TESCO SWOT ANALYSIS
TESCO has become the largest retailer in the UK with combined revenue of £47.3m in the year ending on 23rd February 2008. The Chemist and Druggist journal (2007) explain: ‘Nobody can dispute the power of Tesco’. Tesco got 2115 stores in UK and nearly 80% of the group sales and profits come from the UK business. TESCO not only has a firm grip over the UK market, but it’s also gaining
huge international market share, which includes countries like Taiwan, Thailand, South Korea, Malaysia, Japan, China, United states of America; and last but not the least their latest expansion into India. Today Tesco operates in 12 markets outside UK, in Europe and Asia. Serving over 28 million customers and generating over £13.8 billion sales and over £700 million profit. The company manufactures and retails huge range of products from grocery and wine, entertainment and books, phones and broadband, clothing; in fact TESCO is trading in almost everything.
Aims and Objectives
The main objective of this report is to evaluate the past financial position of TESCO and it prospects for the future. This will be mainly achieved by analysing the financial performance of the company and a SWOT analysis. Shareholders are interested in profitability, gearing and return to them in terms of dividends. Non financial information will also be considered as a part of the report.
The main area of focus of this research has to be conducted in such a manner that it could answer some of the questions which are stated below;
Analysis of sales growth trend of Tesco to 2008 and comparing it with its rival Sainsbury.
Analysis of key ratios
Earnings Ratios :- (made up of profitability and asset activity ratios). These ratios measure the performance and earning power of the entity and reflect the efficiency in generating profits from resources.
Risk Ratios :- (made up of liquidity and capital gearing ratios). Liquidity refers to state of assets ability and nearness to cash. Liquidity which is vital to the financial condition of the company will be analysed.
Working Capital Ratios :- (made up of stock turnover period, creditors period, debtor collection period). These ratios reflect the length of time fund are invested in stock and also the length of time it takes Tesco to get his funds back from his debtors and to pay its suppliers.
Growth Ratios :- (made up of earnings per share growth, sales revenue growth, dividend cover & etc ) will be analysed and calculated
Investors’ Ratios :- (made up of dividend per share, earnings per share, dividend cover & etc). Current shareholders and potential investors look at these ratios to make future economic decisions
The marketing strategy employed by Tesco in order to keep up with the pace of growth in future.
My research shall critically asses the Strengths, Weaknesses, Threats and opportunity as a result of this adopted strategy.
Ratio Analysis
It is one of the main accounting technique used to interpret the financial information of the company and can be used to compare company’s performance from last year results or can be used to compare with another company in the industry. (Already stated above) Limitations
Ratio Analysis has few limitations that are,
Companies may have different accounting policies which may distort the inter company comparison
Some businesses apply creative accounting to show the better financial performance or position which can be misleading to the users of financial accounting
SWOT Analysis
A SWOT analysis is used in this RAP as a main business technique. It is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities and threats involved in a business.
Limitations
Limitation of SWOT Analysis,
• One of the major problem is that it just emphasizes on the importance of the four element relating to analysis of a company’s environment. The framework does not provide any guidance as to how managers can identify these elements for their own company. For example, what if a company believes its customer service is strong and they are unaware of problems with employees.
RATIO ANALYSIS OF TESCO
Analysis of Information
A thorough look at the financial reports of the company would make clear the financial situation of TESCO plc. To assess the financial position of the company, a detailed analysis of its balance sheet, income statement, cash flow statement and corporate social responsibility (CSR) report is required. These will be compared with previous year’s financial statements known as trend analysis.
Also in this analysis, key ratios will be calculated for the current year and will be compared to the last year and its competitor J.Sainsbury. This will provide a realistic view of the company’s performance.
Sales Growth
The Group Sales (excluding VAT) for the 52 weeks in 2008 was £47,298 million whereas it was £42,641 million in 2007 on a comparable 52 weeks basis. This is an increase of 10.9% in sales. TESCO as a group experienced 11.1% increase in sales (including VAT). It increased to 47298 in 2008 from £42641 in 2007. On like for like basis the growth in preceding year was 8.07% which states that TESCO performed better than last year.
