Table of contents

Financial accounting – using retail and grocery company (tesco plc)

Introduction…………………………………………………………………………2
Discussion……………………………………………………………………………3
Conclusion……………………………………………………………………………4
Appendix……………………………………………………………………………..5
References……………………………………………………………………………10

Management accounting
Introduction…………………………………………………………………………..12
Discussion……………………………………………………………………………..12
conclusion……………………………………………………………………………..14
Recommendation……………………………………………………………………..14
Appendix ……………………………………………………………………………..15
References…………………………………………………………………………….19
Introduction
The financial statements data can be analysed using different means and tools. The tools to be used
will be basically vertical trend analysis and ratio analysis. The vertical trend analysis deals with
comparing analysis of financial statement where its component is changed into percentage of another
component. However, ratio presents financial information in a more understandable way by relating
two or more items of financial statements to one another. This work will however consider the
following:
 The financial reporting framework being used by Tesco
 The critical accounting policies of Tesco
 Financial performance of Tesco
Tesco is a UK based retail store with 4,572 stores which spread over five major markets and the
company currently owns 27.5% of the total market share of the industry and this made the company to
be the largest retail company in UK.

Industry matching

Company number Relevant industry

1 Discount airline
2 Large integrated oil and gas company
3 R&D based pharmaceutical manufacturer
4 Mobile phone service operator
5 Computer soft ware company
6 Retail grocery company
7 Liquor producer and distributors
8 Commercial banks
9 R&D- based semi conductor manufacturers

Financial Reporting Framework of Tesco Plc

Financial reporting framework is a set of standard for financial reporting. The framework make sure
that the company financial statements satisfy the user’s needs. The financial reporting framework can
either be International Financial Reporting Standards (IFRS) or Generally Accepted Accounting
Principles (GAAP) (IFRS, 2022).

According to Tesco Annual report (2022), the financial reporting framework involves making use of
planning and organisation of the company financial statements in United Kingdom by adopting
International Financial Reporting Standards (IFRSs). The IFRS financial reporting framework
according to IASB (2018) has some key advantages which include;
 i. The framework ensures that the financial information prepared and presented to the users has
both predictive and confirmatory value. These values make the financial statements relevant
for the decision making activities of the users.
ii. The framework upon which Tesco plc financial statements preparation and presentation is
based ensure the reliability of the financial statements.
iii. The framework also ensures that the financial statements are comparable, understandable,
verifiable and available to the users on time in order to aid their decision making.

Critical Accounting Policies of Tesco Plc

The International Financial Reporting Standards however, gives accounting policies goten from
financial statements that that contains important and good information about the transactions, other
events and occurrence that applies to it (ICAN, 2021).

According to Tesco Annual report (2022), the critical accounting policies of Tesco Plc include;
i. Inventories
Tesco plc inventories products are kept for resale. The organization stocks are assed, identify and
accepted in the organisation financial statement at a reduced price and net attainable rate The
inventory cost is determined based on weighted average pricing principle. The price of inventories
contains all immediate attribute cost and income which also include necessary economic earning
ii. Property, Plant and Equipment (PPE)
Tesco plc utilized cost model for measurement of the next stock of PPE. The company statement of
account is contained in the property plant and equipment of the company financial statement position
at a price less acquired depreciation and any defect loss known at the accounting period. Straight line
method of depreciation is used to depreciate unit of property, equipment and plant of the company.

iii. Sale of good

Majority of the revenue of the Tesco group is from the products sold. Revenue is gotten from the
product sold within the store must be recognised in the income statement at the point of sales.
Furthermore, revenue from online and wholesale of inventories is recognised in the income statement
on delivery or collection by the customers. Revenue must be adjusted for any provisions made for
expected returns of goods.

