Much has been said (and in some cases sensationalised) in the press over the past few weeks about Tesco’s woes. True the performance of the UK business has been disappointing by their historical standards, there has been some management upheaval since the departure of long time CEO Sir Terry Leahy and the US based business is still in loss making territory, although the losses have been reduced.
So yes, some of these trends do give cause for concern. However, we also like to look at the hard facts and do not get swept away by the tabloid-type reporting. This is a multinational business with annual revenues of £72bn delivering a profit before tax of £3.85bn.This translates into a Return on Capital Employed, which is a key measurement of management utilizing the capital entrusted in it by shareholders and other providers, of 13.3%.This is well above the current inflation rate and also above Tesco’s cost of capital, estimated at around 10%.
Some woes indeed!