1

Predicting Tescos Revenue

Does Tesco PLC operational revenue follow a specific
pattern over time?
Candidate name: Jono Long
Subject choice: Maths/Business
TOK Teacher: Dr Laleh
Extended Essay Supervisor: Ms Nicola Burns

Word Count: 2940

3

1 http://www.thegrocer.co.uk/channels/supermarkets/tesco-team-leader-cull-tobe-rolled-out-nationwide/511789.article
2 http://www.marketoracle.co.uk/Article46578.html
3 http://www.hl.co.uk/news/articles/profit-warnings-catching-the-falling-knife

Contents:

Abstract
..2

Introduction
.2

Body, data
table
3

Body,
Linear
.4

Body,
Logarithmic
6

Body,
Polynomial
.8

Moving
Average
10

All
Graphs
12

Conclusion
..13

Bibliography
.14

Abstract:
This essay contains the methods which were used to try to obtain an
equation for Tescos operational revenue over a period of 16 years from
1997 up to and including 2012. This essay shows 4 different curves that
have been tried to match one graph. For each graph, Linear, Logarithmic
and polynomial, I have calculated the equation of the line and the
deviation from the line of the points. Some of the points are explained,
why they were higher or lower than expected. The lines were then
predicted a further three years to up to and including 2015 where the
curves were then measured against the original data to test their
accuracy. These curves were then evaluated, there strengths and
weaknesses and then summed up to judge the accuracy and reliability of
the specific curve. The equation of each of the lines and the R2 values
were found. The last sets of graphs show the moving average of the
values taking 2, 3 and 4 points to measure an average, this is done to
show the general trend line and the accuracy of the graph. To finish the
essay I concluded with the thought that it was impossible to predict future
revenue but there were some graphs that showed an almost accurate
correlation for the data that was given, which could therefore mean an
equation could be formed.
Abstract word count: 228

Introduction:

In this extended essay I will be looking at Tescos operational revenue

(Operational Revenue is the income from sale from a company over that
period of time) from 1997 to 2015, over an 18 year period. My research

question is; Does Tescos operational revenue follow a specific pattern

over time, I will be working out a formula which Tesco could use to
predict their future revenue from 2016 onwards. I will be researching data
so that I can graph the revenue against time and try to find and equation
for that line. I will try to look at different lines of best fit for each graph to
see which prediction is the most reliable and accurate, this means that I
have to use the date from 2005 to 2012 and see if the next 3 years of
data match the graph. I could also find anomalies in the graph and see
whether they can also be predicted so that businesses can be ready for
future falls in revenue.
This question, if proved successful can be extremely useful for future
predictions of revenue for large companys which could also point out
anomalies in the graph that could then be predicted in the future. This
could be a huge advantage to a business and prove very competitive in
that market because of these predictions. This could also be helpful to
businessmen and women when choosing whether to invest in a company,
knowing its predicted future revenue. I feel that creating a few different
curves could be more reliable for Tesco and feel that they could be more
accurate when predicting future patterns. After creating the graph I will
evaluate the strengths and weaknesses of each one, then make an overall
conclusion and possible factors I could do differently if I were to repeat the
essay.
Body:
Results for Tescos operational revenue by time from 1997-2015:
(See Appendix for list of website where this data was found)
Time (Years)

Operational revenue ( Millions)

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

14,984
17,779
18,546
20,358
22,773
25,654
28,613
33,557
37,070
43,137
46,611
58,588
59,426
56,910
60,455
63,916
63,406

2014
2015

63,557
62,992

A This
Graphistothe
showoriginal
revenue against time for Tesco between 1997-2015
graph for 70,000
operational
Revenue against time
60,000
from 1997-2015. This
50,000
shows a rather
40,000
straight correlation
with some30,000
points a
20,000
little higher
than the
10,000
others, but
there Is a
0
general increase
in

Operational
revenue
(Millions)

19961998200020022004200620082010201220142016

A Graph to show revenue against time for Tesco between 1997-2012

Time
(Years)

