains a gearing ratio of 0.38 or 38% and Tesco Plc maintains a gearing ratio of 0.44 or 44%. If we consider only the gearing ratio, then it is quite visible that Tesco plc is more geared towards debt financing as compared to Sainsbury Plc. Nevertheless, if we consider other factors such as size of firm, market capitalization etc, then it can be stated that despite of having huge difference among sizes between both the companies, there is not much difference in terms of gearing ratio. The difference is of just 4% but the difference of sizes is much greater than this. ii. Interest Coverage Ratio This ratio determines ability of a company to pay off its interest expenses on outstanding debt. Lower interest coverage ratio means that company is exposed towards debt burden and there are higher chances of bankruptcy. The ability of a company to pay off its interest expenses can be questionable if the interest coverage ratio is 1.5 or lower. It is calculated by the following mentioned formula: Interest Coverage Ratio = In case of Sainsbury Plc and Tesco Plc, we can see that Interest Coverage Ratio of both the companies is much higher than 1.5, which means that it is easier for both the company to pay off their interest expenses. Financial Gearing Sainsbury Tesco 2012 2011 2010 2012 2011 2010 Gearing Ratio 0.38 0.36 0.38 0.44 0.44 0.51 Interest Coverage Ratio 6.33 7.34 4.80 9.56 7.89 5.97 5) Investment Ratios i. Dividend Payout Ratio Dividend payout ratio mainly calculates the percentage of earnings paid to the shareholders in the form of dividend as well as the amount of earnings retained by the company. For instance, if the ratio is 40%, it means that 40% of the earnings are paid as dividends to the shareholders whereas the company retains the rest of 60%. Following is the formula for calculating dividend payout ratio: Dividend Payout Ratio = Dividend payout ratio for both Sainsbury and Tesco has remained stable in the past three years such that both the firms have paid off at least 40% of their earnings as part of dividend. Sainsbury has increased this percentage in 2012 and brought it to around 47% whereas Tesco has maintained considerably stable dividend policy of paying out 40% dividends. ii. Dividend Cover Ratio Dividend cover ratio depicts the amount of earnings available to pay off the dividends. In other words, in order to pay off the dividend of say £1, how much earnings are available to the company to pay off such dividend. This ratio is calculated in the form of “times”. Dividend Cover Ratio = As the dividend payout ratio for both Sainsbury and Tesco has remained stable, similarly, dividend cover ratio for the companies has remained unchanged. Tesco had around £2.4 earnings per share available to pay off £1 dividend whereas in 2012, this amount has reduced to £2.1 in the case of Sainsbury as it has increased the dividend payments to the shareholders. In summarized way, it can be stated that the performance of both the companies in respect of paying of dividends, did not present any such volatility. iii. Dividend Yield Ratio Dividend yield describes the return generated in the form of dividends as part of the purchase price of the share. This share is calculated as a percentage such that the percentage determines the portion of dividend returns acquired on the given market value of share price. Dividend Yield Ratio = As far as dividend yields are concerned, it can be observed that Sainsbury has shown growth in the past three years such that it increased from 4.26% to 5.28%. Conversely, Tesco has shown quite volatile results as its dividend yield for the year 2010 was around 3.10%, which fell to around 2.42% in 2011. However, the company bounced back in 2012 and achieved dividend yield of around 3.64%. Briefly, Tesco remained way behind from Sainsbury in respect of dividend yields. iv. Earnings per Share Earnings per share, is the most fundamental ratio especially to the shareholders. Shareholders are mainly interested in finding out the net income earned by the company on per share basis. Earnings per share, is the best estimate to compare the financial performances of the companies especially on per share basis. Earnings per Share = Earnings per share for both the companies have almost the similar magnitude as both Sainsbury and Tesco have the earnings per share of around £0.3 