&

FINANCIAL REPORTING
ABILITIES (2015)
Analysis of the financial statements of
two major business groups in the world:
TESCO & Inditex

Universidad Complutense de Madrid

MBA

Alejandra Cabrera Rubinat

INDEX
TESCO PLCs GROUP....................................................................................... 2
ABOUT TESCO PLCs GROUP.......................................................................2
FINANCIAL AND ECONOMIC REPORT...............................................................3
TESCO Annual Report.............................................................................. 4
TESCO Financial and economic Report................................................5
INDITEX GROUP............................................................................................ 14
ABOUT INDITEX GROUP............................................................................. 15
FINANCIAL AND ECONOMIC REPORT.............................................................16
INDITEX Annual Report.........................................................................16
INDITEX Financial and economic report.............................................17
FINANCIAL AND ECONOMICAL RATIO............................................................24
CONCLUTIONS.............................................................................................. 26
BIBLIOGRAFY................................................................................................ 27

TESCO PLCs GROUP

Tesco plc is one of the largest retailers in the world, operating more
than 2,300 supermarkets and convenience stores and employing
326,000 people. Tesco's core business is in Britain, where the
company ranks as the largest private sector employer in the United
Kingdom and the largest food retailer, operating nearly 1,900 stores.
In continental Europe, Tesco operates in the:
-Czech Republic
-Hungary
-Poland
-Republic of Ireland
-Slovakia
-Turkey.
In Asia, the company operates:
-Japan
-Malaysia
-South Korea
-Taiwan
-Thailand
Through Tesco.com, the company ranks as the largest online
supermarket in the world.
The company also offers financial services through Tesco Financial
Services, which controls 4.6 million customer accounts roughly
divided between credit cards and car insurance policies.
Through the more than 100-unit Tesco Express chain, the company
ranks as the largest seller of gasoline in the United Kingdom.

ABOUT TESCO PLCs GROUP

Tesco started life in 1919 when Jack Cohen started selling surplus
groceries from a stall in the East End of London. It has grown over the
years to become to the first supermarket in Britain and second in the
world by turnover. But it lost 5.741 million pounds last year. The data
released today contrast with the results of the previous year, when
they got a profit of 974 million pounds.
In 2007 Tesco opened its first supermarket in US and in 2014 was
introduced in the China market. In the beginning it was supposed a
good investment but the losses were being more than the profits.
Finally, in 2014, Tesco reports its worst performance for 20 years
Tesco identified an overestimation of its expected profit in the first
semester of 2014, mainly due to accelerated recognition of business
income and delayed the capitalization of expenses.
The financial statements presented in the last period have a gap of
250 million pounds, so although the company seems earning money
the profits are less than the results showed previously.

FINANCIAL AND ECONOMIC REPORT

TESCO Annual Report

This report about economic and financial situation of Tesco Group is
based on their Annual Report and Financial Statements (2015) audited
by Deloitte.
This Annual Report includes:
- Strategic report: Brief presentation about the strategy of the
group. CEO's comments, key performance indicators, business
model and basically what are the corporate objectives.
- Corporate Governance: Introduces the Board directors,
Executive committee, Corporate Governance. Includes reports
of them and remuneration details.
- Financial Statements: This part includes the main financial
statements like Group Income Statement, Group statement of
comprehensive income, Group Balance Sheet Group statement
of charges in equity, Group cash flow statement and its notes.
In addition this part starts with a statement of Directors
responsibilities and an independent auditor's report.
- Other information: This is the final part where exposes all
those documents unclassifiable like supplementary information
financial calendar, glossary and five-year record.
The financial statement shows the situation as at 28 February 2015
and includes affairs for the 53 week period previous.
In that report of audit Deloitte confirms that the financial statements
of Tesco PLC's Group shows a fair view and satisfy the International
Financial Reporting Standards (IFRSs), the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
Tesco PLCs financial statements comprise:
- Group balance sheet as at 28 February 2015
- Group income statement and the Group statement of
comprehensive income for the period then ended.
- Group cash flow statement for the period then ended.
- Group statement of changes in equity for the period then ended and
the notes to the financial statements, which include a summary of
significant accounting policies and other explanatory information.

