Overview of Tesco as a Leading UK Retail Organization
Finance functions refer to all the activities and practices undertaken with the aim of managing financial resources and emphasizing the optimum utilization of a firm’s funds. Tesco is the leading retail organization in the UK that offers a large variety of consumer products to customers (Description of Tesco, 2024). This report is based on analyzing the role of the finance function in Tesco’s success. It will also depict the strategic and financial information analysis of Tesco. Furthermore, the ethical approach to financial reporting will also be discussed in this report. Students looking for guidance on this topic can access Assignment Help online to better understand financial management concepts, business analysis, and ethical financial practices in real-world organizations like Tesco.
Task 1
The even crucial financial function of the film involves decision and control cash flow management, surplus disposal, financial planning, budgeting, resource allocation, capital budgeting and mergers. The major role of finance function within Tesco’s success could be understood through following points:
Act as the Strategic business partners: Financial department helps Tesco in taking effective decision regarding the growth and working of the business entity. Manager in Tesco is emphasizing on using ratio analysis, financial forecasting, creating financial statement that support in taking effective decision by evaluating the company’s past performance (Caputo et al, 2021). These measures are used by the manager as to identify firm’s capability in utilising its fund and support in taking decision through which overall profits and revenue could be enhanced.
Finance function as Advisor: Financial function of the company includes effective allocation of fund and determining adequate sources through which funds could be secured. Financial manager in Tesco is involved towards identifying the funding needs within the company and involved towards determining optimum sources through which such needs could be fulfilled. This is recognised as advisors as it helps in suggesting the source of finances through which funds could be gained without impacting on the financial position of the business entity.
Contribute towards planning: Budgeting is the most crucial and important aspect of an organization that creates impact on overall success and growth of the business entity (Carnegie, Parker and Tsahuridu, 2021). Finance function involves creation of the accurate budget so that funds could be optimally utilized. Financial function supports in managing the inflow and outflow of the Tesco which helps in taking effective investment decision.
Reporting: Finance function involves formulating financial statement that aids in sharing information repapering firm’s working to all its internal and external stakeholders. This helps in fostering transparency within organization by effectively sharing the firm’s performance (Bischof, Laux and Leuz, 2021). Reporting also helps in forecasting the future performance of business entity based on which the investment decision could be taken by the manager.
Support in partnership: Finance department of Tesco is involved towards the merger and alliance opportunity present in the industry and focuses over suggesting the same to the top level manager. The acquisition between the Tesco and Booker has been undertaken after evaluating all the potential financial benefit. Manager in Tesco has determined that acquisition of booker will result in enhancing supply infrastructure and support in cover large market areas that result in enhancing the overall success of business entity.
Supports in investment decisions: Finance function of the organization also plays a crucial role in taking investment decision (Kou et al, 2021). Manager in Tesco are involved deciding how much profit should be used to provide dividend, the amount of retain earning that helps in effectively utilizing the firm’s profits. It has been identified that dividend rate in Tesco reduced by 5% as to manage the interest obligation. This recommendation has been provided by the financial manager which helps in maintaining a balance between the inflow and outflow of the company’s funds.
The business context of Tesco is the private company that limited by shares. The scope, governance and boundaries of Tesco’s finance function could be understood through the below mentioned points:
Financial accounting: For effectively managing the overall financial activity of Tesco, manager is involved towards undertaking financial accounting. This accounting has been initiated with the aim of communicating organization’s performance to all the internal and external stakeholders (Rosenau, 2021). Financial accounting helps firm in ensuring the reliability of the firm in paying off all its liabilities. This accounting helps in depicting the changes that need to be introduced within Tesco. This accounting has also been initiated with the aim of comparing the firm’s performance over a period of time so that effective decision could be taken. In this context, Tesco’s manager is highly involved towards managing their debt equity ratio below 1.5 so that optimum capital structure could be managed. It has determined that Tesco has depended on retain earning as the sources of finance so that no additional liability has been created on firm.