When compared to total revenue from 2006 to 2008 which have consistently posted two digit percentage increase. J.Sainsbury’s sales revenue increased by 4% from £17,151 million to £17837 million for the year ended 2008, which clearly shows TESCO outperformed it.The international sales are becoming important to TESCO. TESCO increased its stake in Chinese hypermarket chain Hymall to 90% from 50% in December 2006 and in May 2008 Tesco also announces the acquisition of 36 Homever Hypermarkets in South Korea. International Sales increased by 24.5% as compared to 5.4% in proceeding year. This is also affected by TESCO moving into USA market with a £250 million investment in 100 stores. UK sales growth also decreased to 6.7% as compared to 8.9% which shows TESCO faced tough competition this year.
Gross Profit Margin
This ratio provides information about the profitability of the company. A high gross profit margin indicates that company has a good control over its production costs and would be able to meet its fixed costs.
The Gross Profit grew to £3630m in 2008, a 4.8% increase from £3,463 in 2007. Last year there was an increase of 14% from £3028m in 2006 compared to £3463m in 2007. This is because of 10.8% increase in Cost of Sales from £39401m to £43668m as compared to 8.1% increase in 2007. The group’s gross profit margin on total revenue experienced a slight fall in year end 2008, the gross profit margin was rose by 8.12% in 2007 while compared with 7.67% rise in year 2008.
J.Sainsbury’s gross profit fall from £1172m in 2007 to £1002m in the year ended 2008. The gross profit margin on gross sales showed a 17% drop on last year’s performance, moving from 6.8% to 5.6%.
Operating Profit Margin
This ratio is a measure of profit generated from sales. It shows how well the expenditures have been managed. A good operating profit margin is needed for a company to be able to pay its fixed costs.
The operating margin slightly declined from 6.2% in 2007 to 5.9% in 2008. The main factor governing operating profit margin is the administrative costs have increased by 13% which is a little higher but are aligned with the growth in sales; hence are at an acceptable level. Operating margin for J.Sainsbury increased by 1.97% in 2008 as compared to a gigantic rise of 127% in 2007.
Net Profit Margin
This ratio shows the overall performance of the company after all the finance cost and taxes have been deducted. It is the amount of profit over every hundred pounds of sales. Profit margin is an indicator of a company's pricing policies and its ability to control costs.
Profit after tax margin slightly improved from 4.4% in 2007 to 4.5% in 2008. The trend in net profit margin is consistent with the trend of gross profit margin. The cost of production and gone up along with other expenses but as already discussed above they are align by the increase in sales which kept the trend in net profit upwards. Other reason for increase in profit after tax margin is increase in interest received of £187m compared to £90m of last year. Whereas, there was no such difference in gross profit margin of J.Sainsbury which was 1.84% in 2008 compared to1.89% last year.
Asset turnover
Asset turnover measures how efficiently the management has utilised their assets, or are there any assets which are not required or are burden on the company should be disposed off. Tesco’s asset turnover for the year 2008 is 2.38 times and it has remained stable at around 2.3 – 2.5 over the years. The asset turnover for the last five years is presented below.
RETURN ON CAPITAL EMPLOYED (ROCE)
ROCE is arguably the most important ratio from an investor point of view. It is a combination of operating profit margin and asset turnover. It combines and portrays a picture of profit in comparison to the amount of assets used to earn that profit. Generally it is said that the ROCE of a company should be more than the rate at which it borrows. If not, it would be paying more than it is earning on capital employed.
Shareholder’s stake in public limited companies is very significant. The profit allocable to ordinary shareholders is taken into account after all the financing charges have been met. So it is vital to know how much revenue the company the company is generating on each unit of currency invested in capital of a company.
The ROCE of Tesco for the year 2008 is 14.1% as compared to 15.9% of year 2007. There has been a constant rise in ROCE before 2008 but this year there has been a fall in ROCE.
This might be due to rise in debt. Long term debt has increase by 44% in year 2008. Where, ROCE of J.Sainsbury has decreased slightly from 6.96% in year 2007 to 6.38% in year 2008. In this regard TESCO is doing well than J.Sainsbury.
Current Ratio
The current ratio is the measure whether the company has enough resources to pay its liabilities, as they fall due. Traditionally, current ratio if exceeds 1 and is below 1.5 was considered as satisfactory, but this optimal level may vary from business to business.The current ratio for Tesco has improved from 0.56 in 2007 to 0.61 in 2008 and is the highest ratio Tesco has attained in last five years. In comparison to Tesco, J.Sainsbury showed a better performance than Tesco in 2008 with a figure of 0.66 down from 0.71 and 0.80 respectively.
Quick Ratio
Quick ratio follows the same principles as Current, except it does take into account of inventory in its calculation. This ratio indicates whether the company has sufficient liquid resources to settle its liabilities.