TESCO Financial and economic Report

The objective of this report is analyzing the results of 2015 compared
with previous period and try to explain what shows the accounts and
its relation with the current group's situation.
The real value of the company is estimated by its Goodwill because
is the value in the market. The benefits that is expected will give the
company in a future.
The Group Balance Sheet shows in 2015 a decrease of 24 m respect
2014:
2015
2014
Goodwill and intangible assets 3771 m 3795 m
In order to understand what is the reason for the deceased there is
the note 10. In that note there is a table where differentiates Goodwill
and the other intangible assets and shows that in 2013 the goodwill
was larger than 2014. Its value was 3580 m.
The company justifies the losses of the value because of the
consolidation adjustments.
As an intangible asset the notes specify that those assets include:
Internally generated development costs, Pharmacy and
software licenses and other intangible assets.

Continuing the analysis is observed changes in the relation

between debt situation and financial costs:
2015
2014
Total Debt (Non-Current)
(17333) m(14043) m
There is a 3290 m of difference and specifically the amount of the
borrowings increase 1348 m. In the note 20 the borrowings are
disaggregated in Current, Non-current and Facilities.
The biggest increases compared with 2014 are the Facilities
borrowing:
2015
Facilities borrowing

2014
5132 m 2725 m

There are other liabilities as a bank loans in order to buy new

acquisitions, but the difference between both years is 1248 m.
Respect finance costs (Group income statement), it increases but not
too much:
2015
Finance Costs

2014
(661) m (564) m

Is observed In the point Continuing Operations that there are more

expenses in 2015 than 2014 and it could be explained because the
company counted expenses of 2014 in 2015.
The last investments of Tesco PLC's there have been in China and US,
and in the note 7, refer a Discontinued Operations, there are evident
losses, due to the expenses have been more than the revenues in
both years:

The losses have decreased from 2014 to 2015 in 895 m, improving a

little the situation.

Continuing with the analysis, into the Current assets (Group Balance
Sheet) it's specified a special assets called Assets of the disposal
groups and non-current assets classified as held for sale:
2015
Assets of the disposal groups and
m
Non-Current assets classified as held
for sale

2014
139 m

2487

Is an unusual concept, so is necessary reading the explication note

(note 7), where there is a table:

In the note it's explained that this kind of assets consist mainly of
properties in the UK and Korea due to be sold within one year.
Those are assets not depreciated that the company want to sell.
There is a decreasement from 2014 to 2015 because the company
already sold some of them.
The note does not specify more about those assets and their
variations.

Inside Non-currents assets and current assets there is an indicator

called Loans and advances to customers.
The note 17 explains that Tesco PLCs works as Bank, and has loans
and advances to customer with different maturities.

Non-Current assets
Loans and advances to customers
m
Current assets
Loans and advances to customers
m

2015

2015

2014
3906 m 3210

2014
3814 m

3705

In both cases the loans have increased so Tesco Bank has given more
loans or more amounts to the customers.
Finally, in the Group Balance Sheet there is the group of Equity is
observed an unusual indicator inside this group: Retained Earnings.
2015
Retained Earnings

2014
1985 m 9728 m

Is unusual this concept here, because the earnings usually are

distributed for differing objectives. If there are earnings not
distributed, they are called voluntary reserves.
High earnings usually are distributed between the shareholders.
The amount on 2014, 9728 m, is very large. In 2015 it decreased to
1985 m.
In the Group statement of changes in equity there are more details:

The losses for the year 2014 are supported because of earnings. I
could be a good reason to reserve the money.
The International accounting standards allows that classification, so
from accounting view is right.

Another interesting document is the Group statement of comprehensive income

(or loss). This statement is defined as the change in a company's net assets from
no owner sources over a specified period of time. Comprehensive income is a
statement of all income and expenses recognized during that period.
The difference between the Group income statement is that Statement of
comprehensive incomes includes items that will not be reclassified to income
statement and items that may subsequently be reclassified to income statement:

Tesco PLC's has to add to the loss/profit for the year the amount of different items.
The most noteworthy is the loss of Remeasurements on defined benefit pension
schemes. This amount is doubled from 2014 to 2015. The note 26 explains every
change in the pension scheme done by the group.