Management and cost accounting: Tesco has effectively initiated management and cost accounting for complying with the legal requirement. This accounting assists management regarding the firm’s performance and aid in taking decision to improve efficiency. Qualitative factors are also considered in this accounting which results in better analyses (Brown and Piroska, 2022). Further, cost accounting has been initiated by Tesco with the aim of controlling the overall cost of operation so that maximum returns could be generated. This accounting also aids in identifying per unit costs of the firm’s product based on which accurate price of product could be decided.
Project accounting: The aim of project accounting is to manage all the financial transaction related to the project (Xiao and Tao, 2021). This accounting has been undertaken with the aim of managing overall business risk and contract related to the particular project.
Boundaries and Governance: Boundaries in finance refer to the necessity of compliance with all the regulation and standards for the effective working of the organization. Under the governance, Tesco is aiming at compiling finance function with the Company Act 2013 and GDPR 2018 so that legal obligation could be effectively fulfilled (Company Act 2013, 2023). Firm has also adhered with the professional code of conduct and International financial reporting standards so that accurate information regarding the firm’s operation could be conveyed to all the stakeholders. Further, Tesco has initiated internal audit team that involved in checking compliance and aids in efficient working of business entity.
Tesco operates in the dynamic environment and there is constant change in the technology that impacts the overall working of business entity. With the change in time the finance function of the company is also impacted due to change in the technological factor which includes development in the existing technology, evolving of new technology and obsolesces of the existing technology.
Development of new technology: There is constant development in the existing technology that creates urgency for Tesco to introduce such tools as to maintain stability within the industry. The continuous development in payment system and the introduction of electronic data interchange, enterprise resource planning and manufacturing resources planning techniques has resulted into increasing firm’s cost (Abbott and Snidal, 2021). It has determined that Tesco has incurred over 450000 pound for implementing ERP within its operations. This increase in cost has result in reducing overall profitability of Tesco and negatively impact on the financial management of the company.
Emergence of new technology: It has identified that various technologies has been introduced within the retail industry that create negative impact on the financial position of the business entity. The latest technology is the artificial intelligences, block chain, cloud computing and big data technology that requires high investment by the business entity. As to maintain competitive edge in the industry, Tesco has involved towards incurring cost to acquire all such technology within the operations. Firm furthers need to incur cost towards initiating T&D session as to develop skills and competencies of existing worker to use the latest technology. This results in creating additional burden on the organization that ultimate leads to negatively impacting on firms finance (Paramati, Mo and Huang, 2021). It has also determined that emergence of new technology requires firm to incur cots towards developing organization’s infrastructure which results in negatively impacting on the dividend and investment decision of the Tesco. It has identified that over 1.9 billion pound has been initiated by Tesco for introducing new and latest technology in firm’s operation that result in creating negative impact on the cash flow of the organization.
Rate of technology Obsolesce: The third technological factor that is impacting on the financial position of Tesco includes the high technology obsolesce rate (Tan and Zhu, 2022). It has determined that technology is upgrading very frequently in UK that is creating negative impact on the overall budget of the Tesco. Retail organization is focusing on automating all its process and the continuous development in technology has forced organization to adopt digitalisation which results in increasing firm’s expenses.
Task 2
Part A
Financial analysis refers to the process of analysing organization’s budget, project and other financial transaction as to identify the performance of the business entity. Decision making process is the crucial aspect in each organization as it ensures the overall growth and development of the business entity. For effectively understanding the impact of financial analysis on decision making ratio analysis has been carried out (Tesco’s financial statement, 2024).