Quick Ratio for Tesco is 0.38 in 2008 and 0.32 in 2007, a minor rise and when compared with J.Sainsbury’s performance, Tesco performed better. The quick ratio for J.Sainsbury showed a significant fall from 0.68 in 2006 to 0.50 in 2007 and to a low of 0.1 to 0.4 in 2008.
ANALYSIS OF CASHFLOW STATEMENT FOR LIQUIDITY
Although the current and quick ratio has remained low for TESCO and Sainsbury, a creditor will still have a trust in them as they have been producing positive cash flows over the past 5 years. TESCO and Sainsbury have been showing an improving pattern of result, from which we can conclude that TESCO and Sainsbury both are not under liquidity crisis and can meet its liabilities with having any major problems.
Debtor Days
This ratio got high significance; it measures the number of days debtors will take to pay back to the company The debtor days have decreased from 9.24 days in 2007 to 6.18 days in 2008 resulting in 33% decrease. This indicates that TESCO has improved its efficiency by managing its debts. This might be due to strict policy applied by TESCO. J.Sainsbury’s debtor days has slightly increased from 0.64 days to 0.65 days in 2008, which shows they performed better than TESCO.
Creditor Days
This ratio shows how long it takes a company to pay its suppliers. Usually 30 days is considered to be a normal level in the UK but it depends on the type of market and trading condition.
The credit period of TESCO arose from 30.7 in 2007 to 32.9 in 2008. This states that TESCO has delayed its payments to suppliers by 2 more days. Usually companies delay payment when they are suffering liquidity problems. However, since the cash flow of TESCO has remained in surplus all this years and was £3343m in 2008, thus the rise in creditor’s turnover period does not signify that there are liquidity problems.
Inventory Days
This ratio is an indication of how quickly a company is able to sell of its stock. It clearly reflects the efficiency of management in planning and managing production.
TESCO inventory turnover was 18.75 days in 2008 as compared to 16.5 days in 2007 and 13.5 days in 2006. Although the inventory turnover is slightly rising but it is still an acceptable level. This shows that stocks are efficiently managed; it may be possible that Just- in-Time approach is being used. Even though there has been a 13% rise in inventory turnover, TESCO has been doing a great job. While J.Sainsbury was able to get an inventory turnover ratio of 26.19 days this year which has fallen from 29.07 days in year 2007, which shows that TESCO is doing well in this regard.
GEARING RATIO
CAPITAL GEARING
This ratio is an indication of the finance structure in a company. It shows the total value of long-term borrowed funds, overdrafts and short-term leans divided by the value of the shareholders’ funds. TESCO’s gearing ratio has increased from 47.53 in year 2007 to 51.94 in year 2008. TESCO’s gearing ratio has increased by 9% in year 2008. This shows that TESCO has used more of debt finance then the equity finance. If, however, the company has a gearing level of more than 50%, it would be considered as highly geared and thus a risky company. It may not be appropriate to term TESCO as a highly geared company, where gearing ratio of more than 50% is a norm of the industry. Where, J.Sainsbury’s capital gearing ratio was 65.97 in year 2007 as compared to 54.57 in year 2008. J.Sainsbury’s capital gearing ratio has fallen by 17%.
Interest Cover Ratio
This ratio is used to determine how easily a company can pay interest on its outstanding debt. The interest cover of TESCO in the year to Feb, 2008 stood at an impressive 11.16 times. Although it has decreased from last year’s interest cover of 12.26, still considered as an impressive interest cover ratio. An interest cover of over 3 is considered as safe, as the company has 3 times of profit to fulfil its all financial responsibilities. This is also a positivendicator for shareholders as there will be profit left to be distributed as dividend after paying off finance costs.
Investor’s Ratio
Dividend per Share (DPS) & Earning per Share (EPS)
These two ratios are considered to be the most important from an investor point of view. DPS gives an indication of the immediate returns that in investor can expect and EPS gives insight on the future value of the company and its stock.
The EPS of TESCO for the year 2008 is 26.95p which is 14.1% increase in last year’s EPS figure of 23.61p. TESCO’s EPS has increased by 79% over the last five years from 15.05p in 2004 to 26.95p in 2008. This shows that TESCO has been able to generate more wealth than contributed by its shareholders. Share prices have increased by 72% from 234.62 at in Feb, 2004 to 403.25 in Feb, 2008. (tescocorporate.co.uk)
Whereas, J.Sainsbury’s EPS has fallen slightly from 19.2p in 2007 to 19.1p in 2008; TESCO performing better than J.Sainsbury again.