Tesco Financial Performance Analysis

The company financial performance will be appraise using the 3 years average of 2011-2013 and the
company financial data will be compared with that of the second largest retail store in UK which is J
Sainsbury Plc.
Based on the vertical trend analysis (see Appendix 1, 2, 6 & 7) Tesco average cost of sales percentage
over the three years period was 92.4% while that of Sainsbury was 94.5% this shows that Tesco is
more efficient than their competitor in managing the cost that relates to sales. Also Tesco average Net
income percentage is higher than that of their competitor that is 3.3%>2.92%. The percentage
therefore shows that Tesco is more profitable than J Sainsbury. However, Tesco administrative cost
average percentage is higher than J Sainsbury but this may be as a result of the large size of Tesco.

Based on the ratio analysis conducted (see appendix 2 & 5), the acid test ratio of the company is
higher than that of J Sainsbury and this shows that the company is highly liquid when compared with
its competitor. The two ratios calculated to test the financial leverage reveals that Tesco has a high
financial leverage than J. Sainsbury.

The average receivable period of Tesco is higher than J Sainsbury average receivable period, it can
therefore be inferred that Tesco plc is not efficient as J Sainsbury in the management of receivable.
Also, the average inventory period of Tesco is more the average inventory period of J Sainsbury. This
might be an indication of low inventory turnover and it might be as a result of bulk purchases being
made by Tesco which might cause a higher closing inventory at the year end.

Finally, all the profitability ratios of Tesco exceed that of it main competitor (J. Sainsbury). This is an
evidence that the company is more profitable than it competitor.

Conclusion
The financial reporting framework adopted by the company in the planning and showing of their
financial statements will ensure that the financial statements are useful for all users irrespective of
their information needs. The accounting policies upon which the preparation and presentation of
Tesco financial statements is based is in line with the relevant provisions of International Financial
Reporting Standard (IFRS) and International Accounting Standard (IAS), it can therefore be
concluded that the accounting policies of the company will guarantee the importance and reliableness
of the financial information. The result of both vertical and ratio analysis revealed that the company is
more profitable than it competitor but the company is geared more than it competitor.
APPENDICES
APPENDIX 1: VERTICAL TREND ANALYSIS OF INCOME STATEMENT (TESCO PLC)
3-
Years
Averag
2013 2012 2011 e
% % % %
100.0 100.0 100.0
Sales % % % 100.0%
Cost of sales 93.7% 91.8% 91.7% 92.4%
Gross Profit 6.3% 8.2% 8.3% 7.6%
Administrative Expenses 2.4% 2.6% 2.8% 2.6%
Operating Profit 3.9% 5.6% 5.6% 5.0%
Finance Cost 0.7% 0.6% 0.8% 0.7%
Non-operating Income 0.3% 0.3% 0.2% 0.3%
Pre-tax Income 3.5% 5.2% 5.0% 4.6%
Taxation 0.9% 1.4% 1.4% 1.2%
Income Before Extraordinary items and Non-controlling interest 2.6% 3.9% 3.6% 3.3%
APPENDIX 2: VERTICAL TREND ANALYSIS OF STATEMENT OF FINANCIAL POSITION
(TESCO PLC)
3-Years
2013 2012 2011 Average
% % % %
Assets
cash and Short term investment 6.1% 7.0% 6.1% 6.4%
Net Receivables 5.0% 5.2% 4.9% 5.1%
Inventories 7.5% 7.1% 6.7% 7.1%
Prepaid Expenses 0.0% 0.0% 0.0% 0.0%
Other current assets 7.6% 6.0% 7.4% 7.0%
26.1% 25.3% 25.1% 25.5%
Net Property, Plant and Equipment 49.6% 50.6% 51.7% 50.6%
investment at Equity 1.0% 0.8% 0.7% 0.8%
Other Investment 5.6% 6.9% 6.3% 6.3%
intangible Assets 8.7% 9.1% 9.2% 9.0%
Deferred charges 0.1% 0.0% 0.1% 0.1%
Other assets 8.8% 7.1% 6.9% 7.6%
100.0 100.0 100.0
Total Assets % % % 100.0%

