Tesco is a British multinational that specializes in grocery and general merchandise. It is listed in the London stock exchange. The company headquarters in Hertfordshire. Tesco has 6800 shops across the United Kingdom, Ireland, Czech Republic, Slovak Republic, Hungary, South Korea, Thailand, Dubai in the UAE and Poland ( Simms, 2012) . The company has a presence in the United States through a minority stake of 35% in Grocery Works acquired in 2001. The company operates supermarkets, hypermarkets, superstores, and convenience stores. In terms of size, Tesco is the third-largest retailer in terms of gross revenue. In 2009 the company had over 450,000 employees across fits stores ( Simms, 2012) . It has subsidiaries in banking, mobile and mobile telephony. The official website is www.tescoplc.com . Tesco also operates 200 petrol station s across the UK. The company has a rich history when it comes to mergers, partnerships and takeovers. They have worked with large multinationals like oil giant ESSO, British telecom giant O2 as well as small successful family businesses across its territories. In 2013, the company pulled out of the US market, but with the advent of Brexit, the company is mulling over a comeback. The company markets itself with the slogan, “The Tesco Way." This slogan is found in its values, principles, and mission statement. Its growth strategy heavily leverages technology.it is the first retail store to implement self-service tills and the use of cameras to reduce tills ( Leahy, 2013) . Tesco’s main competitors are Sainsbury Plc., Marks and Spencer (M&S) and Morrison supermarkets PLC
Tesco’s Shareholding
The company has a market capitalization of £2.3, with 9 million issued shares.
Financial performance
| Financial year | Turnover (£) | Profit before tax (£) | Net profit (£) | Basic earnings per share (p) |
| 2019 | 63911 | 1674 | 1320 | 13.65 |
| 2018 | 57491 | 1298 | 992 | 14.77 |
| 2017 | 55917 | 145 | (54) | (0.49) |
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For the last three financial years, the revenues have been increasing year on year. In 2018 the revenue grew 2% from the 55,917 in 2017. The net profit loss is attributing to financial misappropriation that rocked the company in 2014. In this financial scandal that cost eight executives their jobs, Tesco had overstated profits by £ 250 million. Through this financial impropriety, the close to £2.2 billion worth of Tesco’s stock value was wiped out. An investigation by auditing firm Deloitte revised the figure upwards to £ 263 million. In order to inflate the figures, the investigation revealed that Tesco was bringing forward rebates due to suppliers. Tesco paid a fine, and the misreporting was cleared from the books in 2017. This explains why there was a big leap in basic earnings per share in 2018. In 2019 the growth in revenue was a robust 11%, but the basic earnings per share experienced a decline due to the correction.
Balance sheet
| Financial year | Total assets | Total liabilities | Total equity | Liabilities plus equity |
| 2019 | 56898 | 43442 | 13456 | 56898 |
| 2018 | 44884 | 34382 | 10502 | 44884 |
| 2017 | 45853 | 39415 | 6438 | 45853 |
Over the three years between 2017 and 2019 the shareholder equity has nearly grown represented a strong return on investment for the shareholders. Over the same period, the total assets have grown 24% which resulted in a 12. % growth in turnover revenue ( Tesco PLC, 2020) .
Other ratios
| Debit ratio | Current ratio | Liquidity ratio | |
| 2019 | 61.45% | 0.92 | 0.19 |
| 2018 | 64.58% | 0.85 | 0.18 |
| 2017 | 66.85% | 0.80 | 0.19 |
The debit ratio of the company has been declining signifying less dependency on debit financing which is a good indicator of a good cash position. The current ration of the company has improved over the three years signifying the ability of the company to pay its short term liabilities comfortably. The liquidity ratio of Tesco is reflects a company that is snot holding on too much cash to finance its short term debts, the ratio shows a company that will pay its debts when they fall due.
Industry trends
The UK retail market employs roughly 10% of the work force and contributes up to 5% of GDP to the UK economy.
Number of stores (2017)
| Retail store | Number of outlets |
| Tesco | 1507 |
| Marks and spencer | 766 |
| Sainsbury | 1106 |
| Morrison | 569 |
Gross profit Ration
| 2017 | 2018 | 2019 | |
| Tesco | 8.29% | 8.62% | 6.30% |
| Sainsbury | 6.07% | 5.84% | 5.86% |
| M&S | 13.65% | 13.36% | 12.28% |
| Morrison’s | 7.44% | 7.44% | 7.3% |
Gross profit margin is a ratio of gross profit against total; sales. It returns the difference between cost of sales and the total amount of sales. In terms of size, Tesco has more stores but in terms of profitability Tesco comes in at a distant third. Tesco’s performance is very weak when compared to Marks and Spencer.