to £0.36. Sainsbury has the constant earnings per share of around £0.32 every year, which shows the stability of its financial performance. On the other, Tesco has reflected better growth perspective in terms of earnings per share as it has been increased from £0.29 to £0.36 per share. Shareholders welcome this stable and growth perspectives and show their confidence by holding these securities. v. Price/Earnings Ratio Price/earnings ratio is also known as price/earnings multiple such that this ratio describes as to how much the price of the share given the earnings per share. For instance, if earnings per share of the company are £2 and price per share is £10, therefore, the price/earnings multiple is 5 times. It means that in order to value the price of the security to check whether the existing share price is over or undervalued, then its earnings per share should be multiplied by the price/earnings multiple. If the existing price is undervalued then the security should be bought/hold and in case if the price is overvalued, the security should be sold out as, it may likely to fall soon. Price/Earnings Ratio = Price/earnings ratio for both Sainsbury and Tesco has experienced a slump such that P/E multiple for Sainsbury has reduced to 9.47 times in 2012 from 10.41 times in 2010. Similarly, Tesco has also found a drop in its P/E multiple, which has fallen to 11 times in 2012 from 14.48 times in the year 2010. Concisely, it can be commented that share prices for both the companies have not reflected a stable pattern as compared to the earnings per share due to which the P/E multiple for both the companies has dropped considerably. Investment Ratios Sainsbury Tesco 2012 2011 2010 2012 2011 2010 Dividend Payout Ratio 47.66 42.03 41.20 41.93 40.47 41.44 Dividend Cover Ratio 2.10 2.38 2.43 2.38 2.47 2.41 Dividend Yield Ratio 5.28 4.30 4.26 3.64 2.42 3.10 Earnings Per Share 0.32 0.34 0.32 0.36 0.33 0.29 Price/Earnings Ratio 9.47 10.32 10.41 11.00 12.64 14.48 Capital Structure of Sainsbury Plc and Tesco Plc Sainsbury maintains a capital structure ratio of 38:62, which means that 38% of the total capital is acquired through debt financing. Tesco has a capital structure ratio of 44:56, which means that 44% of its total capital structure is constituted through debt. It indicates that both the companies possess strong support of equity and do not have burden of debt financing. Gearing ratio of Sainsbury and Tesco also shows a favorable position of both companies. The two firms are not highly levered and therefore, cannot be called as risky. Since investor are looking for the level of risk in the companies, mostly investors can find an easier time in investing in stock of larger companies such as Sainsbury and Tesco. Chances of Surviving Recession for Sainsbury Plc and Tesco Plc After conducting the ratio analysis and calculating all the important ratios for Sainsbury Plc and Tesco Plc., we see that both the companies are in good financial health. Tesco Plc. is a giant in food retailers, Sainsbury Plc has been in the business for more than a century, these are some other contributing factors which validate the fact that it is not difficult for both the companies to face and ultimately, survive recession in a successful manner. Another contributing factor, which makes it easier for them to survive the recession, is the industry in which both of these companies are operating. Both the companies belong to food retailers, to whom recession does not affect in a direct manner. Whether there is recession or not, people do buy food! These factors lead to successful endurance of both the companies. Moreover, we have conducted Ratio Analysis for the years 2012, 2011 and 2010, which is post-recession era. Even in these years, we find that the financial health of both the companies is very stable and strong as compared to other industries’ companies, which are still striving hard to come out of recessionary impacts. In fact, there are not only ‘chances’ for Sainsbury Plc and Tesco Plc to survive recession, but in actual they are surviving in an incredible manner. Analysis of Share Price The current share price of Sainsbury Plc is 333.60 and Tesco Plc is 318.00. If we take into account the historical trend of share prices of both the companies, we can see that share price of Sainsbury Plc. has shown an upward