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Strategic Financial Management IdagbeOkuwaJackie 74111353 R1907D87904999
Strategic Financial Management IdagbeOkuwaJackie 74111353 R1907D87904999
BY
IDAGBE OKUWA JACKIE
MARCH 2021
TABLE OF CONTENTS
1.0 INTRODUCTION 3
1.1 Purpose of the Report 3
The purpose of the report is to analyze the financial position of two companies Tesco and Benedict
Co. This report would be organized into two parts. The first part would try to explain the term
‘stakeholder’ and seek to also identify three key types of TESCO stakeholders. This report would also
review TESCO financial performance with respect to it’s cooperate and social responsibilities as it
affects two identified stakeholders. The report uses the TESCO annual report as its main reference
but other scholarly materials would be referenced to support its ideas.
The second part would seek to analyze and appraise the financial situation of BENEDICT Co. (a
company that provides of different salvage solutions) by employing different financial
ratios/statements .The purpose and relevance of the chosen ratio would be explained with all
calculations shown at the appendix section of the report.
Tesco, is a multinational foodstuffs and general retailer with its headquarters located in
Welwyn Garden City, England. Tesco is one of the world’s leading retailer with over 400,000
associates that serves millions of customers every week, in their stores and online. The
company boast of over £56.5bn group sales in 2019. (Tescoplc, 2021).Tesco relationship
with two of its three key stakeholders namely customers, suppliers and its colleagues would
be appraised in relation to its corporate and social responsibility
Benedict Co. on the other hand was established in 1983 and the company specializes in
buying and selling of salvage or unwanted cargo quickly to improve your bottom line.
(Benedict Company LLC, 2021). Different financial ratios would be used to assess and
evaluate Benedict Co financial position.
1.2 Structure of the Report
We start with the introduction of the main aim of the report alongside a brief background of
Tesco and Benedict Co. The following chapters critically looked at Tesco and Its
Stakeholders evaluating the performance of Tesco’s environmental and social responsibities
its stakeholders. Finally we dive into the financial status of Benedict and Co using key
financial ratios to evaluate the company’s performance.
2.0 TESCO STRATEGIC ANALYSIS
As a business TESCO works with entities that may be individuals, groups or organizations
who are affecting and are being affected by TESCO activities and performance. These
entities are known as Stakeholders and may be classified as internal, external and connected
Stakeholders. Entities within the business are called internal stakeholders, while ones
outside the business but are affected or are interested in the performance of the company
are referred to as external stakeholders. While those that are directly connected to the
operational management of the company are known as connected stakeholders. Internal
stakeholders would include shareholders and employees while external stakeholders would
include customers, suppliers and regulatory bodies.
2.1 Tesco Stakeholders.
Freeman and Reed (1983, p. 93) refers to stakeholder as “persons, groups or organizations,
on which an organization depends for survival”...‘any group or individual who can affect or is
affected by the achievement of the organization’s objectives. Freeman (1984)
Jim Riley (2018) describes a stakeholder as any individual, group of persons or organization
who have a vested interest in the activities and decision making of a business. Bryson (2003)
argues that stakeholder analysis is the ‘smart move’ by which companies get to understand,
craft strategies and manage internal and external environment for the company to achieve
superior profitability
Tesco has identified its three major stakeholders as customers, suppliers and its colleagues
(Tesco Report, 2016)
Tesco Customers are seen as being in the heart of the business as their loyalty is defined
based on the rate at which they shop with the company and the amount of money they
spend on the average weekly for shopping online or in the store. Tesco’s customer centric
culture of ensuring customers come first has built loyal customers who now recommend
Tesco as a place to shop. Tesco new purpose of ‘Serving shoppers a little better every day.’
(Tesco 2016 Report, p2) is the guiding forces to all decisions and actions taken by Tesco.
Tesco have developed a solid, consistent people practice that have made Tesco a great place
to work; a safe place where each person is welcome and feels confident to be themselves.
Tesco considers its customers a key stakeholder and thus thrives to deliver the best
customer service experience.
Tesco sees its relationship with suppliers as a partnership. Tesco has built a strong,
simplified and trusted relationship with their suppliers so that they can deliver safe and
great products. This partnership has seen a significant improvement in supplier satisfaction
from the previous years. Having the right partnership is very important in ensuring business
continuity and progress. Based on Performance Share Plan measure Tesco (2016 annual
report, p53) defines Suppliers as the proportion of suppliers scoring satisfaction at 7 or
above (on a 10 point scale).