Liabilities
Account Payable 22.1% 22.1% 22.2% 22.2%
Note Payable and Other Short term borrowings 13.8% 14.6% 14.3% 14.2%
Income taxes payable 1.0% 0.8% 0.9% 0.9%
Other current liabilities 0.9% 0.3% 0.1% 0.5%
Total Current Liabilities 37.9% 37.9% 37.6% 37.8%
Long term debt 20.1% 19.5% 20.5% 20.0%
Deferred taxes 2.0% 2.3% 2.3% 2.2%
Other Liabilities 6.8% 5.2% 4.4% 5.5%
Total Liabilities 66.8% 64.9% 64.8% 65.5%
Equity
Common stock 0.8% 0.8% 0.9% 0.8%
Capital Surplus 11.4% 9.9% 10.5% 10.6%
Retained Earnings 21.0% 24.4% 23.7% 23.0%
Common Equity 33.2% 35.0% 35.0% 34.4%
Shareholders Equity- Parent 33.2% 35.0% 35.0% 34.4%
Non-controlling Interest 0.0% 0.1% 0.2% 0.1%
Stockholders Equity Total 33.2% 35.1% 35.2% 34.5%
100.0 100.0 100.0
Total Liabilities and Equity % % % 100.0%

APPENDIX 3: RATIO ANALYSIS (TESCO PLC)

LIQUIDITY RATIOS 2013 2012 2011 3-Years Average
Cash and Marketable Security to Total Assets 0.06 0.07 0.06 0.06
Acid Test Ratio 0.49 0.48 0.49 0.49
Current Ratio 0.69 0.67 0.67 0.68
ASSETS MANAGEMENT
14.2 15.0 13.8
Day`s Receivable 2 3 6 14.37
22.5 22.1 20.6
Day`s Inventory 0 5 6 21.77
Asset Turnover 1.29 1.27 1.29 1.28
FINANCIAL LEVERAGE
Long term Debt to Total Assets 0.34 0.34 0.35 0.34
Long term Debt to Shareholders` Equity 1.02 0.97 0.99 0.99
PROFITABILITY
Gross Margin Ratio 0.06 0.08 0.08 0.08
Return on sales 0.02 0.05 0.04 0.04
Return on asset 0.03 0.06 0.06 0.05
Return on Equity 0.08 0.17 0.16 0.14
DUPONT ANALYSIS
Return on Equity 0.08 0.17 0.16 0.14
Leverage 3.01 2.85 2.84 2.90
Appendix 4: Balanced Scorecard of Tesco Plc
Objectives Goals Indicators Initiatives
Financial To increase revenue Increase actual Financial Gained
Perspective and reduce cost revenue by 2.5% statements of competitive
Tesco advantage
through price.
Customer Have a high average Increase the value of Value of Marketing of
Perspective customer rating each purchase by invoices for online grocery
100% on average each individual shopping.
sale
Internal Offer a choice of Increase the sales of Percentage of Development of
Process products to customers new products by 25% sales of the food market into
Perspective new products a new line
Learning To provide Training of Number of Provision of off
and Growth opportunities for organisation skills possessed and on the job
Perspective employees to grow and employees to by the training for
develop in tandem with improve their employees staffs.
the company knowledge and skills

APPENDIX 5:RATIO ANALYSIS (J SANSBURY PLC)