| Particulars | Formula | Amount( in million GBP) | |
| Profitability ratio analysis | |||
| 2024 | 2023 | ||
| Net profit | 1188 | 737 | |
| Sales revenue | 68187 | 65322 | |
| Earnings before interest and tax or operating profit | 2803 | 1490 | |
| Capital employed | 33689 | 28272 | |
| Average total assets | 46454 | 47610 | |
| NP ratio | Net profit / sales * 100 | 2% | 1% |
| Return on capital employed | EBIT / capital employed | 8% | 5% |
| Return on assets | Net income / average total assets | 3% | 2% |
| Liquidity ratio analysis | |||
| 2024 | 2023 | ||
| Current assets | 8823 | 12259 | |
| Current liabilities | 13350 | 17596 | |
| Inventory | 2635 | 2510 | |
| Prepaid expenses | 129 | 133 | |
| Quick assets | 6059 | 9616 | |
| Current ratio | Current assets / current liabilities | 0.66 | 0.70 |
| Quick ratio | Current assets - (stock + prepaid expenses) | 0.45 | 0.55 |
| Solvency ratio analysis | |||
| 2024 | 2023 | ||
| Long-term debt | 143575 | 140936 | |
| Shareholder's equity | 107934 | 114721 | |
| Debt-equity ratio | Long-term debt / shareholders equity | 1.33 | 1.23 |
| Efficiency ratio analysis | |||
| 2024 | 2023 | ||
| Cost of goods sold | 12721 | 12713 | |
| Average Inventory | 2573 | 2425 | |
| Turnover or sales revenue | 68187 | 65322 | |
| Average total assets | 46454 | 47610 | |
| Receivables or debtors | 3220 | 4842 | |
| Creditors or payables | 6509 | 6000 | |
| Stock turnover ratio (In times) | COGS/average inventory | 4.94 | 5.24 |
| Total assets turnover ratio | Net sales/ average total asset | 1.47 | 1.37 |
| Receivables or debtors turnover ratio (in days) | (Debtors * 365) / Credit sales | 17 days | 27 days |
| Creditors turnover ratio (in days) | (Creditors * 365) / COGS | 186 days | 172 days |
| Investment ratios | |||
| 2024 | 2023 | ||
| Earnings per share | (Net income - preferred dividend) / Number of shares outstanding | 0.25 | 0.24 |
The above table indicate the profitability, liquidity, efficiency investment and solvency position of the Tesco. This analysis support in identifying the long term growth and development prospect of the business entity based on which effective decision could be taken by the organization (Chowdhury and Chowdhury, 2024). Following is the role of financial analysis in taking effective decision within the Tesco:
4 Years | MBA
Depict firm’s liquidity position. Financial analysis helps in taking informed decision by clearly indicating firm’s liquidity position. This analysis shells in identifying the firm’s ability in paying off all its liabilities based on which decision regarding further long term investment and other expenses could be taken by the Tesco. It has determined form the Tesco’s quick asset ratio and current asset ratio is not effective. This indicates firm’s incapability in fulfilling its obligation by selling its assets. With the help of this analysis, Tesco is able to identify that further loan and dent should be avoided by the company as firm is not having effective cash flow (Gomes, Haliassos and Ramadorai, 2021). In the current situation, Tesco need to delay expenditure towards purchasing fixed assets and the unproductive asset should by sell of the company. Moreover, effective inventory management systems should be adopted that helps in avoiding the situation of over stocking that helps in overcoming unnecessary cost. In such manner financial analysis helps in determining firm’s liquidity position based on which strategic decision related to organization’s expenses could be taken.
Support in identifying firm’s profitability position: each organization’s aims at taking decision through which overall profitability could be maximized. Financial analysis help in providing clear picture regarding the past performance of the business based on which future actions could be selected by the organization. It has depicted that firm’s profitability position is not effective as the net profit, operating profit and return on assets ratio are very less as compare to the industry ratio (Admati and Pfleiderer, 2022). Through this analysis, organization is involved in taking decision through which sales and profitability could be improved. Manager in Tesco is focused over incur cost towards marketing that will help in attracting large number of customer results in enhancing overall sales of the business entity. Tesco has also focused on optimum utilization of the asset so that accurate and efficient amount of profit could be gained.
Help in determining firm’s efficiency: Organization’s are aiming at taking decision through which firm’s cost could be reduced and overall efficiency of the business entity could be increased. In this context, financial analysis is involved towards providing information regarding the efficiency of the business entity in generating revenue (Zhang, Yu and Sun, 2022). Based on the ratio analysis, it has determine that firm is ble to effectively recover payment on time form its debtors and paying creditors effectively that helps in managing overall cash flow of the business entity. However it has further determined that firm’s is unable in accelerating its sales that is result in reducing stock turnover and assets turnover ratio. Tesco is able to increase both this ratio in comparison to previous year but still firm need to take proactive action as to further enhance the same. In this situation, firm needs to focus over improving customer’s experience and initiate effective after sales services that help in boosting overall firm’s sales and profitability.
