Financial glossary

The aim of the investor centre is to make the information we offer accessible to as many shareholders as possible, so we have included the following explanations of some key financial terms

• Retained profit

  Earnings for the period following the deduction/addition of all know items.

• Broker forecasts

  Broker Forecasts are an accurate and up-to-date snapshot of current investment opinion in the marketplace.

• Group cash flow statement

  The Group Cash Flow Statement shows the cash received and spent during the financial period. It highlights net cash inflow or outflow and analyses the changes in financing during the period.

  1. Net cash inflow from operating activities
     This is the main source of cash inflow. It is derived from the operating profit with depreciation added back, any working capital benefits added in less additional pension contributions. The notes to the accounts show how this figure is derived. Depreciation is added back because it has been charged to profit but no cash has left the Group.
  2. Returns on investment and servicing of finance
     Covers cash flows resulting from the Group's commitments to its financiers e.g. of interest paid or received.
  3. Taxation
     The payment made during the year to settle corporation tax liabilities.
  4. Capital expenditure and financial investment
     Analyses the cash flows in relation to changes in fixed assets. The main item is capital expenditure for building new stores.
  5. Acquisitions and disposal
     This is cash used to acquire subsidiaries or to invest in Joint ventures and Associates. In addition this is cash received from disposal of subsidiaries.
  6. Equity dividends paid
     The dividend payment figure does not correspond to the figure quoted in the Profit and Loss statement because it is the dividend actually paid in the financial period (the final dividend of the previous period plus the interim dividend of the current period) and not the amount which was recommended.
  7. Financing
     This shows any alterations in the Group's financing that have taken place during the period. It highlights any new debt raised, such as new issues of Ordinary Shares, loans, or bonds, as well as changes in short-term financing, such as leases and short-term deposits/overdrafts. Similarly, it will highlight any debt repayments.
  8. Increase/(decrease) in cash
     Shows the total cash movement after the Group's operating activities and changes in financing.
• Creditors

  The remaining items in the Balance Sheet before the capital and reserves section are all liabilities, that is, they are recognised monetary commitments to others.

  1. Creditors
     Creditors are divided between amounts due before and after one year. Creditors due within one year are principally trade creditors (suppliers), together with dividend and tax commitments. Creditors due after more than one year are generally long-term debts, such as loans, bonds and finance leases. Both are analysed in the notes to the financial statements.
  2. Provision for liabilities and charges
     This mainly relates to:

     Deferred taxation i.e. held over to a future accounting year. This is explained in the notes to the accounts, and

     Property Provisions i.e. future rents payable net of rents receivable on onerous and vacant property leases.

• Fixed assets

  1. Intangible fixed assets
  This is mainly goodwill arising on acquisitions. It is calculated as the difference between the consideration payable and the net assets acquired. The goodwill is held in the local currency of the acquired company.

  2. Tangible fixed assets
  Physical assets held for long-term use in order to generate profits. Tesco's main category of tangible asset is property. A breakdown of the tangible asset figure is given in the notes to the financial statements.

  3. Investment Shares
  held in an entity in which Tesco does not exercise significant influence or control.

  4. Investments in Joint Ventures
  An investment in a business which is jointly controlled by the group and one or more external partners.

  5. Investments in Associates
  An investment in a business which is not a subsidiary or a joint venture but in which the group has a shareholding and exercises significant influence.

• Investment income

  Income for the period from fixed asset investments.

• Ordinary dividends

  Pay out per share to all shareholders of ordinary share capital, usually paid twice a year.

• International Financial Reporting Standards (IFRS)

  International Financial Reporting Standards (IFRS) have been drawn up by the International Accounting Standards Board (www.iasb.org) and will come into force in 2005 for listed companies in all member countries of the European Union and in many other countries around the world. Their aim is to improve understanding and comparability of accounts, by adopting common standards across all participating countries.

• Profit after tax

  Earnings for the period after all tax adjustments.

• Capital and reserves

  The assets, less the liabilities in the top half of the Balance Sheet, give a total figure which is equal to the Group's capital and reserves. These are analysed in the lower section of the Balance Sheet. The addition over the previous year is analysed in the Statement of Total recognised gains and losses and in the Reconciliation of Movements in Shareholders' Funds.

  1. Called up share capital
  The amount of issued Ordinary Share capital at its nominal value (5p per share), which was the original issue price of the shares when the company began trading.

  2. Share premium account
  When shares are issued the share premium is the cash received in excess of the nominal value of the shares issued.

  3. Other reserves
  These are amounts, attributable to shareholders, which have arisen on previous acquisitions.

  4. Profit and Loss Account
  The total value of retained profits since the company commenced business.

  5. Minority interests
  This reflects the share of our net assets owed to minority interests, outside our business, who have a share in our subsidiaries.

• Non-equity dividends

  Pay out per share to all shareholders of non-equity dividends e.g. preference shares.

• Pre-tax profit

  Earnings for the period before all tax adjustments.

• Five year record

  Explained below is the financial information contained in the Five Year Record, but not included in any of the previous financial statements.

  1. Operating margin
  Calculated from the operating profit expressed as a percentage of Group sales (turnover excluding Value Added Tax). It is a measure of profit generation from sales and is a comparable performance measure with other companies.

  2. Dividends per share
  The growth of the dividend per share from one period to the next is important, to shareholders since this represents their actual cash return.

  3. Group enterprise value
  Calculated as the sum of market capitalisation (shareprice multiplied by the number of Ordinary Shares) plus net debt. This gives the total market value of the company in terms of equity and debt.