Tesco considers Colleagues as key stakeholders and have invested in them so that they can
deliver excellent service to customers. Tesco initiated a more flexible and transparent way
of working, improved opportunities for training all in a bid to ensure its employees are fully
equipped to deliver superior service to customers. Tesco relationship with its employees
have seen a good percentage of colleagues endorsing Tesco as a great place to work and a
great place to shop.
2.2 TESCO Cooperate Environmental and Social Responsibility and cooperate Governance
Report
Tesco goal is to deliver an ever increasing shopping to its customers and to guarantee this
objective is met Tesco ensures that issues around social and environmental challenges
affecting stakeholders are addressed. Tuder et al. (2007) noted that “Corporate Social
Responsibility (CSR) is a major societal concern that is gaining traction within the retail food
business. This represents an entirely new approach to business and Tesco has embodied it in
the company cooperate governance agenda in ensuring that it operates in a safe and
responsible way. We would consider two of Tesco Stakeholders namely Colleagues and
customers in analysing how the company has fared with respect to it’s cooperate and social
responsibilities. To show the importance of these stakeholders Tesco has developed KPIs to
measure their performance with respected to the highlighted stakeholders.
At Tesco to ensure an effective social corporate responsibility they created a committee
called “Corporate Responsibility Committee” with a chairperson specifically to address
At Tesco to ensure an effective social corporate responsibility they created a committee
called “Corporate Responsibility Committee” with a chairperson specifically to address
Tesco has created a “Corporate Responsibility Committee” to ensure full compliance to it’s
cooperate social duties and act as a means of getting back confidence and trust amongst
stakeholders. (Tesco Report, 2016)
Tesco’s effort in health has seen it partnering with health experts like Diabetes UK and the
British Heart Foundation that provides funding for research of many health challenges face
by the communities. In 2016, Tesco raised about £7.89m which was used for important
health research and prevention projects. Tesco has continued to help customers and has
also reformulated their soft drinks for example where a total of 4.6 billion calories and over
1480 tonnes of sugar was removed.
According to Michalski (2014) children are tomorrow’s customers hence it is important for
them to have an understanding the food production process therefore be able to make
informed decisions about their food choices. In this light Tesco has launched the ‘Eat
Happy/Farm to Fork’ project with the hope to improve good awareness amongst school
children with respect to food production process and the need to make healthy eating
choices
As part of Tesco’s goal not to throw away food that could be consumed, they have
partnered with Community Food Connection (CFC), to ensure its social responsibility to its
customers and communities.
An equivalent to 18 million meals have been collected by Tesco to help people in need in
the UK as per 2016 report.
Tesco has keyed in to the program of the UK government to reduce the production and use
of plastic bags by raising at least 11million pounds through the ‘Bags of Help’ program,
which would see the money realized from sales of bags put back into projects to develop
some outdoor facilities.
Tesco puts people at the core of its values and have encouraged their colleagues to avail
themselves of the numerous training opportunities and support in other to position
themselves to serving their customers better every day. Tesco (2016).
Tesco upholds and engages in work place diversity throughout the company with a laudable
male to female ratio. Female population stands at 57% of all employees. Tesco also ensures
that there is no disparity in the pay between male and female for a specific position. (Tesco,
2016)
Tesco is founding member of the Ethical Trading Initiative and this underscores its
commitment upholding and protecting the human rights of all stakeholders within the
supply chain giving the customer the confidence of buying products that are safely and
responsibly produced.
INANCIAL RATIOS
Financial ratios are
relationships determined from
a firm’s financial information
and used for
comparison purposes. Ross, S.
A, Westerfield, R. W and
Jordan, B. D (2016).
Accordingly,
financial ratios can be grouped
into five categories as follows:
1. Short term solvency or
liquidity ratios
2. Long term solvency or
financial leverage ratios
3. Asset management or
turnover ratios
3.1 FINANCIAL RATIOS
Financial ratios are considered metrics that are determined from the financial figures or
data of a company and used to quantify how productive and profitable the firm is. Ross, S.
A, Westerfield, R. W and Jordan, B. D (2016). We would consider financial ratios according
to Scicluna C (2020) categorization namely
Profitability ratios
Liquidity ratios
Gearing ratios
The Use of Resources ratios
Investor ratios:
Debtor days increased from 55.70 in 20X0 to 90.06 in 20X1. This implies that the company
too much time to collect receivables or debits from customers and may impact the
operating capital. This is a far cry from industry average standard debtor 55 days. Benedict
Co may be using this as a strategy to attract more customers by allow that much long debtor
days. (Kaplan Financial, 2012).
