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Managing Finance Resources Essay

2179 words - 9 pages

Managing finance resources

Umar hafeez abbasi
City of London college

Managing finance resources

Tesco come in existence at time of 1919, it is one of the largest supermarkets nowadays in concern with UK market and apart from that it is also have a big human source with around 260,000 employees. Thus it is appropriate for the second part of this assignment along with also have great wonderful history of managing finance and information management.

The headquarters of the company is situated in Cheshunt, United Kingdom (Tesco, 2011).  It is a public company with its shares listed in the London Stock Exchange. Tesco PLC has also got a second ...view middle of the document...

Investment Company used to do investment in natural resources, such as gold, diamonds, copper, crude oil but due to the credit crunch, there has being very little demand for natural mineral resources and has contributed to the continuous decline in the share prices of investments in such companies. Now, management is thinking to do investment in food and clothing sector which is good performer throughout the period. So, as a research, Investment Company decides to analyse the performance of Tesco, a supermarket store deals in food and clothing.

Information gathering
As we know, Investment decisions are based on many considerations and one of these considerations is the financial performance of the company. This paper presents a financial analysis of Tesco Company. The financial analysis was conducted to evaluate whether the company presents a good investment opportunity or investors would be better off investing in other companies. The analysis was conducted by use of Tesco PLC financial statements and other data available on the internet.  Specifically, the financial analysis was based on evaluation of financial ratios that give an indication of the value of company to the share holders.

Generally, this ratios and other financial indicator depicts a positive trend in terms of revenue, profits, dividend yield and earnings per share. However, the liquidity ratio and P/E ratio have demonstrated a negative trend. This paper analyse financial performance of Tesco PLC with its last two year performance. Being the market leader, comparing Tesco PLC data enabled us to evaluate the variance between Tesco’s performance and that of the retail industry in general. The paper concludes that Tesco PLC is an ideal company to invest in as it demonstrating growth in profitability and returns on investment.

Ratio analysis

Return on capital investment
This ratio shows the % gain made on capital invested in the business and the income made by the business. This capital should include long term loans, share capital and reserves. Financial statistics indicates that the return on capital investment for Tesco PLC has been increasing since 2007. The ratio in 2007 stood at 5.6%, 5.9% in 2008, 6.2 % in 2009, 6.5% in 2010 while the ratio stood at 6.8% in 2011 (Financial Times, 2011). Several reasons could explain this increase in return on capital investment.

One of them is the increase is net profit recorded by the company over the last 5 years. Another reason may be due to reduced cost while sales which pushed the values of profits higher or a reduction in the amount of capital invested in order to generate profits for the business. Wal-Mart financial figures also show a similar trend. However, the value for Wal-Mart was significantly higher standing slightly above 14%. The return on investment ratios have been increasing over the last five years (Charts, 2011). This is an indication that growth of return on capital investment is the general trend...

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