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Horizontal Analysis Narrative Tesco

The document summarizes horizontal and vertical trend analyses of Tesco's profit and loss account and balance sheet from 2013-2018: 1) The horizontal analysis shows Tesco's revenue, gross profit, operating profit, and net income decreased compared to 2013 in most years, indicating difficulties for Tesco's business. Revenue declined but showed signs of increasing in 2018. 2) A vertical analysis of Tesco's balance sheet reveals current liabilities exceeded current assets each year, showing an inability to pay debts. Fixed assets comprised over 50% of total assets annually. 3) Both analyses indicate Tesco faced liquidity problems, with decreasing profits horizontally and high fixed assets/current liabilities vertically from 2013-2018

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Alison Jc
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729 views3 pages

Horizontal Analysis Narrative Tesco

The document summarizes horizontal and vertical trend analyses of Tesco's profit and loss account and balance sheet from 2013-2018: 1) The horizontal analysis shows Tesco's revenue, gross profit, operating profit, and net income decreased compared to 2013 in most years, indicating difficulties for Tesco's business. Revenue declined but showed signs of increasing in 2018. 2) A vertical analysis of Tesco's balance sheet reveals current liabilities exceeded current assets each year, showing an inability to pay debts. Fixed assets comprised over 50% of total assets annually. 3) Both analyses indicate Tesco faced liquidity problems, with decreasing profits horizontally and high fixed assets/current liabilities vertically from 2013-2018

Uploaded by

Alison Jc
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Horizontal analysis narrative

The horizontal trend analysis below will be focused on profit and loss accont. It describes the
analysis of the different stages of turnover, gross profit and operating profit and net income
assume that 2013 is the basis year.

2018 2017 2016 2015 2014 2013


Turnover 57,491,00 55,917,00 54,433,00 62,284,00 63,557,00 64,826,00
0 0 0 0 0 0
88.69% 86.26% 83.97% 96.08% 98.04% 100%
Gross Profit 3,350,000 2,902,000 2,854,000 -2,112,000 4,010,000 4,089,000
81.93% 70.97% 69.80% -51.65% 98.07% 100%
OperatingProfi 1,837,000 1,017,000 1,046,000 -5,792,000 2,631,000 2,188,000
t
83.96% 46.48% 47.81% -264.72% 120.25% 100%
Net income 1,206,000 -40,000 138,000 -5,741,000 974,000 124,000
972.58% -32.26% 111.29% -4629.84% 785.48% 100%

As we can see from the table, Tesco's revenue tends to decrease compared to its base year in
2013. Specifically, revenue in 2014 reached 98.04% compared to 2013, but by 2016 this figure
left only 83.97%. Although in 2018, its revenue has shown a signs of increasing but not
significantly. This shows that the situation of Tesco's business during this period is facing many
difficulties. Besides, Tesco's gross profit also tends to be similar trend to revenue, except for
2015, because cost of sales increased sharply (106,025 compared to 2013), Tesco's gross profit
in 2015 only reached -51.65 % compared to 2013. This also led to a decline in operating profit
and Tesco's net profit this year was negative. However, there is a positive trend for Tesco that in
2018 net profit has increased 972.58% compared to the base year.
Horizontal analysis for profit & loss in Tesco Plc
2000.00%

1000.00%

0.00%
2018 2017 2016 2015 2014 2013
-1000.00%

-2000.00%

-3000.00%

-4000.00%

-5000.00%

When compared to Sainsbury's, we can see an opposite trend. Although the company's revenue
has increased steadily over the years, its net profit has decreased gradually, specifically in 2018
net profit only reached 50.33% compared to the base year 2013. Its cause comes from
operating cost. Because when operating cost increased in recent years (reduced operating
profit), leading to a decrease in net income.

Vertical analysis narrative

 Balance sheet
40.00%
30.00%
20.00%
10.00%
0.00% Current Assets
2013 2014 2015 2016 2017 2018 Current Liabilities
-10.00% Shareholders Funds
-20.00%
-30.00%
-40.00%
-50.00%
According to the vertical analysis of the 2013-2018 balance sheet, Tesco's financial
performance is not really good over the years during the period because the company has a
volatility index. The current liability is higher than the current asset for all years, which means
that the company cannot use its current assets to cover current liabilities. The balance sheet
also indicates that fixed assets have generated more than 50% of Tesco's total assets each
year. Most of Tesco's fixed assets include construction and equipment. So the majority of
Tesco's assets are tangible assets, while intangible assets account for only 5.93% of total
assets in 2018 and the highest is 8.70% of total assets in 2013. During the period, current
assets accounted for less than 50% of Tesco's total assets. In addition, Tesco's long-term debts
have increased over the years. This shows that Tesco is having problems in liquidity position

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