Depict firm’s solvency position: Financial analysis helps in determining organisation’s capability and efficiency in paying off all the long term liability and met financial obligation. Financial analysis also helps in deciding on actual structure of the business entity so that effective return could be provided to the stakeholder and overall stability of firm could be managed (Lund, 2021). Based on the financial analysis of the Tesco, it has depicted that firm’s solvency position is not optimum that indicate firm’s incapability in paying off long term liability. In this situation Tesco should take decision regarding paying off its Loan and improve inventory management. Firm should also focus over increasing revenue and profitability position which will result in enhancing overall cash inflow of the firm and support in effectively paying off all its liability.
Support in taking investment decision: Financial analysis support in taking effective investment decision through which overall profitability of the business entity could be enhanced. Financial analysis supports in ensuring that funds of organization are effectively used and support in depicting overall organisation’s position (Bao, Shao and Yang, 2021). Through this entire ratio, firm is able to determine the ideal funds and assist in identifying the efficiency of organization in utilising finances. These support managers in taking decisions regarding the investment so that effective return could be generated from the organization’s fund.
Help in effective resource allocation: Financial analysis also includes towards determining the weaknesses and strengths of the business entity that result in taking effective decision regarding the resource allocation. Based on the ratio analysis, firm is able to identify the risks that are associated with the organization and also in taking decision through which such risk could be overcame (Synn and Williams, 2024). For example: organization has identified that there is less amount current asset in comparison to the current liabilities. This motivates manager to invest towards acquiring current assets so that liquidity position could be enhanced. Further firm identify that inadequate amount has been invested over inventory that is increasing overall holding and carrying cost. Further other financial analysis method such as cash flow and NPV are also used by the Tesco as to effectively allocating resources so that maximum return could be gained.
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Assist in identifying risk: Financial analysing support in identifying all the financial risk that could impact the working of the business entity. Financial analysis techniques focuses over determining inconsistencies, anomalies and patterns in the financial data based on which uncertainties could be determined (Zhan et al, 2024). Various ratio, benchmarks and trends are used that helps in identifying the deviation in the expected outcome and the actual outcome and support in taking effective actions. After identifying all the risk, manager is able to make informed decision so that such uncertainties could be overcome and the operation of the Tesco could be effectively carried out.
Support in comparison: financial analysis provides in depth comparison between the present and past performance of the organisation. This comparison help business entity in determining the changes in firm’s profitability and liquidity position based on which effective decision could be taken by the Tesco Thomas et al, 2021). By ratio analysis, organization is able to effectively compare the liquidity and profitability position of two consecutive year which aids in determining the cause behind such changes. By establishing effective cause effect relationship, manager in Tesco is able to identify the changes that need to implement which result in taking strategic decision.
Part B
Financial reporting is the process of the communicating the firm’s performance by formulating documentation regarding all the financial activities of the firm over a specific period of time. It is crucial for each organization as to ensure that financial reporting is in aligning with the legal and ethical regulations (Zhou, Liu and Lei, 2024). Below written are the most common legal and ethical approaches and method of financial reporting within Tesco:
Legal approaches:
The legal approach to financial reporting include various government and authority regulation that Tesco has undertaken as to provide accurate and optimum information regarding firm’ working.
Formulating effective financial statements: Tesco is involved towards creating a financial statement by following all the accounting principles and convention that help in providing accurate information to the stakeholders. Tesco is concentrating over sharing the financial statement on the firm’s domain so that the entire stakeholder got effective access to such statement and information regarding firm’s performance could be shared among large number of individual (Pizzi, Rosati and Venturelli, 2021). Tesco is effectively following company ACT 2013 which make it mandatory for all private and public limited companies to share their financial statement so that information related to firm’s operation could be created among the stakeholder. Manager in Tesco has focused over providing an effective training to employees that include creating awareness regarding the changes in the regulations so that financial statement are prepared and communicated according to the legal requirement.
