Table of Contents
2.0 CORE Analysis.
2.1 Macro: PESTLE Analysis.
2.2 Micro: Porter’s Five Forces Analysis.
2.3 SWOT analysis.
2.4 Ratios analysis for Tesco.
2.6 Income statement, balance sheet and cash flow analysis of Tesco.
3.0 Management Accounting and Financial Management Techniques.
3.1 Management accounting techniques used by Tesco.
3.2 Financial management techniques used by Tesco.
Appendix: Ratio Calculation.
Making effective financial decisions and analyzing financial performance are major activities of a business. The financial performance of a business can be analyzed and measured using several techniques, where the key tool is financial ratio analysis (Elliott and Elliott, 2017). The financial ratio analyses also help businesses to make effective financial decisions including pricing strategies, financial structuring, and profit planning, which in turn support businesses to gain their organizational goals and objectives (Atrill and McLaney, 2015). This paper, first, analyses the situation of Tesco. Then, this paper analyzes financial ratios and gives an overview of Tesco businesses. Finally, this paper’s management accounting and financial management techniques used by Tesco are discussed and analyzed.
2.0 CORE Analysis
2.1 Macro: PESTLE Analysis
According to Silva (2016), PESTLE analysis is a tool that is mainly used in business organizations to evaluate the external environmental factors that impact the business organizations.
There are a number of political factors including several government policies; tax policy and the Brexit issue have a great impact on Tesco’s business (Thomas et al. 2017). Ben (2016) stated Brexit issue has created concerns for the management of Tesco because half of its food consumed in Britain (Sam, 2016).On the other hand, Tesco’s supply chain is particularly exposed to the uncertainties because of Brexit that may reduce profit resulting from high tariffs and block of procurement (Williams-Grut, 2016). In addition, tax policy also increased by 30% that affect Tesco’s business and profit margin greatly.
Tesco Plc in the UK is increasing their selling amount 2.4 times from 2014/15 to 2017/18 Dudovskiy (2016) agreed that currency rate of exchange, inflation, deflation, the policy of the government, and rate of unemployment is influenced by the activities of Tesco. The performance of Tesco also is affected by a number of macro-economic issues (Chand, 2018). The labor wage and salary have a great impact on the profitability of Tesco (Piana, 2015). At this moment the Tesco pays around GBP 4.5 billion for the wage sector. If the wage cost is increased by 1%, the labor cost will increase around GBP 45 million (Statista, 2018). The percentage of the minimum wage in the UK is increasing which has increased £495 million costs of Tesco (Farrell, 2015).
Customers are the main factor for the business and the success of a business depends on customer satisfaction. The buying capacity and confidence of customers are increasing rapidly. Retail sales or Tesco in the UK are happening online more than 20% and this increased in the first quarter of 2018. In the UK, Tesco has been changed the structure and strategies of the business process. Store closures, administration process and CVA of the retail industry have increased in 2018. It was found that about 4,400 net closures in the street of the UK in the first half of 2018 (Deloitte, 2018).
In 2018, the use of digital technology has increased and the business firm can connect with customers easily and influence their buying behavior. Tesco has increased digital technology in its business that helps to improve the condition of the physical store of business. It has been said that 2018 is the golden year for all the retail sectors including Tesco in the UK (Wood, 2017).
There are a number of legal factors (including several laws and rules) that affect business performance and customer behavior significantly. At this moment, Tesco is facing a great legal challenge from its women workers. According to Butler (2018), the women workers of Tesco said that they earned £3 less per hour compared to the male workers. As a result, a number of women workers of Tesco taking part in the legal challenge for equal pay that could lead Tesco to pay out £4bn. On the other hand, the horse meat issue has taken Tesco to the court because they provide horse meat in the burger instead of beef (Lawrence, 2013).
In the first quarter of 2018, winter storms have negatively affected the retail market including Tesco in the UK. Due to heavy snow and freezing, the distribution of products can’t be possible in Tesco. But second-quarter of 2018 has replaced this condition and helped to improve the overall condition of the retail market including Tesco of UK (ONS, 2018).
2.2 Micro: Porter’s Five Forces Analysis
Porter’s five forces model is a framework that evaluates the competitive position of a business organization evaluating five competitive factors operating in different areas of the market (Business Jargons, 2016).
Figure: Porter’s Five Forces model Source: Business Jargons (2016)
The threat of substitute products
The threat of substitute products in the retail market is much low for food items. In the food retail market, substitutes of the food retailers are the small convenience stores and organic shops that are not observed as a threat to the established supermarket including Tesco which offers high-quality products at affordable prices (Financial Times, 2015). On the other hand, the threat of substitutes in Tesco for non-food items including clothing is high.
The threat of entry of new entrants
The threat of entry of new entrants in the retail industry including Tesco is comparably low. It needs lots of capital in investments to be competitive and develop the brand name for a new entrant. A number of brands have captured the food retail markets including Tesco, Asda, Morrisons and Sainsbury’s and they account for 80% of any kind of shopping in the UK (Mintel, 2016). Thus, the threat of new entrants is very low for Tesco…………………………