80,000
60,000
40,000
20,000
0
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

This graph is
from 1997-2012,
I will be adding
different trend
lines to this
graph to see
whether I can
find the most
accurate curve
and find a
suitable equation

Operational
revenue
(Millions)

Time
(Years)
4

Linear Graph:
This is a graph of Tescos Operational revenue of a time period of 16 years
from 1997 to 2012. This graph shows a linear line of best fit, with the
regression equation and the R squared value (R2 ) which is a statistical
measure of how close the data are to the fitted regression line. The
equation will show me a specific formula that I could then prove by using
it to match the following 3 years and also predict revenue for the future.
Below is a graph with a linear line:

A Graph to show revenue against time for Tesco between 1997-2012

70,000
60,000
50,000

f(x) = 3624.94x - 7228168.08

R = 0.96

Operational
40,000 revenue
(Millions)
30,000
20,000

Time
(Years)

10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

The regression equation for this line is: Y=3624.9x 7E+06. An equation
for a line is Y=MX+C the M is the gradient, for this linear line the gradient
is 3624.9. This means that every 1 year across, 3624.9 million of revenue
is gained. The Y intercept is at 7*10^6 which is 7,000,000 this value
looks slightly unrealistic as it is saying that when time is 0, revenue is at
7,000,000 which is impossible. This shows that there are problems with
excel. If I had more time then to improve this problem I would have to
find data from when Tesco first opened and find all incomes from there.
With an R2 value of 0.9632. This is a very accurate measure for Tescos
operational revenue, when R2=1.00 that means that the points are
completely accurate and are in line with all the others showing a perfect
correlation however some of these points are a little out of line for
example 2008 and 2009 both those years had a significantly higher
revenue than that of the previous and future years.
After studying the graph and realising there is an increase in revenue in
2008 and 2009 I have found out that in 2008 the retail giant took its
conquest of the UK one step further by buying up some rival Somerfield
stores on remote islands in Scotland, giving Tesco a presence in every
single postcode area in the country. As it stands there is only one

postcode in the UK - in Harrogate in North Yorkshire - which does not have

a Tesco. In 2009 Tesco Bank was launched as a joint venture with Royal
Bank of Scotland. Which would have increased revenue for those 2 years,
therefore showing why Tesco dont have perfect correlation and why
revenue may have been higher.
The graph below shows the predicted next 3 years of Tescos revenue and
states that by 2015 Tesco show be at a sales of 76,000 (million), however
from the revenue between 2012 and 2015 the second graph shows that
the linear line does not match up with the data, and the R2 value is
decreased from 0.9632 to 0.9487 and the regression equation changes to
Y=3226.6x - 6E+06. This is an accurate value of data however the
prediction that was from the first graph was close (only 0.0145 out) but
not entirely accurate.

