Corporate Finance

1 Introduction - Organization Selected

In this assignment , we will conduct the valuation of Tesco Plc by adopting appropriate valuation techniques . Tesco Plc , incorporated in United Kingdom is the largest food retailer in that country . It is also a key international player , holding over 900 stores in ten different countries (Institute for Transportation and Development Policy . Prior the year 2000 , Tesco Plc operated stores in Chez Republic , France Hungary , Republic of Ireland , Poland , Slovakia , South Korea and Thailand , apart from the United Kingdom . From 2000 onwards , stores in Turkey , Taiwan , Malaysia Japan

and China were also set . Tesco Plc is listed on the FTSE 100 of the United Kingdom Stock Exchange . It also has a secondary listing on the Irish Stock Exchange under the name of the parent company Tesco Plc (Answers .com

Enhancement of the Shareholders Value in the last 5 Years

The value of shareholders is affected by a number of factors , which are controllable or uncontrollable by the organization . It is important that we comprehend such factors before we evaluate the success of Tesco Plc in this respect . The most common value drives of a company are

Profitability and sales growth of the organization

Working capital management and investment in fixed capital

Balance in the cost of capital of the company through an appropriate capital structure

The tax rate affects on shareholders returns

The first three points are within the corporations control and should be taken into account in this section . However , the latter point is affected by the government and thus has no relevance in the proceeding discussion

Key variables that portray the aforementioned value drives for the last five financial years of Tesco Plc as shown in the following table

Financial Indicators 2006 2005 2004 2003 2002

Diluted earnings per share 19 .92p 17 .30p 14 .93p 13 .42p 11 .86p

Basic earnings per share 20 .20p 17 .52p 15 .05p 13 .54p 12 .05p

Dividend per share 8 .63p 7 .56p 6 .84p 6 .20p 5 .60p

Return on capital employed 12 .7 11 .8 10 .4 10 .2 10 .8

Gearing 60 68 55 62 50

Source : Tescocorporate .com

An improving return on capital employed show that one of the key strengths of the corporation is profitability and efficiency Management was more efficient in the adoption of the firm 's resources to generate profits as revealed by the 1 .9 increase in the return on capital employed over the past five years . This stemmed from the fact that higher sales revenue were derived from resource utilized together with further enhanced control on operating costs (Randall H . 1999 ,

br 466 , 467 . This positive element will enhance the equity value of the company

The investors are gaining from this high profitability as indicated by the rising diluted and basic earnings per share and dividend per share The earnings per share , for instance shows that the earnings attained by the shareholders on the basis of every 1 share held in the corporation In fact , the significantly high...