Assignment (Tesco Comparison Analysis) Case Study Solution
Introduction
Tesco is a well-known multinational retail company, located in England. The organization was started in the year 1919 by Jack Cohen. The business of retailers grew very quickly and become the third largest retailer in the U.K. in the year 2011. At the current time, there are few similar nature organizations are involved to identify the current performance of the organization. There is a comparison contained between Tesco, Sainsbury, Carrefour, and the Industry average by using ratio analysis under different types of ratios that help to understand the performance of Tesco from the year 2020 to 2022.
Comparable Ratio Analysis
To analyze the performance of Tesco Plc using the calculated ratios in comparison to Sainsbury, Carrefour, and industry averages. There is a need to analyze the performance of the organization and identify the possible causes or effects on the company. Here's a breakdown of each ratio:
Profitability Ratio
EBITDA Margin
Tesco's EBITDA margin increased significantly from 6.9% in 2020 to 15.06% in 2021, but then decreased to 5.57% in 2022, indicating a decline in its ability to generate operating profits before accounting for interest, taxes, depreciation, and amortization. This decline could be attributed to several factors, including increased competition, pricing pressures, and rising operating costs. Sainsbury's EBITDA margin also increased from 4.84% in 2021 to 7.95% in 2022, while Carrefour's EBITDA margin remained relatively stable at around 5.5%. The industry average EBITDA margin for 2022 is 7.46%, which is comparably closer to the Tesco Company. Tesco's EBITDA margin is lower than Sainsbury's and Carrefour's but closer to the industry average.
Gross Profit Margin
This ratio measures a company's gross profit as a percentage of its revenue. Tesco's gross profit margin has stayed moderately unchanging above the previous three years, alternating from 7.19% to 7.49%, which is extremely lower than the industry average of all three years. But it indicates that it has been able to maintain a healthy balance between revenue and the cost of goods sold. While Sainsbury's and Carrefour's gross profit margins fluctuated slightly, with Sainsbury's being lower than Carrefour's. Tesco's gross profit margin is marginally greater than Sainsbury's but lower than Carrefour's average. The lower gross profit margin could be due to increased competition, higher costs of goods sold, or lower prices.
Gearing Ratio
Gearing "Total Debt/ Equity"
This proportion dealings a corporation's debt level compared to its equity. Tesco's gearing has been declining above the previous three years, from 0.63 in 2021 to 0.55 in 2022, while Sainsbury's gearing presents a higher ratio of around 103.54 in the year 2021 but Carrefour's gearing is extremely higher than both companies. It indicates that it has been dropping its dependence on liability supporting to reserve its processes. The industry average gearing ratio for 2022 is 93.46, which presents that Tesco has a lower ratio as compared to the industry average. This could be a progressive signal for financiers as it decreases the firm's monetary threat. Tesco's gearing is lower than Sainsbury's, Carrefour's, and the industry average.
Interest Cover Ratio
This proportion dealings a corporation's capability to recompense interest on its liability. Tesco's interest cover percentage has been growing above the preceding three years, from 1.37 in 2021 to 3.84 in 2022 representing that it is becoming more capable of meeting its interest expenses from operating profits. Sainsbury's interest cover ratio was not available for 2021 but decreased from 3.63 in 2022 to 1.37 in 2020.
Carrefour's interest cover ratio was relatively stable at around 5 over the three years. The overall industry average interest cover ratio for all years is higher than Tesco, which shows a positive sign for investors as it reduces the risk of default due to interest payments. Tesco's interest shield ratio is greater than Sainsbury's but extremely lesser than Carrefour's and industry average. The improvement in the interest cover ratio could be due to higher profits or a reduction in interest expenses.
Liquidity Ratio
Current Ratio
This proportion dealings a corporation's capability to encounter its immediate requirements. Tesco's current ratio has remained comparatively constant above the previous three years, alternating from 0.665 to 0.692 representing that it has been capable to uphold a suitable level of liquidity to meet its short-term obligations. While Sainsbury's current ratio remained stable at around 0.6 over the three years and Carrefour's current ratio increased from 0.82 in 2020 to 0.89 in 2022. Tesco's current ratio is similar to Sainsbury's and the Industry average but slightly lower than Carrefour's. The lower current ratio could be due to a higher level of current liabilities or a lower level of current assets...............
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