TASK ONE
Analyze and evaluate the performance, liquidity, and financial structure of Tesco plc over the three-year period 2017 – 2019.
You should use the accounting ratios shown below and any other information relevant to Tesco plc taken from the annual report and accounts for 2019 and any other source of evidence that you believe helps to explain the company’s performance and position.
You should also highlight any limitations in the use of accounting ratios that you found in your analysis and evaluation of the company over the three-year period. This may include a reference to the movements in the company’s share price particularly in 2019.
TESCO PLC
| 2019 2018 2017 |
| Performance ratios |
| Gross profit margin (% ) 6.48 5.83 5.19 |
| Return on total assets ( % ) 3.41 2.89 0.32 |
| Return on capital employed ( % ) 5.90 5.07 0.55 |
| Liquidity ratios |
| Current ratio ( : 1 ) 0.61 0.71 0.79 |
| Liquidity ratio ( : 1 ) 0.49 0.61 0.68 |
| Efficiency ratios |
| Inventory days (days) 14.95 14.37 15.02 |
| Trade receivable (days) 3.42 2.96 3.20 |
| Trade payable (days) 32.84 34.39 32.08 |
| Gearing ratio |
| Gearing ( % ) 161.26 233.35 454.44 |
TASK TWO
Senior management at Sunderland Plc has identified that there is a strategic need for a replacement machine to be acquired in one of its production departments. They have to make a choice between two models of the machine they have in mind. Model 1 is called Super and model 2 is called Deluxe. They are unsure as to which of the two models they should buy. They have given you the following profiles of the two models.
Required
1. They want you to appraise the two prospective projects using the following investment appraisal techniques:
- Payback
- Accounting Rate of Return
- Net Present Value
- Internal Rate of Return
You are told that funds are only available for only one model.
2. Write a report (of 500 words)to the senior management of the company explaining how each of the techniques works. Your report should include the advantages and disadvantages of each technique.
3. Explain briefly (in 200 words)which machine you would recommend to senior management of Sunderland Plc under each technique and state your reason why you would recommend that machine.
