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M50 Managing Financial Report

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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 …show more content…

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 …show more content…

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

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Shim goes on to explain that when it comes to dealing with pension expense, there are several important factors to take into consideration. One of these essential components is the recognition of prior service cost. Prior service cost can be characterized as being the overlaying cost

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Barb: Problems with defined contribution pension plans. A defined benefit pension plan promises an employee an income at retirement “based on their pay and length of service” (Falling Short - Workers are sleepwalking towards an impoverished old age, 2008) whereas a defined contribution plan is one where the financial outcome “depends on the investment performance of the fund that the employee has paid into” (Falling Short - Workers are sleepwalking towards an impoverished old age, 2008). Most employers now have a defined contribution plan where an employee is selecting from different investment options such as stocks, bonds, and mutual funds. They select which investment plans and what percentage of their contribution goes into each investment.

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Their current ratio is 1.4% (total current assets/total current liabilities). According to the Risk Management Association of Financial Ratio Benchmarks, the current average ratio is 1.5%. In 2014, the current ratio for the firm was 1.46% while the average ratio in the industry (NAICS 311330) was 1.6%. The company’s net property and equipment in 2015 is worth 2.6 million dollars, a slight increase from 2014, which was 2.3 million. The company is considering taking on some debt to increase their production capabilities.

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Economic factors: In a rapidly economical changing world, TESCO seek to create strategies that would fit those changes such as inflation rate, taxes, interest rates as well as exchange rates. High unemployment rate is a major factor that affects Tesco performance, with weak power of purchase on Tesco products which impact Tesco ability on producing several items, especially with Brexit, employers would use it as an excuse to sack people and become more redundant. Inflation jumped more sharply than expected to 1%, the highest level in almost two years, the slump in pound lead to a rise in Tesco’s major supplier prices Unilever, who asked for a rise in prices.

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It is calculated by evaluating the total assets/equity. Using the leverage 1.7 in round 6 for Andrews for an instance means for every $1.7 of assets, there is $1 of equity. The equity in the form of investments from shareholders in the same round was $96,240,000. Also, $43,500,000 long term debt funding was borrowed making the company stronger in investment opportunity to the shareholders with $139,740,000. The ratio relates to ROA and ROE but is differentiated from each order.

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From this, we are able to drive up the value of equity, while also building a tax shield to maximize our

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Pensions are important to obtain because they

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After almost one year in Oct 2014 legendary investor Warren Buffett expressed that acquired the shares of Tesco was “a huge mistake”, which might impact on future investors more than an ordinary statement made by an investor. The impact further enforced when Tesco announced that no dividend for shareholders nearly after two years in

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d. (3) Harry Davis’ estimated cost of equity (rs): We have, rRF = risk-free rate RPM = market risk premium b = beta coefficient rs = rRF + (RPM)bi e. (1) Estimated cost of equity using discounted cash flow (DCF) approach: We have, = = = = 13.8%.

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This shows that Tesco has branches in over 14 countries and at least two continents, this would vastly increase the revenue made and therefore profit made, however this could also increase the

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In terms of earnings it 's the third biggest retailer in the world and when it is considered by revenue it stands in the fifth place in the world. It has its stores across Asia and Europe. The main object of Tesco is to create customers with their loyalty and give life time value services .They stand as a modern and innovative organization which would handle changes in the market and adapt themselves to the current circumstances accordingly.

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Tesco 's ownership is owned by several partners due to it being a PLC. Thousands of people have shares within the company which means it is owned by shareholders who fund the company. The advantages of this ownership are being a PLC means you have limited liability which means you only lose what you put into the company. It is easier to access capital as you can raise share capital from existing and new investors. Shareholders are able to buy and sell their shares which can sustain the liquidity of the business.

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Tesco has built a lot on the strength that has developed as a market leader in the UK supermarket sector. Tesco makes sure their business all over

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Cost of Capital Analysis The GraceKennedy Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for owners and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. During 2014, the Group’s Strategy, which was unchanged for 2013, was to maintain a debt to equity ratio not exceeding 100%. The debt equity ratios at 31 December 2014 is a

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Now, Cost of equity (Re) = 8.95% + 1.21×7.43% = 17.94% While determining the cost of debt we again used 8.95%,30 year U.S. Government Interest Rate given in Table B as the risk free rate plus 1.10% debt rate premium above Government rate, which is given in Table A. Cost of debt (Rd) = 8.95% + 1.10% =

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