Use of leading and lagging indicators: For effectively reporting the financial performance of the Tesco, manager has effectively used leading and lagging indicators. The leading indicators denote various methods through which future outcome and performance of the organization could be easily predicted. The lagging indicators support in determining the past performance of the business entity. Tesco has used various such indicators so that stakeholder could effectively understand firm’s performance and it also help in fulfilling the legal compliance of the Tesco (Barauskaite and Streimikiene, 2021). The various leading indicators includes the gross profit ratio, quick ratio, current ratio, return on equity, Account receivables, working capital, Net profit margin and EBITA. Calculation of all this ratio support firm in providing adequate information regarding firm’s financial, liquidity, solvency and efficiency position and aids in fulfilling the legal liability. Further, Tesco clearly described the total profit and revue of the company and provide a competitive statement so that past performance of organization could be effectively conveyed to the entire interested individual.
Providing formal audit report: Manager in Tesco has focused over providing an annual audit report that helps in clearly defining the overall financial health of the business entity. This report acts as the bases on which various investors make investment decision. This report is also analysed by the regulatory bodies as to determine the accuracy of company in financial reporting. Audit report help in ensuring that all the information within the financial statement of the company are accurate and reliable which result in effectively reporting firm’s financial position.
Provide budget to internal stakeholder: Another legal requirement in financial reporting includes providing adequate cost and budget information to the internal stakeholder of the company. Manager in Tesco has concentrated over providing information regarding the cost and budget of the company which result in effective internal performance reporting. Internal reporting in identifying the efficiency of the employee’s performance and aids in taking effective actions so that task could be accomplish in the allocated budget. This internal reporting helps employees and management to ensure that organization’ actions are aligning with the values and mission of the business entity.
Ethical financial reporting: The ethical financial reporting includes following all the ethics and values while providing information regarding the financial performance of the business. To ensure the ethical financial reporting following measures has been used within the Tesco:
Adherence to ethical code of conduct: Manager in Tesco has focused over following all the six crucial principle of the financial reporting that includes objectivity, competence, integrity, skepticism, confidentiality and professional behaviour as to ensure the ethnicity in the financial reporting. While analysing the financial statement, manager in Tesco are focused over providing unbiased judgement by ignoring the personal interest by providing accurate outcome, Window dressing has been ignored in the financial statement so that investors could take effective decision and it aids in promoting transparency.
For maintaining competence, manager in Tesco is focused over employing highly skilled and competent employees so that accuracy and reliability during financial reporting could be maintained (Khan et al, 2021). Skepticism has been adopted by the financial manager of the Tesco has reduces the scope of any misstatement or fraud information within the financial stakeholder’s which support in protecting stakeholder’s interest. Further various training session has been provided to the employees so that information regarding the legal regulation could be provided and need have legal compliance could be fulfilled while reporting.
Robust internal Audit program: The accuracy and reliability are two crucial aspects that should be present while reporting firm’s performance to others (Valle-Cruz et al, 2022). For ensuring an effective financial reporting robust internal audit program has been initiated by the Tesco. This initiative focused over analysing the current financial statement based on the legal regulation that support in suggesting changes that need to undertaken. This also involved towards identifying the regulatory changes that are initiating within the industry and implementing same as to avoid any type of unethical practices within the firm’s operations.
Guidance from financial reporting council: For maintaining the ethnicity of the reporting, guidance and suggestion from the financial reporting council will be undertaken (Achmad, Ghozali and Pamungkas, 2022). All the guidance and regulation will be clearly conveyed to the financial team so reporting function could be effectively carried out, further, Tesco is involve towards providing training to the personnel regarding the financial regulation and also highlights the ethics in the financial reporting. By adopting all this ethics and regulation Tesco is able to provide accurate and reliable information to its stakeholders.
Conclusion
By summing up the report it has depicted that finance function help in planning, advisor, reporting and supporting in mergers. Tesco has initiated financial, cost, management and project accounting for effectively managing overall financial transaction of country. Tesco’s operation are aligning with the company act 2013and GDPR 2018. It has denoted that financial analysis support in identify liquidity, profitability, and solvency position of the company,. It also help in effective resources allocation and risk analysis that result in strategic decision. Tesco has used leading and lading indictors, formulating financial statement and aligning to ethical code for accurate financial reporting.
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