trend whereas share price of Tesco Plc. has remained relatively stable. While analyzing a stock, P/E ratio is the single most important ratio to be considered. It is said that while buying or selling, one must not rely on a single ratio however, P/A is considered as the king of all ratios. P/E ratio tells the willingness of market to pay for a stock. A high P/E is considered as good since it shows the confidence of investors in a stock. Low P/E indicates that companies have high tendency of risk. Sainsbury has an average of 10.32 P/E ratios and Tesco has a P/E ratio of 12.64. It means that investors are willing to pay 10 times more than a market for Sainsbury and 12 times more for Tesco. High P/E of both companies shows that companies have prospects of growth in future. For the past three years, the share price of Sainsbury has remained quite stable. The only decline, which has occurred at the end of year 2008, is due to recessionary impacts. The share price of Tesco has remained stable for the past three years but at the beginning of 2012. Another factor that needs to be considered is Earnings Growth. While evaluating a stock, it must be considered that how the company is earnings for the past several years. It has been observed that for the past several years, both the companies have shown consistency in growth. Therefore, in future there are substantial growth potential of the shares of both the companies. It can be said that shares of both the companies must be bought or hold since no negative factors are observed. For this investors, which are risk averse, these securities are quite suitable since the past earnings and share price movement are quite stable and have almost nil volatility. Works Cited Babu, G, (2012), Financial Management, Concept Publishing Company, New Delhi. Baker, H. K. and Martin, G. S., 2011.Capital structure and corporate financing decisions: theory, evidence, and practice. New York: John Wiley & Sons. Berk, J. B. and DeMarzo, P. M., 2010. Corporate finance. 2nd ed. New York: Prentice Hall. Bierman, H., 2003. The capital structure decision. New York: Springer. Brigham, E. F. and Ehrhardt, M. C., 2008. Financial management: theory and practice. 12th ed. New York: Cengage Learning. Eckbo, Bjørn Espen., 2008. Handbook of corporate finance: empirical corporate finance. Oxford: Elsevier. Jaffe, J. and Ross, R. W., 2004. Corporate Finance. New Delhi: Tata McGraw-Hill Education. Khan, M. Y., 2004. Financial Management: Text, Problems and Cases. 2nd ed. New Delhi: Tata McGraw-Hill Education. Siegel, J. and Shim, J, (2008), Financial Management, 3rd ed, Barron's Educational Series, Beijing. Sheeba, K, (2011), Financial Management, Pearson Education India, Mumbai. Shim, J. K. and Siegel, J. G., 2008. Financial Management. 3rd ed. Oxford: Barron's Educational Series. Stoltz, A, (2007), Financial Management, Pearson South Africa, Johannesburg. Thomson One Banker database, 2012, [Online] Available from: http://banker.thomsonib.com [Accessed on 15th April 2012]. Vishwanath, S. R., 2007. Corporate Finance: Theory and Practice. 2nd ed. California: SAGE. Watson, D. and Head, A., 2009, Corporate Finance Book and MyFinancelab Xl. 5th ed. New York: Pearson Education, Limited. Appendices Ratio Analysis of Sainsbury Plc Key Financial Ratios Formula   2012     2011     2010         Profitability Ratios   Return on Ordinary Shareholder's Funds Operating Profit- Preferred Dividends x 100 874 x 100 15.53% 851 x 100 15.69% 710 x 100 14.30%   Ordinary Share Capital + Reserves 5629 5424 4966       Return on Capital Employed Operating Profit x 100 874 x 100 9.50% 851 x 100 10.06% 710 x 100 8.81%   Share Capital + Reserves + Long Term Liabilities 9204 8457 8062       Operating Profit Margin Operating Profit x 100 874 x 100 3.92% 851 x 100 4.03% 710 x 100 3.56%   Sales 22294 21102 19964       Gross Profit Margin Gross Profit x 100 1211 x 100 5.43% 1160 x 100 5.50% 1082 x 100 5.42%   Sales 22294 21102 19964   Key Financial Ratios Formula   2012     2011     2010     Financial Gearing 2012 2011 2010  Gearing Ratio Long Term Liabilities x 100 3575 x 100 38.84% 3033 x100 0.36% 3033 x100 0.38%   Share Capital + Reserves + Long Term Liabilities 9204 8457 8062       Interest Coverage Ratio Operating Profit 874 6.33 851 7.34 710 4.80   Interest Payable 138 116 148   Investment Ratios   Dividend