A Graph to show revenue against time for Tesco between 1997-2012

70,000
60,000

f(x) = 3624.94x - 7228168.08

R = 0.96

50,000
40,000

Operational
30,000 revenue
(Millions)
20,000
10,000
0
1996

Time
(Years)
1998

2000

2002

2004

2006

2008

2010

2012

2014

A Graph to show revenue against time for Tesco between 1997-2015

70,000
60,000

f(x) = 3226.56x - 6430464.7

R = 0.95

50,000
40,000

Operational
revenue
20,000 (Millions)
30,000

10,000
0
1996

Time
(Years)
1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

The reasons for why the values did not match up is because in 2013-14
Tesco had a bad year, they were failing to make profits in china, which
meant shops were forced to closed and Tesco lost 1.5bn from there
attempt to expand into china. However that wasnt there only problem,
after attempting to expand into china they then tried America which
proved unsuccessful after having to close 199 stores and losing out on
1.2bn.
Then in 2015 Tesco had a very bad year, there was an inspection of its
meats and was found to contain a large amount of horse meat in there
beef burger. This lead to a very bad Public relations for the company and a
lack of trust. Nearly 300 (million) has been wiped off the value of Tesco
after a number of its burgers were found to contain horse meat. After
this crisis there was a second major problem involving the suspension of
the head of its UK business and called in independent accountants to
investigate after discovering that its guidance to the city overstated
expected first half profits by about 250 (million).
The supermarket group led by the CEO Dave Lewis accountancy firms and
legal advisors to scrutinise the overstatement at its troubled UK food
business. Tescos shares fell by over 8% wiping 1.5bn off the retailers
market value and more than 6bn had wiped off share value. These
factors may prove why Tesco had such a bed 3 year from 2012 to 2015
and could show why the trend line wasnt so accurate.
Strengths of this type of graphing is that it is very easier to work out, for
this type of curve the line has to be straight, this means that there would
always be a positive coloration between Tescos revenue which from
previous data looks very accurate. The points have a very small amount of
deviation from the line, this increases the accuracy of the line and
improves the possibility of this graph and equation being the best match
to predict Tescos operational revenue.
Weaknesses of this graph is that because it is a straight line it means the
revenue can never be negative and is always increasing. This could be a
problem for Tesco as the business could lose out, in 2015 the business fell
short of their target and its sales were lower than in 2014 (63,557) than in
2015 (62,992). This graph may not be as accurate as first expected
because of this positive constant line.

Logarithmic Graph:

A Logarithmic scale is a nonlinear scale used when there is a large range

of quantities, common uses include earthquake magnitude (Richter scale),
sound loudness and PH of solutions. I want to see whether it could use this
type of curve to see whether it will match or give better results for my R2
value compared to my linear graph. As I feel that a logarithmic curve
could be more suited to Tescos operational revenue. I think this because a
logarithmic curve starts to narrow out as it increases and revenue
becomes more constant. I feel this may be the case with Tesco as their
revenue of the last few years has deviated negatively from the linear line
in the graphs above.

A Graph to show revenue against time for Tesco between 1997-2012

70,000
60,000
50,000

f(x) = 7265658.19 ln(x) - 55203845.82

R = 0.96

40,000

Operational
30,000 revenue
(Millions)
20,000
10,000
0
1996

1998

2000

2002

2004

2006

2008

The Equation for this line is: Y= 7E+06ln(x) - 6E+07.

2010

2012

2014

Time
(Years)

The R2 value for this logarithmic curve is 0.9631, this is only 0.0001 less
than that of the linear equation. Like the Linear line it is very straight,
however the predicted line for 3 years in the future (as shown by the
graph below) is more accurate than the linear line. This could mean that
although this graph is less accurate, as there is greater deviation, it could
be more accurate for predictions in the future. Below is the predicted
graph and the real values of the graph.

A Graph to show revenue against time for Tesco between 1997-2012

70,000
60,000

f(x) = 7265658.19 ln(x) - 55203845.82

R = 0.96

50,000

Operational
revenue
30,000
(Millions)
40,000

20,000
10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Time
(Years)

A Graph to show revenue against time for Tesco between 1997-2015

70,000
60,000

f(x) = 6473084.03 ln(x) - 49178628.89

R = 0.95

50,000

Operational
revenue
30,000
(Millions)
40,000

20,000
10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Time
(Years)

The equation of this line is Y=6E=06ln(x) 5E=07

The difference In R2 values is from 0.9631-0.9489 is 0.0142. This value is

more accurate than the linear line by 0.0003 which could prove on a
larger scale and over a longer period of time to be more accurate.
However the problems with this way of graphing is that it Is hard to graph
a logarithmic graph without using a computer, and a computer rounds the
values that it has been given so this could be a problem with my results as
all the values have been rounded. Strengths of the method is that the
curve doesnt have to be straight, this can then take into account small
deviations as shown in 2008 and 2009, it can also adjust itself to rapid
changes in the revenue, if in future, with more information I could plot a
more accurate graph this curve could match the data to be more reliable.