The DPS has increased to 10.9p from 9.64p this year which is an increase of 13.1%. DPS has increased by 59% over the five years time. To maintain a good image TESCO need to pay enough dividends to keep their shareholders satisfied. While Sainsbury paid higher dividend of 12p compared to TESCO’s 10.9p in 2008.
Dividend Cover
This ratio explains how many times business can pay annual dividend out of annual earnings.
TESCO’s dividend cover experienced a rise in their dividend cover in year 2007 but this year there has been a decline from 4.05 in 2007 to 2.68 in 2008.
Non Financial Analysis
TESCO has a well established and consistent strategy for growth. According to Chairman David Reid:
“Tesco is a growth company and the strategy is designed to deliver good growth and performance, while maintaining focus on investing for the future”
Objectives of Strategy
To grow the core UK business,
To become a successful international retailer,
To be as strong in non food as in food,
To develop retailing service, and
To make Corporate Responsibility integral to the business.
(TESCO Annual Report 2008)
This long term strategy was laid down in 1997 and has been the foundation of the TESCO’s success in recent years. They have strengthened their core UK business, have created new businesses and have expanded into new overseas markets. They dealt well with the challenges of competitors, rising costs and tough conditions
Strengths
Market Leadership
TESCO is the largest retail group in UK, third largest in the world. Apart from being the dominant food retailer in UK, it is market leader in several other countries and is maintaining the pace of its store opening program. The group had 31.2% share of the UK grocery market as of July, 2008. TESCO operates 3728 stores all over the world. The group operates through multiple store formats including Extra, Superstore, Metro, Express and hypermarkets.
Market leadership enables TESCO to command greater economies of scale and grabbing huge trade discounts.
The group strong presence in South Korea and its speed in opening new retails outlet which made him to get to the top. Hence, it made its main competitor Wal-Mart to exit from South Korea. The group is planning to invest $3.9 billion during the 2007- 2011 in South Korea. Recently it also announced to develop cash in carry business in India.
TESCO.com
TESCO.com’s development is included in the core of strategy mentioned by TESCO; and it can be believed that it has been quite successful in doing so. TESCO.com is the largest online grocery shopping services in the world. TESCO had another excellent year, with its online business achieving a 31% increase in sales to £1.6 billion and a 49% increase in profit to £124 million, helped by improved order picking productivity. There was 20% in new customers during the year leaving more than one million active customers by the year end. (TESCO REPORTS, 2008)
Strong Brand Image
TESCO has established its own private label brand. It is associated with good quality that is reliable and represents excellent value. TESCO has been able to make variety of quality products focusing at different market segments. For example, its ‘Finest’ brand targets people who want to buy a better commodity and are willing to pay higher prices and ‘Value’ brand which designed for price conscious customers. Having a strong brand image enables the group to launch more variety of products under its own label and allows it to enter new markets easily.
Weaknesses
TESCO’s vast investment in international market still derived it around 27%, which exposes it to market condition only pertaining to the UK. While its international competitors such as Wal-Mart and Carrefour with a large presence in fast booming international market.
TESCO is increasingly geographically spread in its activities, which makes it more difficult to focus on all of its market. TESCO has extended his activities across three continent and cover up to 13 markets. Considerable management focus is required for the retailer to keep its eye on the ball in each of its market
Wal-Mart international’s net sales from continuing operations were $90.6 billion, up 17.5 percent from the previous fiscal year. (Wal-Mart, Annual Report 2008)
The revenue equates to £49.2 billion at conversion rate of 1.84:1. TESCO’s revenue from rest of the world was £12.4 billion with is approximately 4 times less than that of Wal-Mart. Also, UK Government and people might resist granting further expansion space to TESCO.
Opportunities
US Market
TESCO last year entered into a very lucrative US Market and are in line with TESCO’s strategy of becoming the number one global leader. They opened their first store in November and by now they have over 60 trading in US.