Creditor days has increased from 108.24 in 20X0 to 155.13 in 20X1 meaning that it takes
the company 65 days longer to meet its commitments to creditors in comparison to
industry average of 90 days
Cash conversion cycle increased from 12.91 days in 20X0 to 53 days in 20X1.This is a cause
of concern for the company as it takes too long for cash to be generated from Benedict Co.
operations.This shows a decline in the performance of the company.
3.1.5 Investor Ratio
Investor ratios are used to determine return on investment, earnings and dividends as noted
by Scicluna, C(2020) and key ratios include return on equity, dividend per share, earnings
per share, price/earnings ratio.
Return on equity (ROE). Benedict Co’s ROE dropped from 27.03% in 20X0 to 23.57% in20X1.
Dividend per share (DPS).This indices for Benedict Co grew from 0.02 to 0.03 which is as a
result of increase in total share payout from $3.6million to $4.5million
Earnings per share (EPS) did not change but remained at 0.00004 the years under review
signalling no growth in shareholder earnings
Price earnings ratio tells an investor the number of years' earnings need to be ignored to be
able to buy one share increased from 97,297.3 to 151,351.4
AF4S31 Strategic Financial Management 74112058
4
4.0 CONCLUSION.
The analysis of Tesco shows that it has clearly identified its stakeholders and working at
ensuring it meets its environmental & social cooperate responsibilities. The company has
developed a customer centric culture and sees it employees as a main stakeholder as they
delight consumers every day.
Conversely the analysis of Benedict Co show that the company is not in a very good financial
standing with very business risk. From the analysis we see that the performance has gone
down from year 20X0 to 20X1. Most of the financial ratios show negative trend. The
company is at a risk of being able to payback or cover its liabilities. We also saw an increase
in the profit margin meaning we need to do more conclusive analysis on the company.
Based on the analysis Benedict Co may not be able to meet its responsibilities to stake
holders.
APPENDICES
Fig 1: Industry Information
LIQUID RATIOS
“Current ratio” “Current Assets” 12,800 6,400
“Current Liabilities” 10,800 5,100
=1.19 =1.25
“Quick ratio” “Current asset less stock” (12,800 -5,200) (6,400 - 2,600)
“Current liabilities” 10,800 5,100
=0.70 =0.75
GEARING RATIOS
“Gearing ratio” “Long-term debt” x 100 (12,000 x100) (8,000 x100)
“Capital employed (50,800 – 10,800) (39,000 – 5,100)
=30 =23.60
“Debt/equity ratio” “Long-term debt” x100 (12,000 x100) (8,000 x100)
“Share capital and (28,000) (25,900)
reserves” =42.86 =30.89
“Interest cover” (8,300 – 1,300) (8,700 - 500)
“Profit before tax” (1,300) (500)
“Interest charges” =5.38 =16.4
INVESTOR RATIOS
“Return on equity” “Earnings after tax x100” (6,600 x100) (7,000 x100)
“Ordinary share capital (28,000) (25,900)
plus reserves” =23.57 =27.03
“Dividend per share “Dividend paid to ordinary (4,500 x1,000) (3,600 x1000)
(DPS)” share 180,000,000 180,000,000
number issued ordinary = 0.03 =0.02
shares
“Earnings per share “Earnings after tax” 6,600 7,000
(EPS)” number of issued ordinary 180,000,000 180,000,000
shares =0.000037 =0.000037
“Price/earnings ratio” “Market price per share” 5.6 3.6
“EPS” 0.000037 0.000037
=151,351.4 =97.297.3
Freeman, R.E. and Reed, D.L. (1983). Stockholders and Stakeholders: A New Perspective on
Corporate Governance. California Management Review. Available at:
http://journals.sagepub.com/doi/10.2307/41165018 [Accessed: 24 February 2021].
Jim R. (2011). Q&A - How is the current ratio calculated and interpreted? Tutor2U.
https://www.tutor2u.net/business/blog/qa-how-is-the-current-ratio-calculated-and-
interpreted [Accessed: 10th March 2021]
Kaplan Financial (2012). Interpretation of Financial Statements: Efficiency Ratios. Available:
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Efficiency%20Analysis.aspx?
mode=none. [Accessed: 10th March 2021].