Financial Information Course work Essay Example | Topics and Well Written Essays - 2000 words

Financial Information Course work - Essay Example Q2: The auditor’s report of Tesco Plc. has shown the company in a positive manner by endorsing the accounts of the company as complied with the applicable requirements of Section 428 of the Companies Act 2006. It also shows that the company is not involved in any fraudulent activities and a ‘clean opinion’ is given by the independent auditors which will create positive sentiments for its shareholders. It is clear that auditors have carefully examined every financial recording and notes presented in the Consolidated Income Statement and Balance Sheet and have read all notes attached to be completely sure of the accounting being done in compliance with Generally Accepted Accounting Principles (GAAP). Auditor’s report acts as a guarantee that the company is not involved in any deceptive practices which may harm the company in the long run and its shareholders. Auditor’s report generates satisfaction among its stakeholders about the financial strength of the company. Also it helps increase the accuracy of investors’ perceptions by reducing investors’ overconfidence. When investors’ perceptions are more accurate, their prediction of asset worth is closer to economic predictions and the profits get evenly distributed. Q3: Ratio Expression 2010 2009 2010 result 2009 result Industry Average ROE 16.9% 17.2% 19% Gross Profit margin 8.1% 7.8% 10% Net Profit Margin 4.1% 4.0% 3% Current Ratio 0.7 times 0.8 times 1.7 times Inventory Turnover Period 18.8 days 18.7 days 50 days Payables’ turnover period 18.3days 19.4 days 20 days Gearing Ratio 54% 74.4% 4% P/E Ratio 14.3 x 12.3 x 9.0 x Note: Purchases for the year are calculated as: Cost of goods sold + closing stock – opening stock. Q4 2010 (in million $) 2009 (in million $) change Sales $56910 $53898 5.58% increase Operating Profit $3457 $3169 9.1% increase Share price $419.7 $333.2 26% increase Note: (only share price at 27th February is considered.) Q5: A nalysis: Return on equity shows the return gained by shareholder by investing $1 in the organization. ROE of Tesco Plc. fell marginally from 17.2% in 2009 to 16.9% in 2010. Although the net income increased during this period, the fall in ROE is due to Tesco Plc’s focus on equity rather than on debt to finance its operations. Compared to the industry average it is below par but looking at the future growth prospects and the scale of operations which Tesco has expanded into, the company’s return would move up in the future. It is evident from the fact that the sales have climbed up by 5.58% from $53,898m to $56,910m. It is notable that Tesco Plc.’s sales have significantly increased internationally as the percentage of international sales to the total sales have increased from 24% in 2005 to 31% in 2009. This will continue to do so and would reflect with a higher percentage increase in the upcoming years. However, the gross profit margin is mere 8% of the sales w hich means that a higher proportion of the sales are cancelled out by the cost of goods sold. There has been an increase in the Gross Profit Margin from 7.76% last year to 8.09% in 2010 which is complimentary to the increase in Sales. Comparing it to the industry the ratio is lower, however compared to previous year the margin has increased and therefore would come up to the industry average in due time. The Net profit margin of Tesco Plc has increased to 4.1% in 2010