According to the Final Report, sales are ahead of the budget and already higher than the industry averages. Fresh foods and own brand products have sold particularly well. According to TNS Retail Forward estimates that TESCO could be a $4 billion retailer in the Unities States with 500 stores. And, they also believe that sales could reach £10 billion by 2015 positioning Fresh and Easy among the top 10 supermarket retailers in the country. (Marketingservicetalk, November 2007, Web Search)
Indian Market
India is the Second fastest growing economy in the world today. TESCO is, well poised to benefit from growing retail industry in India. According to SiliconIndia, Indian economy is likely to post 9 percent sustained growth rate and cross the threshold of $1 trillion GDP by the next financial year. India’s real GDP is expected to grow at an impressive 9.5 per cent in Fiscal Year 2009. (SiliconIndia, February 2007, Web Version)
As already pointed out about the dependency on UK market, this would be an ideal opportunity for the expansion of TESCO rather than losing to its international competitors in Asia.
TESCO the third largest retailer in the world planned to benefit from the growing retail industry in India and will help Indian conglomerate Tata Group to grow its hypermarket business. TESCO said it would make an initial investment of up to £60m in the cash-and- carry business over the first two years. (The Independent, August 2008, Web Version)
Non-Food Market
This is another core part of TESCO’s strategy. TESCO has been working its way up so that they can do much better when compared with its competitors.
TESCO’s UK non-food sales are still small, it only holds 16% share of the revenue generated in year 2008. TESCO’s non-food sales in UK, increased to £8.3 billion, rose by 9% over 2007 levels.
Right from the start, TESCO offered 8,000 non-food products online and 1,500 in a new non- food catalogue, and by the first quarter of 2007 it had raised the online figure to 11,000. By the end of the year the figure had been boosted again to 12,000, and the catalogue range had risen to 7,500. (Fulfilment & e.logistics Magazine, Winter 2007/8, Web Version)
The non-food segment includes variety of integrated non-food categories such as tobacco, household and traditional non-food categories such as clothing and entertainment products.
Threats
Difficult Condition in International Market
TESCO, the third largest retail firm in the world operates in a mature industry where aggregate revenue growth is marginal which means every competitor has to compete on prices.
It is facing strengthening competition from international operators – most notably in Central Europe from Lidl. (IGD, 2008)
TESCO, the third largest retail firm in the world entered U.S last year. As the group is in initial stages will face some problems. For example, it will have trouble convincing customers because they are small as compared to its dominant rival Wal-Mart in U.S market.
Intense Competition
The UK retail industry is strongly based on TESCO, ASDA, J.Sainsbury and Morrison. TESCO is facing intense competition from its rivals; where its main rivals are Sainsbury and Asda.
Asda, the second largest retail market share in the UK is giving tough competition to TESCO. TESCO and Asda are to cut cost of thousands of everyday groceries.
TESCO, the country’s biggest retailer will reduce the price of 3000 items by up to 50 percent in an attempt to win back customers struggling to cope with record petrol prices and energy bills. Whereas, Asda has promised to sell ten staple items, which includes bread, eggs and butter, for only 50p as a part of a campaign to in over thousands of shoppers from rivals. (TimesOnline, June 2008, WebVersion).
Conclusion
Deriving conclusion is not very difficult; after all the thorough analysis of financial and business aspects done above. From all the trends, it is evident that TESCO has performed well in the recent two years in terms or revenue and profitability.
TESCO’s performance in last three years has been quite satisfactory, they have shown strong growth. The forecast figures for revenue in the next three years shows an upward trend, i.e. 11.6% increase in 2009, 10% increase in 2010 and 10.1% increase in 2011.TESCO adhered to their strategy and it really worked for them. By following the strategy they become the market leader, with revenue increasing every year. Their international business is flourishing. Even though its sale revenue from international sales is quite small when compared with its international rivals Wal-Mart and Carrefour. TESCO has significant lead over its UK competitors and in this regard they are more diversified than most of its UK rivals.
TESCO’s a ratio has been improving all though it is below the generally accept level of 2:1; it is not an alarming situation because it is an industry norm to have a current ratio well below 1. Market share statistics showed that the company had a 31.32 per cent share of the retail industry with its nearest rival Asda on 16.9 per cent followed by J.Sainsbury on 16.4% per cent.
Last year TESCO entered into US market to become the global leader. Recently they also announced that they will enter in retail industry of India and are investing massively in South Korea. Despite these huge investments TESCO’s ROCE has slightly declined this year. Working capital are funded by trade creditors, where creditor days slight increased indicates that TESCO is taking advantage of this cheapest source of finance. Overall, the group’s liquidity position seems healthy and this expected to continue in immediate future.
Profitability of the company has been improving every year. The gross profit margin and net profit margin improved too. This proofs that the company is being efficiently managed and has a good control over its cost.
