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Finance - Essay Example

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Finance

This report analyses the behaviour of the stock in the past five years, links it to the financial performance of the company and predicts the future trend that may emerge. This report also analyses the value of the TESCO share as an instrument for investment in absolute terms.
Different tools are available for making financial analysis of stocks and range from the very simple and elegant to the very complex and difficult to understand ones. Here we use some of the most recognised analysis methods such as Earnings per Share (EPS); Price to Earnings Ratio (PE); Cash Flow Discounting; Market Value; and Book Value.
The financial performance of the company is better understood through the calculation of some important ratios that assist us in further detailed appraisal. (These ratios are calculated from the summary financial performance sheets placed at Enclosures 1 and 2.)
This ratio helps us understand the relative importance of long-term debt in the capital structure and can therefore provide useful additional information for assessing the acceptability of the overall leverage position of the business.
The long-term leverage of the company is good and shows a positive and reducing trend over the period considered. Indicating that the long term debt is coming down and this will impact future interest burden as well as allow the company to raise further funds in the debt market, should they be required.
c. Interest cover = operating profit / interest charges
This shows the number of times available profit covers interest charges and measures the extent to which operating profit can fall without being insufficient to cover the interest charges and thereby create a pre-tax loss.

2003
2004
2005
2006
2007
2007-08
Operating Profit
1361
1600
1943
2235
2653
1289
Interest Expenses
227
258
235
241
216
20
Interest Cover (Times)
6.00
6.20
8.27
9.27
12.28
N.R.2
The effect of the lowering debt resulting in lowering of the interest burden is clearly evident in these numbers. The company appears to have no problem in servicing its debt, the numbers compare very favourably with the industry average of 3.29.
1.2 Operating performance: The ratios that are relevant are:

a. Return on Capital Employed (also known as the primary ratio)
= Operating Profit / Capital Employed ...Show more

Summary

TESCO is the largest grocery retailer in the UK. For the financial year ended February 2007 it reported world-wide group gross revenue in excess of 42 billion. TESCO operates in a number of countries across Europe and Asia and also in the United States.
The TESCO ordinary share of 5p is currently traded on the London Stock Exchange at 424.75p (January 18, 2008 close) with a 52 week high of 494.25p and low of 392.00p…
Author : littlemarcus
Finance Essay essay example
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