Total comprehensive loss for the year

2015

2014

(6875) m

(859) m

To justify the decreasement in 2015 is necessary looking at the results on the

Group income statement, where the loss/profit for the year is the following:

(Loss)/profit for the year

2015

2014

(5766) m

970 m

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That is result of the Continuing Operations. It shows that in 2015 the cost of sales
is more than the revenues.
The revenues have decreased in 2015 respect 2014 in 1273 m and that has had
consequences in the final benefits.
To understand better the situation of the group exist the Group cash flow
statement.
This document shows the movements of the cash money during the period in
relation with Operating activities, investing activities and financing activities.
To present this document the normative allows two methods: Direct or Indirect
method. The Indirect method gives more details but are useful both.

Tesco PLC's shows his cash flow statement with direct method:

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Net decrease/increase in cash and

2015

2014

(717) m

387 m

cash equivalents
That is the result to adding net cash flows from the different activities.
Operating activities have given worse results in 2015 than 2014. The difference is
quite big (2701 m).
Another unusual amount is the losses in Purchase of property, plant and
equipment, investment property and non- current assets classified as held for sale:
2015

2014

(1989) m

(2486) m

Purchase of property, plant and equipment,

investment property and non- current assets
classified as held for sale
In both years are negatives amounts. It could be as a result for a bad selling of the
properties motivated for urgent needs of cash.
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In 2014 the losses were more than 2015 although both years have acted by the
same way.
In the financing activities the large negative amount is caused for repayment of
borrowings. In 2015 this repayment was more than 2014, but have asked for more
borrowings as well.
All that things justify the negative results in general and compared with 2014.
Because the cash and cash equivalents at beginning of the year has been positive
in 2813m in 2015 (precedent of 2014) the final results of cash and cash
equivalents at the end of the year don't shows so bad results.
It happens in 2014 too:
2015

After the financial and economic analysis and with the support of their ratios is
evident that the group Tesco PLC's has not enough solvency neither a liquidity to
keep on profitability business.
The Financial statements showed that their assets are not supported their liabilities.
The operations margin is an evidence of the bad situation. In 2015 the costs of
sales were more than the revenues so there was any margin.
Tesco would have to improve those RESULTS if wanted get over the economical
and financial crisis.

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2014

INDITEX GROUP
INDITEX is a company listed on the four Spanish stock exchanges and,
together with its subsidiary companies, comprises the INDITEX Group
(the Group). Its main activity is the distribution of fashion items,
mainly clothing, footwear, accessories and home textiles. It operates
through various commercial formats.
Companies of the group:
Zara (2085 shops)
Bershka (1006 shops)
Stradivarius (910 shops)
Pull and Bear (898 shops)
Massimo Dutti (706 shops)
Oysho (575 shops)
Zara Home (437 shops)
Uterqe (66 shops)
The last creation is the company Tempe, which join the rest of the
brands in shoes area.
Geographic location:
- Europe
- America
- Asia
- Other countries

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ABOUT INDITEX GROUP

In 1963 the INDITEX Group began his business activity as a clothes
manufacturer. In 1975 it's inaugurated the first Zara shop in A Corua.
The successful was evident, and the group continued developing the
business incorporating logistic centers and his owned factories.
The first shop outside Spain was opened in Portugal, in 1988.
Nowadays INDITEX is one of the most important fashion distributors of
the world and has more than 6700 shops over the five continents.
INDITEX consists in several brands with different kind of objective
public: Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho,
Zara Home y Uterqe.
The group has created an innovative management process admired
for the competence.
His growth is continuous and little by little his profits are higher, and
there in no doubt that is the most relevant Spanish company.