TESCO is expanding their non-food related ranges, although non-food products contributed a little to revenue as compared to food products. Non-food products contributed 16% in total revenue in year 2008 and their sales were increased by over 9%.
Shareholders and all other stakeholders now-a-days take into consideration all the corporate social issues (CSR) relating to the company. TESCO has performed well by considering these social issues. TESCO, by the use of Green Clubcard they saved a staggering two billion carrier bags.
We have helped our customers cut bag use by 40% without a bag tax adding to the cost of their weekly shop. In fact, our Green Clubcard scheme helps people save on their shopping bills. (TESCO PLC, AUG 2008, Web Version)
TESCO’s growth has been quite impressive, their revenue and profits are rising which puts them into a strong position but they are not invincible. Regardless of all the high growth rates, rising profits and high cash reserves, it will have their share of weaknesses and threats. It highly depends on UK market but some environmental protectionists’ might show resistance to allowing more space to supermarkets which might cause problem for TESCO in future. TESCO is aware of this fact and is trying to expand internationally, which is one the objective of their strategy and it is also increasing its product variety and coming up with its own brand image.
From investor’s point of view, company’s performance in recent years was satisfactory. It massively invested in international market and then there was slight decrease in their Return on Capital Employed due to increase in long term debts. TESCO’s EPS has increased by 33.4% over the last three years. This shows that TESCO has been able to generate more wealth than contributed by its shareholders. Despite the falling share prices, the company has been rewarding its investors with good dividends. Interest Cover is healthy 11.16 times and shows that TESCO can pay its debts as at when due.
Overall, TESCO is in a healthy financial position in almost areas of this analysis and when compared with J.Sainsbury, TESCO outperformed it in most areas with margins. TESCO has been quite successful over the years in executing its strategy and they have earned their reward, they are the third biggest retail company in the world.
From my point of view, future is quite unpredicted and the prosperity and success of the company will entirely depend on the management keeping up with customer needs, efficiently managing their supply chain and also depends upon the economy of the UK.
Reference
Datamonitor (Sept 2007), TESCO Company Profile
Financial Times (12 August, 2014), Tesco breaks into Indian grocery market, Available from : http://www.ft.com/cms/s/0/cb8f123a-683e-11dd-a4e5- 0000779fd18c,s01=1.html?nclick_check= [ Accessed 8th September, 2014 ]
Foulks Lynch (2008). Manual: ACCA paper P3 Business Analysis, Foulks Lynch publishing
Foulks Lynch (2007). Manual: ACCA paper 2.4 Financial Management & Control, London, Foulks Lynch Publishing
Foulks Lynch (2007). Manual: ACCA paper 2.5 Financial Reporting, London, Foulks Lynch publishing
Fulfilment & e.logistics Magazine (Winter 2007/8) Tesco Direct, eighteen months down the track, Available
from: http://www.elogmag.com/magazine/46/Tesco_Direct__eighte.shtml [ 24th September, 2014 ]
http://en.wikipedia.org/wiki/Tesco_plc, [Accessed on 3rd September,2014]
IGD (2008) Company Summary
J.SAINSBURY plc (2008), Annual Report and Financial Statements 2008 J.SAINSBURY plc (2008), Annual Report and Financial Statements 2008
siliconindia.com (26.Feb.2014) http://www.siliconindia.com/shownews/35123 [Accessed on 15th September, 2008]
Appendix 1: Ratios Definitions
Profitability Ratios:
Gross Profit Margin =GrossProfit/Sale(ex-VAT)
Operating Profit = Operating Profit / sales (ex-VAT) Asset turnover = sales (ex-VAT)/ non-current assets Capital Employed = Non-current assets + net current assets
= Total Equity + Long-term Liabilities
ROE =Profit attributable to group/equity
Profit ater tax =PAT/Sale(ex-Vat)
Liquidity Ratios:
Current Ratio = current assets / current liabilities Quick Ratio = (current assets – inventory) / current liabilities
Efficiency Ratios:
Debtor days = trade receivables / sales (ex-VAT) *365
Inventory Turnover days = Inventory / sales (ex-VAT) * 365
Creditors days = trade payables / cost of sales * 365
Gearing Ratios:
Capital gearing = net closing debt / equity
Interest cover = operating profit / finance cost
Investors Ratios:
DPS = total dividend / total shares EPS = Profit attributable to group / total shares Dividend Cover = Profit attributable to group / total dividends