LIQUIDITY RATIOS 2013 2012 2011 3-Years Average
Cash and Marketable Security to Total Assets 0.04 0.06 0.04 0.05
Acid Test Ratio 0.30 0.35 0.31 0.32
Current Ratio 0.61 0.65 0.58 0.62
ASSETS MANAGEMENT
Day`s Receivable 4.79 4.68 5.93 5.14
16.3 16.2 14.8
Day`s Inventory 6 4 6 15.82
Asset Turnover 1.84 1.81 1.85 1.83
FINANCIAL LEVERAGE
Long term Debt to Total Assets 0.22 0.22 0.21 0.22
Long term Debt to Shareholders` Equity 0.49 0.49 0.44 0.47
PROFITABILITY
Gross Margin Ratio 0.05 0.05 0.05 0.05
Return on sales 0.03 0.03 0.03 0.03
Retun on asset 0.05 0.05 0.06 0.05
Return on Equity 0.11 0.11 0.12 0.11
DUPONT ANALYSIS
Return on Equity 0.11 0.11 0.12 0.11
Leverage 2.21 2.19 2.10 2.17
 APPENDIX 6: VERTICAL TREND ANALYSIS OF INCOME STATEMENT (J SAINSBURY
PLC)
3-Years
Averag
2013 2012 2011 e
% % % %
100.00 100.00 100.00 100.00
Sales % % % %
Cost of sales 94.52% 94.57% 94.50% 94.53%
Gross Profit 5.48% 5.43% 5.50% 5.47%
Administrative Expenses 1.96% 1.88% 1.98% 1.94%
Operating Profit 3.52% 3.55% 3.52% 3.53%
Finance Cost 0.61% 0.62% 0.15% 0.46%
Non-operating Income 0.47% 0.65% 0.95% 0.69%
Pre-tax Income 3.38% 3.58% 4.32% 3.76%
Taxation 0.75% 0.90% 0.89% 0.84%
Income Before Extraordinary items and Non-controlling
interest 2.63% 2.68% 3.43% 2.92%

APPENDIX 7: VERTICAL TREND ANALYSIS OF STATEMENT OF FINANCIAL

POSITION( J SAINSBURY PLC)

3- YEARS
AVERAG
Assets 2013 2012 2011 E
cash and Short term investment 4.1% 6.0% 4.4% 4.8%
Net Receivables 2.4% 2.3% 3.0% 2.6%
Inventories 7.8% 7.6% 7.1% 7.5%
Prepaid Expenses 0.0% 0.0% 0.0% 0.0%
Other current assets 0.8% 0.6% 0.6% 0.6%
15.1% 16.5% 15.1% 15.5%
Net Property, Plant and Equipment 77.2% 75.6% 77.1% 76.6%
investment at Equity 4.2% 4.6% 4.4% 4.4%
Other Investment 0.0% 0.0% 0.0% 0.0%
intangible Assets 1.3% 1.3% 1.3% 1.3%
Deferred charges 0.0% 0.0% 0.0% 0.0%
Other assets 2.2% 2.1% 2.1% 2.1%
100.0 100.0 100.0
Total Assets % % % 100.0%

Liabilities
 Account Payable 21.5% 22.2% 22.8% 22.2%
Note Payable and Other Short term borrowings 1.3% 1.2% 0.6% 1.1%
Income taxes payable 1.2% 1.2% 1.8% 1.4%
Other current liabilities 0.6% 0.8% 0.6% 0.7%
Total Current Liabilities 24.5% 25.4% 25.8% 25.3%
Long term debt 20.6% 21.2% 20.5% 20.8%
Deferred taxes 1.9% 2.3% 1.5% 1.9%
Other Liabilities 7.7% 5.4% 4.6% 5.9%
Total Liabilities 54.8% 54.4% 52.4% 53.9%
Equity
Common stock 4.3% 4.4% 4.7% 4.4%
Capital Surplus 8.9% 11.2% 13.3% 11.1%
Retained Earnings 32.0% 30.1% 29.6% 30.6%
Common Equity 45.2% 45.6% 47.6% 46.1%
Shareholders Equity- Parent 45.2% 45.6% 47.6% 46.1%
Non-controlling Interest 0.0% 0.0% 0.0% 0.0%
Stockholders Equity Total 45.2% 45.6% 47.6% 46.1%
100.0 100.0 100.0
Total Liabilities and Equity % % % 100.0%

References

Sainsbury (2011) Annual report. [Online]. Available at

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Introduction

Interest in corporate sustainability performance assessment and management systems has improved
due to increase in the strategic importance of environmental, social and governance standards together
with related performance measures

Scholars and professional alike are concerned with the unified measurement of economic, social and
environmental performance by corporate sustainability performance measurement systems relative to
concept such as corporate social responsibility (CSR) and corporate sustainability (Lee 2008;
Lindgreen and Swaen 2010; Maon et al. 2010). Also (Searcy 2012) furthermore another means of
performance measurement is sustainability metrics which includes balance scorecards, composite
indices, performance assessment and management systems.

