Tesco Company Essay Example | Topics and Well Written Essays - 1500 words - 1

Tesco Company - Essay Example The company faces financial risk factors as follows: the interest rate risk, credit risk, liquidity risk, foreign exchange risk, capital risk and insurance risk. Current ratio – this ratio measures the ability of a business to meet its current obligations using the current assets. Generally, it is advisable for the ratio of current assets to current liability to be 2: 1. Concerning Tesco PLC, the company’s current ratio for 2012 and 2013 were 0.67 and 0.69 respectively. The ratios clearly show that the company is not liquid enough to sufficiently settle its short-term obligations using the current assets. Debt ratio – this ratio indicates the proportion of a company's total assets that have been financed by the total liabilities. It also shows the value of assets that creditors would claim in case of liquidation. Concerning Tesco Company, the ratios for 2012 and 2013 are 64.9 % and 66.76 % respectively. Both ratios show a high dependency on debt to finance the co mpany's assets with 2013 having the biggest percentage. The interpretation shows that only 3.4% of Tesco's revenue was net profit before tax, whereas, the remaining 96.6% were consumed by operating expenses. Based on the current ratio and the net profit margin before tax, Tesco company exhibits poor liquidity and thus cannot meet its current obligation using the current assets. The profitability analysis shows a high level of the company’s operating expenses thus a lower level of profits expressed as a percentage of the total revenue.