Polynomial order 4:
A polynomial trend line is a curved line that is used when data fluctuates.
It is useful, for example, for analysing gains and losses over a large data
set. The order of the polynomial can be determined by the number of
fluctuations in the data or by how many bends (hills and valleys) appear in
the curve. An Order 2 polynomial trend line generally has only one hill or
valley. Order 3 generally has one or two hills or valleys Order 4 generally
has up to three. This graph below has been set to be order 4 and fits quite
nicely onto the graph.

A Graph to show revenue against time for Tesco between 1997-2012

70,000
60,000
f(x)
= - 2.78x^4 + 22278.51x^3 - 66896938.54x^2 + 89277441814.39x - 44679304693422.3
R = 0.99
50,000
40,000
30,000
20,000

Operational
revenue
(Millions)

10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Time
(Years)
The equation of this line is Y= - 2.7822x + 22279x - 7E+07x + 9E+10x
4

4E+13
The R value for this curve is 0.987 this is 0.0239 more accurate than the
logarithmic curve and 0.0238 more accurate that the Linear line. This line
is significantly more accurate than that shown by the previous curves.
However the problem with this curve is that it has only 3 hills/valleys
which cant comprehend for change in the future, as the curve finds
hills/valleys in the data that has already been given. Below shows the
predicted line from polynomial order 4, 3 years predicted.

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A Graph to show revenue against time for Tesco between 1997-2012

70,000
60,000
f(x)
= - 2.78x^4 + 22278.51x^3 - 66896938.54x^2 + 89277441814.39x - 44679304693422.3
R = 0.99
50,000
40,000

Operational
revenue
(Millions)
20,000
30,000

Time
(Years)

10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

In fact, this graph predicts Tescos operational Revenue starts to rapidly

decline until 2015 where the company is just making 40,000 (million).
The R value for this graph is 0.9881 this is the closest trend line from that
graphs that have already been looked at, however, this graph may be
good for measuring Tescos Operational revenue but isnt very good at
predicting in the future.

A Graph to show revenue against time for Tesco between 1997-2015

70,000
60,000

f(x) = 0.01x^4 - 99.59x^3 + 377645.7x^2 - 609252936.88x + 357762770443.37

R = 0.99

50,000

Operational
revenue
40,000
(Millions)
30,000

Time
(Years)

20,000
10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Other problems with this graph is its equation is very hard to work out by
hand and the numbers are rounded up/down so there could be some
inaccuracies on the graph. Its not a very easy equation to work out. The
curve is accurate but not realistic which is must be taken into account
when trying to predict future values for revenue.

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Moving Average step 3:

A moving average trend line smooths out the fluctuations in data to show
a pattern or trend more clearly. A moving average uses a specific number
of data, in this case I will be showing the moving average of step 2 step 3
and step 4, averages the number of points used and uses the average
values as a point to plot the line in the line. So for this graph, when the
period is set to 2, the average of the first 2 data points is used as the first
point in the moving average trend line. The average of the second and
third data points is used as the second point in the trend line, and so on.
The graph below show a moving average using 2 points of data.

A Graph to show revenue against time for Tesco between 1997-2015

70,000
60,000
50,000

Moving average trend line with period = %PERIOD

R = NaN

Operational
40,000 revenue
30,000 (Millions)
20,000

Time
(Years)

10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

The next graph shows the moving average of step 3, I am comparing

these 3 graphs to see which one has the least deviation from the line that
has enough data to be reliable and accurate.

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A Graph to show revenue against time for Tesco between 1997-2015

70,000
60,000

Moving average trend line with period = %PERIOD

R = NaN

50,000
40,000

Operational
30,000 revenue
(Millions)
20,000

Time
(Years)

10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

As we can see this graph is that the trend line is more constant it doesnt
show as much deviation in 2008 and 2009 compared to the first moving
average graph with step 2. The graph below shows the moving average
with step order 4.