Balance Scorecard (BSC)

The BSC is a management performance tool that intends to “control” both financial and non-financial
success factors, including both long term and short term and qualitative and qualitative success factors
(Kaplan and Norton 1992, 1996). This is fulfilled by highlighting diverse simultaneously established
strategic goals, each of which is eventually classified into one of four performance perspectives
(financial, customer, internal processes, learning and growth), finally results in monetary successes
through cause-and-effect relationships. Foremost performance indicators are utilized to examine each
target.

In previous publications and scholarly materials, the BSC focused on outlining strategy utilizing cause
and effect chains binding strategic objectives after focusing on individual and collections of
performance indicators for overseeing the execution of strategic objectives (Kaplan and Norton 1992).
(Kaplan and Norton 2001b, c). Strategy maps proves that casual relationships amidst strategic
objectives (Kaplan and Norton 2004; Neely et al. 2003). Following initially concentrating on
individual and collections of performance indicators for overseeing the execution of strategic
objectives, the BSC shifted attention to defining strategy using cause-and –effect chains connecting
strategic goals in earlier publications such as (Kaplan and Norton 1992). (2001b, c) Kaplan and
Norton. This demonstrates an improvement from first to second generation performance evaluation
approaches (Neely et al. 2003). Casual relationships between strategic objectives are illustrated on
strategy maps (Kaplan and Norton 2004; Neely et al. 2003)

Sustainability balanced scorecard (SBSC)

Sustainable performance measurement system are utilized to place objectives that perform and to
what range. When the management control systems of an organisation includes both environmental
and social performance objectives, an effective measurement of the sustainability performance of the
organization can be achieved.

BSC is an effective performance metric tool to measure the sustainability performance of an

organization since many environmental and social issues are non-financial, which might have a direct
impact on the profitability and ability of an organization to continue as a going concern overtime. By
accurately recognizing the environmental and social objectives and performance criteria, the
sustainability balance scorecard differs from the BSC in terms of architecture.

Essentially, Sustainability balance scorecard assist managers to identify purpose of the 3 categories of
sustainability by integrating economic, environmental and social issue factors, although other
performance metric approaches mainly focus on a single aspect of sustainability. Due to these
reasons, Figge et al. (2002) accentuate the potential of the sustainability balance scorecard for
combining business strategy management with sustainability strategy management. Furthermore,
instead of demanding for individual different performance management systems, the sustainability
balance score card combines all the three elements into a single integrated performance management
system (e.g. separate financial, social, and environmental performance management systems).
Scholars have created sustainability balance scorecard blueprint on these concepts concepts (e.g.Figge
et al., 2002; Hansen and Schaltegger, 2012; 2016; Kang et al., 2015; Lu et al., 2018).

However, traditional balance score card has plethora of disadvantages, of which one of these
disadvantages is that the balance scorecard accepts only three market stakeholders: shareholders (from
a financial perspective), customers (from a customer perspective), and employees (from an internal
business process and learning and growth perspective). The other two important non-market
stakeholders that are connected to sustainability, environment and social issues are disregarded by the
traditional balance scorecard. The active voluntary involvement of a business to the environment,
social and economic growth is defined by the complex word ”sustainability”.

Moreover, the implementation of environmental and social issues must be strategically integrated into
the organizations business plans, Figge et al. (2002) postulates including a non-market perspective to
BSC. In that research, a method of combining sustainability into the assessment of business success is
developed. The sustainability balance score card (SBSC) does not only help in the detection of social
and environmental strategic factors but also augment the process of strategy implementation.

