Tesco financial ratio analysis 2016

Strategic Financial Management

You have recently attended a workshop aimed at improving your understanding of company Annual Reports using Tesco’s report as an example.

During the workshop you looked at the following sections of Tesco’s annual report:

The Strategic Report including the Environmental and Social Review,

The Corporate Governance Report and,

The Group Statements of: ‘Income’ (also sometimes referred to as the Statement of Profit and Loss) ‘Balance Sheet’ and ‘Cash-Flows’.

You learned about how different ‘stakeholders’ may use the information contained in these reports and financial statements. You also learned about financial ratios and how these can be used to interpret and assess the performance of a business in terms of its profitability, liquidity, efficiency and return to investors.

The timing of the workshop was very fortuitous. You are the Purchasing Manager for the business you work for. You are in the process of letting a contract for the supply of an important component used in your business’s production. You have been provided with the financial statements of Benedict Co. who are one of a few companies tendering for the contract. The income statement and statement of financial position have been reproduced below.

As well as reviewing the financial statements of Benedict Co. from a potential customer perspective, you are interested in how the company may be viewed by potential investors, lenders and suppliers.

You have also collected the following information about other companies operating in the same sector as Benedict Co.:

Current ratio: 1.6

Quick ratio: 1.0

Trade receivable days: 55 days

Inventory days: 60 days

Trade payable days: 90 days

Dividends of $4.5 million were paid in 20X1 and $3.6 million in 20X0. Shares in Benedict Co. had a market value of $5.60 at 31 January 20X1 compared to $3.60 in 20X0. Benedict Co. has issued 18 million $1 shares.

Required:

Prepare a report for your manager which:

1) Using the Annual Report of Tesco available at the following link:

https://www.tescoplc.com/media/264194/annual-report-2016.pdf

a) Explains the term ‘stakeholder’ and identifies three types of stakeholder of Tesco. (15%)

b) Analyses how the Environmental and Social Review and the Corporate Governance Report help Tesco demonstrate its performance in terms of its corporate and social responsibilities to two of the stakeholders identified in a) above.

(35%)

2) Analyses and evaluates the financial position of Benedict Co. using a range of financial ratios to meet the requirements of potential customers, investors, lenders and suppliers. Your analysis should:

a) Explain the purpose and relevance of the chosen ratios.

b) Include the results for each chosen ratio and reasons for the movement between the two years.

c) Highlight any aspects of the performance of Benedict Co. which would give cause for concern.

d) Critically evaluate the application of financial ratios in interpreting and measuring the performance of a company.

All calculations should be shown in full as an appendix to the report.

(40%)

Marks are available for the presentation of your report including structure, style and the presentation of referencing.

(10%)

Total 100%

Assessment guidance

Your report should be word processed, clearly laid out and concise and should be supported by appropriate workings for the numerical elements. The word limit for the report is 3,000 words.

The text of this assignment must be in your own words (not even a sentence or phrase should be taken from another source unless this source is referenced and the phrase placed in quotes). Referencing should in accordance with the Harvard System.