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FINANCIAL AND ECONOMIC REPORT

INDITEX Annual Report
Before start the financial and economic analysis is considered relevant talking
about the "Independent Auditor's Report on Consolidated Financial Statements"
signed by Deloitte.
In this report, Deloitte confirms that all the documents and statements of the group
are in accordance with International Financial Reporting Standards adopted by
European Union and show a clear and fair view, carrying out the principle of
"present fairly".
Be audited by a company like Deloitte in the best guarantee for the reliability of the
INDITEX's financial information.
The NIIF 8 requires an entity to provide financial information and descriptive about
the segments on which to report. These are operating segments or aggregations of
them compliant specific criteria.
The criteria to segment the business by operations has been:
- Geographic location (the most relevant)
- Products and services.
- Main clients.
INDITEXs financial year starts on 1 February of each year and ends on 31 of
January of the following year.
In order to clear the consolidated annual accounts there are notes with more
information about the accounts. Those notes are relevant to understand well the
annual report.
Its extension is variable. The notes 6.1 (Activity and description of the Group), 6.23
(Income taxes), 6.25 (Risk management and financial instruments), 6.29
(Remuneration of the Board of Directors and transactions with related parties) and
6.31 (Selected accounting policies) are very extensive and concrete with the
information. Other notes are less deep and maybe it would be more useful having
concrete information by company of the Group.

16

But if those notes are compared with Tesco's Report Notes, INDITEX provides
more quality and quantitative information.
In addition after the notes are included an Appendix with all the subsidiaries in the
Composition of the INDITEX Group over the world.
The annual statements includes: Consolidated income stamen, Consolidated
statement of comprehensive income, Consolidated balance sheet, Consolidated
statement of cash flows and Consolidated statement of cash flows.

INDITEX Financial and economic report

The Consolidated balance sheet is very useful to get the first picture of the
company. Here is identified all the assets and liabilities of the Group. And its equity:

2014
Equity

10.468.701

2013
9.278.363

Its variation from 2013 is more than 1 m, proof of the Group evolution in the last
periods.
17

But there is another statement called Consolidated statement of changes in equity

where is disclosed are the changes in equity and the relations with the profits of the
year:

In the Consolidated Balance sheet there is another important key which inform
about the accounting situation: Cash and Cash equivalents.

18

Cash and cash equivalents

2014

2013

3.797.930

3846.726

Is an important data because have not enough cash could show a bad economic
situation of the company. Note 19 provides more information about what includes
this concept.
Although the amount is high in both years, there is a little decreased from 2014 to
2015.
Consolidated statement of cash flows explain better how is the cash flow during the
period to finish in those amounts:

19

There have been some investments in 2014 that justifies the decreasing. Also more
dividends were shared in that period.
In order to understand better the operations of the Group is necessary make a
functional classification of the non-current assets:

The new classification would be:

1. Affected production
1.1. Intangible:
- Rights over leased assets

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- Goodwill
- Other intangible assets.
- Deferred tax assets
1.2. Tangible:
- Property, plant and equipement.
- Financial Investment.
- Other non- current assets
2. Oblivious to production
2.1. Tangible:
- Investment property.

In order to observe the profitability of the Group INDITEX is important look at the
profit margins in the consolidated income statement:

21

2014

2013

Profit margin of revenues-sales

58.30%

59.30%

Profit margin EBITDA

22.64%

23.47%

Profit margin EBIT

17.65%

18.25%

Net Profit Margin

13.80%

14.21%

All margins were higher in the previous period, but observing the table, the sales
have been more in 2014.
The worst loss of money (8.256 ) has been because of change on the price of
some options that the group has in other countries in 2014.
That period, however, shows positive results:
2014

2013
22

Financial resuts

14.483

Results from companies consolidated

32.125

(18.182)
-

by equity method

The profits of both periods shows a good profitability of the sales. All net benefits
are a 13.80% of the sales for 2014.
So the net profit for the year has been followings. The results has been better
compared previous period:

Profit for the year

2014

2013

2.500.548

2.377.082

In the statement of cash flows appears the activities which generated cash and the
activities which consumes cash:

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The activities which generate cash are the operating activities and the activities
which need cash are investment activities (investment in property, plant and
equipment, intangible assets and others) and the financing activities, specially in
payments relating to acquisitions of treasury shares.
In 2014 has been collections relating to current financial debt with 6.418 of value.
The cash flows results shows a reasonable situation. In both years the cash and
cash equivalents at the end of the year are high enough.
The operating activities generate cash for all the other activities. Making
investments and financial activities moving the money in a healthy situation for the
company. This has to be the perfect running for every company.
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Finally, to prove the consolidation of the business is necessary take the EBITDA
and the cash flow results and analyse them:
2014

