Analysis of Capital Structure of Tecso

Analysis of Capital Structure of Tecso
In order to write this week's blog on capital structure, I searched Tesco's 2016 Annual Report and recorded some data to analyze its capital structure.

First of all, here's the balance sheet:

As we can see in the table, Tesco's current assets in 2016 was 14592m pounds, and the current liabilities was 19714m pounds, the current ratio can be calculated by 74.02%, the result in 2015is 59.68%. Current ratio is the ratio of current assets to current liabilities. It is used to measure the ability of an enterprise's current assets to change into cash to repay liabilities before the maturity of short-term debt. Generally speaking, the higher the ratio is, the stronger the liquidity of the enterprise assets is, the stronger the short-term solvency is; otherwise, it is weak. Although Tesco has been trying to increase the value of the current ratio, the ratio is still too small, so its short-teem solvency is very weak.

In addition,  we can see from the balance sheet, Tesco's net assets ratio is the total stockholder's equity/ total assets, the result is 19.73% in 2016, and 22.36% in 2015. This indicator reflects the enterprise's capital strength and debt paying security. It can be seen that the net asset ratio of Tesco has declined, which means that the rise in asset liability ratio will increase, the corporate debt risk will rise.

Finally, the capitalization ratio, long-term liabilities/ (long-term liabilities+ stockholder's equity), was 64.38% in 2016 and 71.03% in 2015. It was really too high to a corporate, it shows that Tesco's long-term debt pressure is particularly large.

Whether it is capitalization or net asset ratio or current ratio, it all shown that Tesco's debt risk is too high. Even if the formula is not used, the "liabilities" on the balance sheet can also shows that Tesco has a huge debt. But as one of the biggest retailers in the world, too much debt is understandable, just the pressure on Tesco to repay debt is too great.

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