Payout Ratio Dividend Per Year x 100 285 x 100 47.66% 269 x100 42.03% 241 x 100 41.20%   Earnings for Dividend per year 598 640 585       Dividend Cover Ratio Earnings for Dividend per Year 598 2.10 640 2.38 585 2.43   Dividend Per Year 285 269 241       Dividend Yield Ratio Dividend Per Share x 100 0.16 x100 5.28% 0.151 x100 4.30% 0.142 x 100 4.26%   Market Value per Share 3.03 3.51 3.33       Earnings Per Share Earnings for Ordinary Shareholders 598 0.32 640 0.34 585 0.32   Number of Ordinary Shares issued 1870 1858 1821       Price/Earnings Ratio Market Value per Share Earnings Per Share 3.03 9.47 3.51 10.32 3.33 10.41 0.32 0.34 0.32 Key Financial Ratios Formula   2012     2011     2010     Efficiency Ratios 2012 2011 2010  Average Inventory Turnover Period Average Inventories held x 365 938 x 365 15.36 812 365 14.05 702 365 12.83   Sales 22294 21102 19964       Average Period for Trade Receivables Average Trade Receivables x 365 286 x 365 4.68 343 365 5.93 215 365 3.93   Credit Sales Revenues 22294 21102 19964       Average Period for Trade Payables Average Trade Payables x 365 2740 x 365 47.44 2597 365 47.53 2466 365 47.67   Credit Purchases 21083 19942 18882       Sales Revenues to Capital Employed Sales Revenues 22294 2.42 21102 2.50 19964 2.48   Share Capital + Reserves + Long Term Liabilities 9204 5424+3033 4966+3096       Sales Revenue Per Employee Sales Revenues 22294000 149 21102000 142.58 19964000 136.74 Number of Employees 150000 148000 146000 Liquidity   Current Ratio Current Assets 2032 0.65 1708 0.58 1797 0.64   Current Liabilities 3136 2942 2793       Acid Test Ratio Current Assets – Inventories 1094 0.35 896 0.30 1095 0.39 Current Liabilities 3136 2942 2793 Ratio Analysis of Tesco Plc Profitability Ratios Formula 2012 2011 2010 Return on Ordinary Shareholder's Funds Operating Profit- Preferred Dividends x 100 3985 x100 22.42% 3811 x100 23.05% 3457 x100 23.68% Ordinary Share Capital + Reserves 17775 16535 14596 Return on Capital Employed Operating Profit x 100 3985 x100 12.65% 3811 x100 12.97% 3457 x100 11.55% Share Capital + Reserves+ Non-current Liabilities 31506 29387 29923 Operating Profit Margin Operating Profit x 100 3985 x100 6.17% 3811 x100 6.25% 3457 x100 6.07% Sales 64539 60931 56910 Gross Profit Margin Gross Profit x 100 5261 x100 8.15% 5060 x100 8.30% 4607 x100 8.10% Sales 64539 60931 56910 Key Financial Ratios Formula   2012     2011     2010     Efficiency Ratios Average Inventories held x 365 3598 x365 20.35 3162 x365 18.94 2729 x365 17.50 Average Inventory Turnover Period Sales 64539 60931 56910 Average Trade Receivables x 365 2657 x365 15.03 2314 x365 13.86 1888 x365 12.11 Average Period for Trade Receivables Credit Sales Revenues 64539 60931 56910 Average Trade Payables x 365 11234 x365 69.17 10484 x365 68.49 9442 x365 65.89 Average Period for Trade Payables Credit Purchases 59278 55871 52303 Sales Revenues 64539 2.05 60931 2.07 56910 1.90 Sales Revenues to Capital Employed Share Capital+ Reserves+ Non-current Liabilities 31506 29387 29923 Sales Revenues 64539000 124.19 60931000 123.66 56910000 120.55 Sales Revenue Per Employee Number of Employees 519671 492714 472094 Liquidity Current Assets 12353 0.64 11438 0.65 11392 0.71 Current Ratio Current Liabilities 19180 17731 16015 Current Assets - Inventories 8755 0.46 8276 0.47 8663 0.54 Acid Test Ratio Current Liabilities 19180 17731 16015 Key Financial Ratios Formula   2012     2011     2010     Financial Gearing Long Term Liabilities x 100 13731 0.44 12852 0.44 15327 0.51 Gearing Ratio Share Capital + Reserves + Long Term Liabilities 31506 29387 29923 Operating Profit 3985 9.56 3811 7.89 3457 5.97 Interest Coverage Ratio Interest Payable 417 483 579 Investment Ratios Dividend Per Year x 100 1180 x100 41.93% 1081 x100 40.47% 968 x100 41.44% Dividend Payout Ratio Earnings for Dividend per Year 2814 2671 2336 Earnings for Dividend per Year 2814 2.38 2671 2.47 2336 2.41 Dividend Cover Ratio Dividend Per Year 1180 1081 968 Dividend Per Share x 100 0.14 x100 3.64% 0.1009 x100 2.42% 0.13 x100 3.10% Dividend Yield Ratio Market Value per Share 3.85 4.17 4.2 Earnings available for Shareholders 2814 35.08 2671 0.33 2336 0.29 Earnings Per Share Number of Ordinary Shares issued 8021 8020 7933 Market Value per Share 3.85 11 4.17 12.64 4.2 14.48 Price/Earnings Ratio Earnings Per Share 0.35 0.33 0.29 Read More