2013

EBITDA

4.103.073

3.925.971

Cash and cash equivalents at the end

3.797.930

3.846.725

The results compared both years are good. There are not so much difference but
the information written before explains that the company has continued growing
from previous period.
But the important is observing that the results of both fianancial key are very
reasonable.
The operating activities provides good benefits, enough to support the investment
and financial activities and generating cash as well.
And even making those all things, there are good dividends to sharing with the
owners.
Is a photography of a profitability, a healthy and a sustainable business.

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FINANCIAL AND ECONOMICAL RATIO

2014

2013

1.89

1.95

2015

2014

-1.52

-2.67

INDITEX Solvency Ratio

(Current Assets/ Current Liabilities)

TESCO Solvency Ratio

(Current Assets/ Current Liabilities)

Degree of liquidity to be able to pay short-term payments. Optimum value between

1 and 2. If it is less than 1 indicates financial instability. If it is too high can influence
the results
2014

2013

31.9%

32.55%

2015

2014

-56.9%

-39.6%

INDITEX Leverage ratio

(Liabilities/Assets)

TESCO Leverage ratio

(Liabilities/Assets)

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The% of total assets, is being funded by creditors of short and long term.
Less than 40% could show excess equity capital (certain proportion of debts are
recommended).
More than 60% shows losses in the financial autonomy against third parties.

2014

2013

23.97%

25.66%

2014

2013

-81.5%

6.58%

INDITEX Return on Equity

(Net profit/Equity)

TESCO Return on Equity

(Net profit/Equity)

It measures the return on equity. Equity invested that have become result. The
higher the ratio, the more benefits generate own resources. A higher value means a
more prosperous future for the company.

2014

2013

16.32%

17.28%

INDITEX Return on Assets (ROA)

(Profit/ Total Assets)

27

2014

2013

-13.04% (*)

19.33%

TESCO Return on Assets (ROA)

(Profit/ Total Assets)
(*)There

is not profitability because there are not profits.

It measures the return on total assets. The profit generated by the assets of the
company. The higher the ratio, the higher profits generated total assets, so a higher
value means a more prosperous future for the company.

2014

2013

17.65%

18.25%

2014

2013

-9.2%

0.43%

INDITEX Operative Margin

(BAII/Sales)

TESCO Operative Margin

(BAII/Sales)

It is the percentage of sales accounting for business margin itself, before taxes and
extraordinary financial impact. Measures monetary units operatively won by each
unit sold.

CONCLUTIONS
To final conclusion and comparing the results, the ratios inform about the financial
and economic situation of both groups.
INDITEX has good ratios of solvency, leverage, return of equity, return of assets an
operative margin. All the indicators that needs a prosperous business.
Its profits are high, and the financial situation is in perfect balance to make the
group sustainable along the time.
The changes of the ratios comparing with previous periods are not high, and
continuous in a good level.
However, TESCO Group shows a unstable financial and economical situation.
It has not solvency neither good funding.
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In 2015 the group has had not profit, so have had not return of equity neither return
of assets
Just 2014 has had some return but it has had not too high.
Although the ratios has improved comparing last period, the situation is unprofitable
and unsustainable.
The operating margin has to be higher and the financial state has to be repaired.

BIBLIOGRAFY
http://www.expansion.com/diccionario-economico/ratios-derentabilidad.html

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http://www.telegraph.co.uk/finance/markets/2788089/A-history-ofTesco-The-rise-of-Britains-biggest-supermarket.html
The Making of Tesco: A Story of British Shopping (Sarah Ryle)
http://www.encyclopedia.com/topic/Tesco_plc.aspx
Nuevo Plan General Contable. Javier Bellido Ramos. FC Editorial.
http://www.inditex.com/es/our_group/our_history
http://www.consultasifrs.com/adjuntos/biblioteca_157.pdf
http://static.inditex.com/annual_report/es/Desempeno/1.html

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