  4. Shareholders' funds
  Calculated as underlying profit divided by average shareholders funds. This measurement comprises the level of profit being achieved with the total capital invested in the company. This is another useful cross-company comparison as the size of the profits are related to the size of the company.

  5. Return on capital employed
  Calculated as profit before interest less tax divided by average of net intangibles plus net tangible fixed assets plus net investments in joint ventures and associates plus net working capital and long term provisions. Return on capital employed is a relative profit measurement that not only incorporates the funds shareholders have invested, but also funds invested by banks and other lenders, and therefore shows the productivity of the assets of the company.

• Exceptional items

  Costs, which either in aggregate or individually, are significant to the business and need to be disclosed separately.

• Current assets

  1. Stocks
  The value of goods held for retail sale in our depots and stores at the balance sheet date.

  2. Debtors
  Amounts owed to the company. Total debtors are split between amounts due in the year and amounts falling due after more than one year (shown separately in the note).

  3. Investments/cash at bank and in hand
  Money market investments and deposits, together with cash at bank and in hand, are the funds the company has available to meet its immediate funding requirements.

• Statement of Total Recognised Gains and Losses

  Relates the final retained profit figure from the Profit and Loss statement to the movement of the Profit and Loss reserve in the Balance Sheet. The difference is any gains or losses on translating overseas profits into sterling or any adjustment to profits in the previous year.

• Profit and Loss Account

  Profit and Loss Account
  The Profit and Loss account show Tesco’s performance in the financial period. It also shows the amounts allocated for distribution to shareholders as dividends, to be paid as taxation on profit, and to be retained in the business to help fund further growth.

  1. Sales at net selling prices
  The total sales to our customers at selling prices, net of any promotion discounts.

  2. Turnover excluding Value Added Tax
  The total amount received from customers after VAT has been deducted for payment to HM Customs and Excise. This is included to show the turnover which is available to Tesco for use in the business.

  3. Operating expenses
  This includes the cost paid to the supplier for the products sold during the year, distribution expenses, the running costs of the stores and advertising expenditure. It also includes head office costs that cannot be directly related to the selling of products to our customers, but are necessary to run the overall business.

  4. Employee profit sharing
  The amount allocated to the Employee Profit Sharing Scheme is shown separately to highlight that it is a benefit given to employees in addition to normal wages and salaries. The amount allocated to the scheme is directly related to the Group's profit performance during the year.

  5. Operating profit
  This is how much we made from trade in our stores, taking account of the cost of the products sold, wages and salaries, expenses associated with running the stores, depots and head office, and the cost of depreciation of the assets used to generate the profits.

  Operating profit is a common measure of performance across companies and shows the return from the company's normal trading operations.

  6. Net (loss)/surplus on disposal of fixed assets
  The disposal of fixed assets is reported separately because it does not relate to the day-to-day business of the company and can fluctuate significantly depending on the level of property disposals.

  7. Profit from Joint Ventures and Associates
  This is how much the Group has made from its investments in joint ventures and associates after interest and tax.

  8. Interest
  This represents the net cost of financing the business i.e. interests payable on outstanding loans less any interest receivable. This also includes the of net pension finance cost/income from our Pension scheme and adjustments relating to IAS 32/39.

  9. Profit on ordinary activities before taxation
  This includes all profits from any source, trading, interest or property, and represents the total results for the financial year.

  10. Taxation
  This is the tax charge on profits. It's broadly calculated as the Corporation Tax plus or minus any other adjustments.

  11. Minority interests
  Where Tesco holds less than 100% of the shares in a subsidiary, the other shareholders are classified as the minority. The minority interest line represents their share of our net results.

  12. Dividends
  These are paid by the company to its shareholders as a return on their investment. There are two payments: the interim payment is made in November; the final payment is made the following June after the results of the year are known.

  13. Retained profit
  The profit retained in the company and invested to generate further profit growth in subsequent years.

  14. Earnings per share (EPS)
  The calculation of profit after tax divided by the average number of shares in issue during the year. It is the amount which could be paid out on each share if the company decided to distribute all its profits as dividends instead of retaining some for future expansion.

  15. Adjusted diluted earnings per share
  Companies often enter into commitments to issue shares at some future date. An effective way of raising money to expand the business may be to offer loans or bonds now, which convert into shares at a later date, at an advantageous price. The Save As You Earn (SAYE) Scheme gives staff an entitlement to receive shares at the end of a defined period in return for monthly savings.

  The fully diluted earnings per share calculation is essentially the same as that for the EPS, but assumes all promised shares have been issued. If we did not make the fully diluted calculation, the EPS growth would be disproportionately reduced in the year the promised shares were issued. It gives a more consistent means of judging the real financial performance of a company.

• Reconciliation of Movement in Shareholders' Funds

  Analyses the increase in shareholders' funds (the Balance Sheet total) from the previous year to the current year.

• Balance Sheet

  Gives a “snapshot” of the financial position of the company. It shows the value of the assets, liabilities and accumulated funds at a given date.

  The Tesco Annual Report shows the balance sheets of both the group and company. The group consolidates the accounts of the parent company with the accounts of all its subsidiaries and its share of associated companies. The company Balance Sheet is the balance sheet for Tesco PLC only. It reflects the investment in its subsidiary and associated companies but does not show their respective assets.

  The consolidated group Balance Sheet does not include inter-company transactions within the group, and the accounting treatments of associated companies are adjusted to conform with the group's accounting policies.