Financial Performance Analysis and Ratios

This assignment focuses on understanding and analyzing financial performance through the lens of various financial ratios. It requires students to delve into the concepts and significance of financial performance in guiding business decisions. The provided text comprises research papers and articles discussing diverse applications of financial ratio analysis across different industries and contexts.

PROPOSAL

Table of Contents
TITLE: ''An analysis and evaluation of the business and financial performance of Tesco''............2
Background of the study ........................................................................................................2
Research aim and objectives..................................................................................................2
Research questions.................................................................................................................2
LITERATURE REVIEW................................................................................................................3
RESEARCH METHODOLOGY.....................................................................................................7
RESERACH [PLAN FLOW CHART ..........................................................................................12
Contribution to knowledge ..................................................................................................12
REFERENCES..............................................................................................................................13
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TITLE: ''An analysis and evaluation of the business and financial
performance of Tesco''
Background of the study
Financial performance is the measure which provides deeper insight about the extent to
which company effectively makes use of their financial resources. Usually, investors make
assessment of the financial health and performance of the firm before making any investment. In
this, ratio analysis helps investor in assessing the return which they will get by investing money
in the business operations of respective organization. Retail industry is highly growing and
attractive sector so investors prefers to invest their money in it. Thus, the present proposal is
based on Tesco which is the major British multinational retailer of UK. It provides deeper insight
to the existing and potential investors about the financial position of the firm.
Research aim and objectives
In order to conduct the present study in an appropriate manner, researcher will be
required to assess the aim and objectives of the study. In the present investigation, researcher aim
is to make an analysis and evaluation of the business as well as financial performance of Tesco.
Further, objectives of the research are enumerated below:
 To provide information to the potential investors about business and financial
performance of Tesco with an aim to encourage investment.
 To offer valuable information to several stakeholders about return on equity, dividend,
etc. that provides assistance to them in making effective decisions.
 To make comparison of the financial health and performance of Tesco with its competitor
such as Sainsbury that helps investors in making suitable decision.
Research questions
With an aim to carry out the present research in the best possible manner, researcher will
be required to frame suitable questions by taking into account the objectives of research.
Through this, researcher will be able to derive suitable solution of the research issue.
Q.1 Is investment of the shareholders used by Tesco in an efficient manner?
Q.2 What is the extent to which stakeholders are suffered from the monetary risk?
Q.3 Which company either Tesco or Sainsbury has made optimum utilization of its financial
resources to a large extent?
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Q.4 Will Tesco be able to attain success in the upcoming years or in future?
LITERATURE REVIEW
It is the most significant part of the research proposal or dissertation in which researcher
makes review of the academic theories and aspects. Besides this, researcher also evaluates the
secondary sources such as journals and research papers to gain deeper insight about the research
issue. Through this, researcher will be able to assess the gap which is mentioned in existing
studies. With the help of this tool or technique researcher would become able to enhance the
effectiveness of his/her study.
Significance of the business and financial performance to the stakeholders
Financial performance is the most effectual measure which provides deeper insight about
the extent to which business unit has made optimum utilization of the resources (Financial
Performance - Understanding its Concepts and Importance, 2016). Financial performance of the
firm indicates profitability and liquidity aspect of the firm. By assessing such aspects finance
manager of the firm is able to make suitable business or investment decisions. Moreover,
stakeholders such as management, employees, financial institution, government and shareholders
have high level of interest in the business and financial performance of the firm (Hörl and et.al.,
2013). According to the view points of Sugimoto, 2015, management of the firm make
assessment of financial performance to identify the growth which take place in the sales and
profitability aspect. By this, management of the firm is able to make suitable decision for the
future. However, it is to be critically evaluated by Togashi, 2015, that by making comparison of
the current performance with the previous one manager cannot assess his financial or business
performance to the significant extent. Moreover, market conditions such as inflation or deflation
also have high level of influence on the growth and profitability aspect of the firm. For example:
During inflation, purchasing power of the customers has increased. Due to this, sales and
revenue aspect of the firm also increases. In addition to this, there are also several other factors
such as changes in the market trends and demand of customers which closely influence the
financial position of organization. Thus, only comparing the current financial performance with
the previous year cannot evaluate the strategies and policies of firm. Thus, to evaluate the
