Company Liquidity
Although Tesco took a loss this year, not all hope is lost considering that they seem to be efficient enough when covering their short-term obligations. Their net income of 129 million GBP last year seems to be a safety net for them that they can incur these losses this year without effecting their current and quick ratios to an extreme. What Tesco considers to be its current assets amounts to a total of 15,417 million GBP. There is a total of 19,405 million GBP in current liabilities. The current ratio of company amounts to a rate of 0.79%. This means that for every 1 GBP of current liabilities Tesco has, it has 0.79 GBP of current liabilities that it is responsible for.
A more reliable way to test Tesco’s solvency is to …show more content…
This ratio helps analysts describe Tesco’s ability to cover its annual interest. This is found by dividing Tesco’s earnings before interest and tax or EBIT by Tesco’s annual interest expenses. Tesco would want a high interest coverage ratio because that would mean they are earning multiple times the required yearly interest payment. If Tesco can not pay its interest by more than 1.5 times, it would not be doing very well in terms of debt management. According to the annual report, Tesco’s EBIT as of Feb 25, 2017 was 1,017 million GBP. Their interest expense was 872 million GBP. This calculates to an interest coverage rate of 1.17; it looks like they can only pay their interest 1.17 times over with their current …show more content…
Tesco’s shareholders now lose 0.0009 GBP per 1 GBP of sales revenue. The return on assets ratio compares the net income as a multiple of its assets. Tesco’s loss of 54 million GBP divided by its total assets of 45,907 million GBP gives us -0.0012, meaning that each GBP of assets incurred a loss of 0.0012 GBP in net income. The return on equity ratio compares Tesco’s net income to its investments and measures its rate of return on past investments. It is calculated by dividing Tesco’s net income by its common equity. This equates to -0.008 return on equity, which means that Tesco loses 0.008 GBP of equity per 1 GBP net
Although Tesco took a loss this year, not all hope is lost considering that they seem to be efficient enough when covering their short-term obligations. Their net income of 129 million GBP last year seems to be a safety net for them that they can incur these losses this year without effecting their current and quick ratios to an extreme. What Tesco considers to be its current assets amounts to a total of 15,417 million GBP. There is a total of 19,405 million GBP in current liabilities. The current ratio of company amounts to a rate of 0.79%. This means that for every 1 GBP of current liabilities Tesco has, it has 0.79 GBP of current liabilities that it is responsible for.
A more reliable way to test Tesco’s solvency is to …show more content…
This ratio helps analysts describe Tesco’s ability to cover its annual interest. This is found by dividing Tesco’s earnings before interest and tax or EBIT by Tesco’s annual interest expenses. Tesco would want a high interest coverage ratio because that would mean they are earning multiple times the required yearly interest payment. If Tesco can not pay its interest by more than 1.5 times, it would not be doing very well in terms of debt management. According to the annual report, Tesco’s EBIT as of Feb 25, 2017 was 1,017 million GBP. Their interest expense was 872 million GBP. This calculates to an interest coverage rate of 1.17; it looks like they can only pay their interest 1.17 times over with their current …show more content…
Tesco’s shareholders now lose 0.0009 GBP per 1 GBP of sales revenue. The return on assets ratio compares the net income as a multiple of its assets. Tesco’s loss of 54 million GBP divided by its total assets of 45,907 million GBP gives us -0.0012, meaning that each GBP of assets incurred a loss of 0.0012 GBP in net income. The return on equity ratio compares Tesco’s net income to its investments and measures its rate of return on past investments. It is calculated by dividing Tesco’s net income by its common equity. This equates to -0.008 return on equity, which means that Tesco loses 0.008 GBP of equity per 1 GBP net