Research Report

Words 558

The annual report for Tesco Ltd., a general British retailing corporation, shows a company that is financially in very good shape, showing surprisingly few effects from the recent international economic downturn. The company’s annual report meets expected standards in reporting all of the key indices of financial health.

The group balance sheet, taken from the company’s mid-year report, summarizes its overall healthy financial state (although there are some indications that the firm is feeling the effects of the worldwide economic slowdown as well as the financial pressures inherent in such an ambitious expansion plan, particularly its equity shareholders’ funds and its total assets over the past 12 months.

The company’s investor liabilities have grown both during this year and over the previous two accounting periods as a result primarily of the increased capital and expense required an expansion of the firm both locally (i.e. intra-UK) and overseas. However, this increase in liability has been relatively small and has not translated to a significant increase in the liability to stockholders.

Of course, as we all have recently been reminded, such a rosy picture detailed in an annual report may be little more than fiction. However, Tesco seems to have presented an honest depiction of its current situation, especially in regard to the two accounting standards that are under consideration here.

If we look at FRS 10, we can see that while the company does exclude from pretax profit all goodwill amortization, this is in fact in accordance with standard accounting procedures and does not suggest any malfeasance on the part of the firm.

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