However Figge et al.(2002) simply provided theoretical probability without any empirical supporting
substantiation (Kang et al., 2015). According to Figge et al. (2002), the SBSC addresses the
limitations of the traditional BSC by combining environmental and social factors. The four key
components of the BSC approach – financials, internal business process, customers and learning and
growth are utilized to implement an hierarchy of strategic goals. The complete evaluation approach of
BSC (balance scorecard) combines financial and non-financial metrics to establish a connection
between many perspectives.

Furthermore, social and environmental perspectives have been neglected. Hence, it has been advised
to utilize the SBSC framework to assess the organizations performance after taking sustainability-
related metric into consideration. The sustainability balance scorecard (SBSC) is created to identify an
organization’s strategic social and environmental goals and to increase the potential value added from
a social and environmental perspectives. Research as shown that SBSC is an important management
technique or tool for raising corporate responsibility awareness (Tsalis et al, 2013). Scholars and
professionals alike have utilized the SBSC to define the effective methods for integrating social,
environmental, economic views and governance into a whole structure for assessing sustainability
performance (Radu, 2012; Lu et al, 2018).
Conclusion

If the idea is not correctly interpreted but conversely denoted as a way to sustainability –oriented
organizational development, it is believed that SBSC will be a potential framework for combining
strategy and sustainability in organizations.

Recommendations

SBSC (sustainability balance score card) should serve as a training and learning process that involves
the strategic management approach being modified, the SBSC being reformulated, and the
organization's increasing understanding of corporate sustainability.

SBSC should be properly understood to have organisational growth that is focused on sustainability.

Group objectives Performance Measure Desired Leading/Lagging

Change

Financial Perspective

Market leader in uk Uk market share + Leading

Market leader in Europe Europe market share + Leading

Profit Underperformed profit - Lagging

expectation

Company share price Share price fallen in 1999 is - Lagging

 £8.75 to £6.24 in 2022

Customer Perspective

Trading fairly and honestly Fairly and honesty + Leading

Responsive to customer’s needs, Improve, Satisfied + Leading

market changes customer needs and they
are coming back

Respect for cultural diversity stakeholders + Leading

across company stakeholders

Delivery of product to Improve delivery + Leading

customers

Customer supply of product Preferred supplier status + Leading

from warehouses in Europe or
UK

Developing strong relationship Relationship + Leading

Internal Business Processes

Perspective

Storage of product Improved storage + Leading

Underperformance of newly Underperformance - Lagging

acquired business disposed

Business strategy High level of good will + Leading

Learning and Growth
Perspective

World class employers Recognised world class + Leading

employer

Warehouse in UK and Europe Storage all over the world + Leading

for storing fish and meat product

Distribution and delivery of Delivery fleet of fish and + Leading

product in UK and Europe meat product from
suppliers around the world

Employing committed people Employment and training + Leading

and training to develop their
skill

Division objectives Performance Measure Desired Leading/Lagging

Change

Financial Perspective

Investment Return On Investment + Leading

Gearing ratio from 15% to 45% Increase Gearing ratio + Leading

from 15% to 45%

Customer Perspective
Adherence to ethical standard Highest ethical standard to + Leading
both internally with respect to suppliers
supplier relationship

Promotion of product quality Product quality and safety + Leading

and safety

Internal Business Processes

Perspective

World class storage and Promotion of World class + Leading

distribution services storage

Distribution of services that Exceeding service + Leading

exceed the standard of the distribution standard of the
suppliers and consumers suppliers and consumer

Environmental damage through Least environmental + Leading

emission, waste management damage

Employing recycling activities Employing environmental + Leading

performance management
method
Learning and Growth
Perspective

Provision of high level of staff High level of staff training + Leading

training and development

Strong concentration on safety Safety management + Leading

management

Fixed asset such as vehicles Upgrade of fleet to electric + Leading

vehicle is 20%

References

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