M50 Managing Financial Report

M50 Managing Finance & Accounts
TMA 1

Allyn Rogers
Deadline: 18th November 2014 Part A (i)
Solvency Ratios
Short-term / liquidity Current Ratio: "Current assets" /(Current liabilities) 2012 = 12863/19249 = 0.67 2013 = 13096/18985 = 0.69 Acid-test ratio: "Current assets – stock" /(Current liabilities) 2012 = (12863-3598)/19249 = 0.48 2013 = (13096-3744)/18985 = 0.49
Long-term / gearing Debt-equity ratio: (Total debt)/(Total equity) 2012 = 11749/17801 = 0.66 2013 = 10834/16661 = 0.65
Total debt calculated using note 20, pp. 103: current and non-current interest-bearing borrowings Interest cover ratio: "Profit before interest" /(Interest expense) 2012 = 4182/531 = 7.88 2013 = 2188/457 = 4.79 Cash

Equity represents a company’s net worth but not accurately; partly because assets are valued at depreciated value, not true market value.
Factors:
Retained earnings make a company stronger than one that pays dividends: retained earnings help growth.
Retained earnings at TESCO dropped in 2013 to £10,535m from £12,164m indicating a weakening in TESCO’s ability to grow,
Increases in net profit increase owner’s equity. TESCO net profit performance in 2013 of £120m versus £2.8bn the prior year has a big impact on equity. Even pre-charges from discontinued operations & tax, TESCO profits were down 51.46% from£4bn to $1.9bn.
These are funds invested by shareholders beyond share payments, e.g. loans. New contributions boost shareholder equity. TARA doesn’t reflect any incoming contributions.
Value of shares sold less bankers fees = increased owners equity. This funding is what is owed to the shareholders.
As PWC explains, increased life expectancy and poorly performing equities on which pension schemes are invested will increase pension deficits and impact equity.
TARA indicates a pension Cost (735) 237m higher than prior year. Pg 119, note 26 shows in the history of movements that the pension deficit has doubled (>£1bn) between 2011 and

It is a key stability signal to shareholders. TESCO EPS figure is (14)% indicating a highly unstable prospect for investment.
A measurement for identifying how much investors will pay per £ of earnings (Investopedia). In TESCO’s case, p/e is 15.87% (Morrison’s is -17.29% and Sainsbury is 7.08%) (Telegraph). This figure is misleading because it is based on past performance and expected growth.
Skewed growth expectations would make the p/e ratio highly misleading as a good indicator of performance.
This figure is a key indicator for investors looking to obtain a cash flow from their investments. Such investors would commonly look for companies with a higher dividend yield. As dividend payments limit retained earnings thus growth potential it would seem strange to want to attract this type of investor, who would presumably sell their shares, devaluing the share price if dividends were not paid. Table 8: Dividend Yield, 2014
Presumably TESCO continued to offer dividends in 2013 to stop further dilution of their share price by losing dividend-seeking investors to Morrison’s and Sainsbury’s who in any case offer a better deal (Table