Balance sheet analysis of Tesco PLC

A balance sheet shows the total assets and liabilities of a company at at one date. This is usually the last date of the accounting period.

The balance sheet, therefore, gives you a snapshot of the financial position of a company at a certain date. It tells you:

• If the business is solvent. That is, if its assets are greater than its liabilities. If it is solvent, liquidation would leave the owners with something to show for their efforts.
• If the business is sufficiently liquid. That is, if it has cash to cover short-term obligations.
• What the  company assets are. This includes the cash value of  everything owned by the company that has financial value--including buildings, land, fridges, tills, and lorries. It also includes money you have in cash and short-term investments, plus the money owed to you.
• What the company liabilities are. These are the sums of money that the company owes to various creditors.

Assets are current or long term, and can be broken up into further  categories in different ways. Tesco's categories for current assets, as shown on public balance sheets, are:

• Cash and cash equivalents. To use a Tesco based example, this includes the money taken at the till for the chicken you have just bought. It also includes the cash Tesco has in liquid bank accounts. One example of a cash equivalent is the credit card payment you made yesterday.
• Net receivables. Includes money owed to Tesco. If you buy a television on credit then what you still owe Tesco makes up part of the net receivables.
• Inventory. This includes the chickens and televisions still on the shelf, or in the warehouse, and anything else Tesco is stocking or selling.

Long term assets break down into tangible and intangible assets. Tangible assets include:

• Long term investments. Stocks, shares, and similar.
• Property, plant and equipment.

Intangible assets break down into:

• Goodwill. This is an intangible asset reflecting the cash value of such things as a strong brand name, good customer relations, good employee relations, patents and proprietary technology. Tesco is very strong in the first three. Many other companies would do well to compare their Goodwill value to Tesco's, and aim to emulate them. Goodwill can be estimated by calculating what it is likely to be worth if an acquisition  occurs. The Goodwill value is then the estimated total acquisition cost minus the value of all tangible assets.
• Other intangible assets. Corporate intellectual property, including: brand recognition, trademarks, copyrights, business methodologies, and patents. A company brand name is an indefinite asset, as it stays with the company But a patent is a definite asset as it can be sold on.

Tesco also have two categories which include long term assets that can be tangible or intangible. These are:

• Other assets. Assets which Tesco do not feel it necessary to specify.
• Deferred Long Term Asset Charges. Expenses Tesco have paid but not yet subtracted from the assets.

Liabilities can also be current or long term. The current liabilities are:

• Accounts payable. Money owed by Tesco to others for goods or services received.
• Short/Current Long Term Debt. The portion of long-term debt that Tesco must pay in the next 12 months.

 The long term liabilities are:

• Long term debt. Loans lasting more than one year.
• Deferred Long Term Liability Charges. Money Tesco owes but has not yet added to the liabilities.

Sample balance sheet for Tesco PLC, year ending 31/12/05

All numbers in thousands of US dollars

Assets
Current Assets
Cash And Cash Equivalents	35,408
Net Receivables	76,159
Inventory	40,077
Total Current Assets	151644
Long Term Investments	2,133
Property Plant and Equipment	109,770
Goodwill	16,891
Intangible Assets	5,436
Other Assets	4,616
Deferred Long Term Asset Charges	12,783
Total Assets	303,273
Liabilities
Current Liabilities
Accounts Payable	52,635
Short/Current Long Term Debt	426
Total Current Liabilities	53,060
Long Term Debt	40,867
Deferred Long Term Liability Charges	(12,726)
Total Liabilities	81,202
Total Stockholder Equity	222,071
Net Tangible Assets	199,744

More examples of balance sheets for Tesco PLC and other companies can be found on Yahoo finance. Walmart balance sheets are recommended for a good comparison with a similar company. The carnival cruise line balance sheet is recommended for a totally different company that has had much written about it. Final word: there are limitation of balance sheets, so use other analysis tools and techniques. Many of these, like SWOT and PESTLE analysis, are discussed on this site.