A Graph to show revenue against time for Tesco between 1997-2015

70,000
60,000

Moving average trend line with period = %PERIOD

R = NaN

50,000

Operational
revenue
30,000 (Millions)
40,000

20,000

Time
(Years)

10,000
0
1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

For this graph the point are even more averaged. The increase in revenue
in 2008-2009 is to match to the original values. I feel that overall, the
moving average step 3 is the best graph to use as it is most accurate with
the data given. However the problem with moving average graph is that
you cant predict the future of the graph as it is formed by data that has
already been given.

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Below shows how I Calculated to the moving average for step 3, and I
used excel to work out the values for Step 2&4
14,984 2005
+ 17,779
=
+
18,546 37,921
= 51309
51309/3
2006
= 17103
=
42272
First point =
17103/1998
2007 =
49445
2008 =
17,779 + 18,546 +
54875
20358 = 56,683
2009 =
56,683/3 = 18,894.3
58,308
Second point =
2010 =
18,894.3/1999
58,930
2011 =
18,546 60427
+ 20358 +
22,773 = 61,677

20358 + 22,773 + 25,654 =

68,785
68,785/3 = 22,928
Fourth point = 22,928/2001

22,773 + 25,654 + 28,613 =

77,040
77,040/3 = 25,680
Fifth number = 25,680/2002

25,654 + 28,613 + 33,557 =

87,824
87,824/3 = 29,275
Sixth point = 29,275/2003

61,677/3 = 20,559
Third point =
20,559/2000

28,613 + 33,557+ 37,070 =

99240

Conclusion
To conclude on this essay after studying whether there is a specific
equation that can measure Tescos operational revenue over a period of
time I have realised that it is impossible to measure and to predict the
future accurately. The most realistic graph, for me, was the Moving
average step 3 graph, this graph is useful to study trend lines for data that
has been given and averages it so that it can show more of a general
trend. However if I were to have more time I would have done a Weighted
moving average and used more data from previous years. I may have
drawn my graphs by hand and found whether that would have been more
accurate. The closest equation that I have found that relates to the Tescos
operational revenue is the polynomial order 4 graph. This graph had a R2
value of .987 for the 2012 graph and a more accurate value .9881 for the
2015 graph which proves that it becomes more accurate to the line which
could suggest a better fit to Tescos revenue. The equation for polynomial
order 4 is Y = 0.0092x4 - 99.617x3 + 377733x2 - 6E+08x + 4E+11.
Problems with this curve is that when predicted further, because of the
limited number of peaks and troughs the next values would be decreasing

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and never increases. So this therefore states that in 10 years time Tesco
will have a negative Revenue which I feel is highly unlikely. So overall
although its almost impossible to predict the future it can mapped and
assumptions can be made. The most accurate graph I feel is the linear
graph, it may not be an exact fit but taking in all other factors, it seems to
be the most accurate graph.

Bibliography:
http://www.telegraph.co.uk/finance/markets/2788089/A-history-ofTesco-The-rise-of-Britains-biggest-supermarket.html
http://www.theguardian.com/business/2014/sep/22/tescoinvestigators-overstating-profit-250m
http://www.theguardian.com/business/marketforceslive/2013/jan/16/
horse-meat-tesco-market-value-shares
https://www.google.co.uk
http://www.intel.co.uk/content/dam/www/program/education/us/en/d
ocuments/project-design/track/track-spreadsheet-trendlines.pdf
Data from first table:
http://www.tesco.com/investorInformation/report98/report.pdf

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http://www.tescoplc.com/files/pdf/reports/annual_report_2000.pdf
https://www.tescoplc.com/files/pdf/reports/annual_report_2002.pdf
https://www.tescoplc.com/files/pdf/reports/annual_report_2004.pdf
https://www.tescoplc.com/files/pdf/reports/annual_report_2006.pdf
https://www.tescoplc.com/files/pdf/reports/annual_report_2008.pdf
https://www.tescoplc.com/files/pdf/reports/annual_report_2010.pdf
http://www.londonstockexchange.com/exchange/prices-andmarkets/stocks/summary/companysummary/GB0008847096GBGBXSET0.html

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