Operating profit margin ratio
| 2017 | 2018 | 2019 | |
| Tesco | 4.98% | 4.87% | 3.37% |
| Sainsbury | 3.39% | 3.46% | 3.39% |
| M&S | 9.53% | 8.79% | 6.98% |
| Morrison | 5.47% | 5.56% | 5.29% |
Operating profit margin ratio
This ratio reelects profitability against the company’s operational performance. When compared against its peers in the industry, it is evident that Tesco has been having the lowest operating profit margin.
Return on capital employed.
| 2017 | 2018 | 2019 | |
| Tesco | 14.42% | 14.98% | 11.80% |
| Sainsbury | 10.01% | 9.23% | 9.15% |
| M&S | 19.01% | 18.72% | 14.43% |
| Morrison | 13.23% | 13.44% | 12.11% |
Upon comparing the return of capital employed of Tesco with its peers in the industry we can it is evident that although its peers still return strong figures, Tesco was within industry performance when it came to this ratio. M&S is a much smaller company but has a much more efficient use of its company
Areas of improvement
From the ratios above, Tesco is not leveraging on its large number of stores. Tesco has twice the number of stores that M&S has but returns lower profitability ratios. The management needs to do an audit if all stores, individually. The aim of this audit is to identify least profitable stores and make a financial decision on them. Some stores may need to be scaled down or closed.
Strengths
Huge international presence
Plc. operates in 11 markets across three continents ( Simms, 2012) . This wide reach will open up your company to a larger market in terms of suppliers and consumers. A business relationship with Tesco will open up markets in Europe, Middle East and south East Asia for you. In addition the international experience will comes in handy when choosing the right market and approach for entry
Access to Technological Innovation
Consumers worldwide are technology savvy and this is encouraging businesses to innovate in order to improve on their customer experience. Should your company have a relationship with Tesco you will have access to proven technological innovations that will improve customer experience. In addition the company has a strong online presence which will greatly benefit your company’s growth prospects.
Experience Working With Other Brands
Over the years, Tesco has been working on partnerships and Mergers with reputable brands that have yielded tremendous mutual benefits for the partners involved ( Simms, 2012) . Some of the brands oil company Esso, O2 mobile, Vodafone Hungary, Royal Bank of Scotland and Virgin Atlantic. The partners are across all sectors meaning Tesco will not limit the growth trajectory of your company.
Strong Growth Trajectory
Over the last few years the world economy has seen a strong growth across markets. Tesco has been a beneficiary of this growth and has invested in markets that do not have recent history of recessions. In short they have invested markets that have experienced robust growth in the middle class ensuring a growth in earnings in the future. Moreover the markets are not economies that are backed by natural resources like oil but backed by technology and innovation instead.
Weakness
Poor Financial History
The company has a past of financial misappropriation. Although at the moment it has shrugged away that past, it is in any investors interests to reemphasize the need to for financial prudence. Adherence to financial reporting standards is the responsibility CEO and a commitment from Tesco would be required before any business relationship
Exit from the US Market
Tesco exited the USA market in 2013 and there is not much information as to the reason why they exited. Before entering any business arrangement it would be advisable to explore the reason why this relationship was terminated. Furthermore reassurances from Tesco on the need for relationship with longevity will be required
Recommendations
In cognizance of Tesco’s experience in the retail sector would recommend a sale of minority stake of your company to Tesco. This will inject capital to the business as well as a wealth of experience in customer management.
References
Leahy, T. (2013). Management in 10 words: Amazon.co.uk: Leahy, Terry: 9781847940919: Books . Amazon.co.uk: Low Prices in Electronics, Books, Sports Equipment & more. https://www.amazon.co.uk/Management-10-Words-Terry-Leahy/dp/1847940919
Simms, A. (2012). Tescopoly: How one shop came out on top and why it matters . Hachette UK. Nash
Tesco PLC. (2020). Five year record . https://www.tescoplc.com/investors/reports-results-and-presentations/financial-performance/five-year-record/