business and financial performance manager of the firm also needs to make comparison of its
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performance with its competitors. Therefore, by presenting the fair view of the financial aspects
business unit is able to build or develop faith in the mind of stakeholders.
Hu and et,al., 2012, said that shareholders are also the one who have keen interest in the
business and financial performance of the firm. Moreover, shareholders invest fund in the
functions and operations of the firm with the aim to get high return. Thus, they make assessment
of the financial statements of the corporation to evaluate the extent to which financial aspect of
the firm is sound. Through this, shareholders are able to make suitable investment decisions.
Hörl, 2013, argued that shareholders can make suitable investment decision only when they
make comparison of the ratios with the competitors. Moreover, in the competitive business arena
shareholders have number of option in which they can easily make investment.
In accordance with the view points of Liao, 2012, suppliers and financial institutions
make evaluation of the business performance of the before giving any financial assistance to
them on credit. Financial performance of the firm provides insight about the extent to which
corporation is able to repay the amount of loan within the suitable time frame. Moreover,
suppliers are highly concerned about the time which will be taken by the firm in returning back
the amount of loan. On the basis of this aspect, it can be stated that business and financial
performance provides assistance to the stakeholders in making most profitable decisions about
future.
Ratio Analysis
Ratio Analysis is a quantitative analysis of the information which is contained within the
financial statements. The whole analysis is based on the major financial statements such as
balance sheet, income statement and the cash flow statement. It is applied to evaluate the
business position of an organization in terms of profitability, liquidity, solvency and efficiency.
The trends related to the rations are studied in order to check whether the performance is
improving or deteriorating. It is considered as the cornerstone of the fundamental analysis. It is
also considered very useful in interpreting the numerical relationships based on the statements.
The technique is a statistical yardstick which offers a measure of relationship between the two
variables of figures. The relation can be expressed as a percent or as a quotient. It can be said
that ratios are simple to calculate and easy to understand.
Classification of the ratios:
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The ratios belong majorly to the following categories:
Liquidity ratios – These tools measure the adequacy of the current and liquid assets. It
determines the potential of the company in paying its short term debts. It is frequently referred as
the short term solvency position within the business (Fadare, 2011). Creditors such as banks,
suppliers etc make use of liquidity ratios in order to find out whether firm has adequate liquid
cash to meet the current obligations. The financial institutions do not consider providing loans to
the companies with weak liquidity position.
Profitability Ratios – It is evident that profit is the primary objective of every entity. In
order to survive, constant improvements in sales and profitability are required (Doğan, 2013).
These kinds of ratios measures the efficiency of the company related to utilization of resources in
earning profits. High profits are needed to pay dividends and to reinvest some portion for
expansions.
Activity ratios – These ratios measures the efficiency of the organization in generation of
revenues through transforming the production into sales. It shows how frequently the assets are
being converted into the sales. Fast conversion rate indicates the sign of high profitability and
sales.
Solvency ratios – These determines the potential of the company to survive for a long
period of time. The ratios are considered very important from point of view of stakeholders and
creditors. It becomes easy to analyze the capital structure of company (Kumbirai and Webb,
2010).
Limitations of the ratio analysis
According to Liao and et.al., (2012), it is always challenging to identify appropriate
standards in case of ratio analysis. The conclusions which are derived from this tool are no better
than the standards against which they are compared. Comparison becomes difficult when two
companies are substantially of different size, scale and nature. Here the judgment becomes very
difficult for the users.
According to Banerji, (2013), ratio analysis evaluates the performance on the basis of
historical figures. The figures which are evaluated belong to the past performance. Hence there is
no indication about the existing and future problems.
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According to Sugimoto and et.al., (2015), ratios also do not provide appropriate answers
to the financial issues. A questions related to judgment always arises that what importance
should be given to the numbers. This thing creates many difficulties for the users of the ratios.
Study source Main aspects Type of ratios Findings
Hörl and et.al., (2013) Financial performance
of the firm is
significantly important
for stakeholders in
terms of decision
making.
Liquidity, solvency
and profitability ratios.
Stakeholders become
able to take most
profitable decisions by
making analysis of
financial statements.
Hu and et.al., (2012) Stakeholders such as
supplier, lenders,
employees etc. can
take suitable decisions
by making analysis of
financial performance
through ratios.
According to the
requirements. For
instance: bank makes
assessment of
solvency aspect before
providing loan.
Stakeholders can
maintain effectual
relationship between
risk and return.
Banerji (2013) Historical figures All the ratio are
calculated on the basis
of historical figures.
Decision making
aspect of stakeholders
are affected.
Moreover, on the basis
of past information
business unit cannot
predict future
performance.
Fadare (2011) Bank and investors Liquidity and solvency
ratios
Helps in assessing
company's ability in
relation to meeting the
financial obligations
Doğan (2013) Shareholders and Profitability ratios Analysis of net profit
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employees gained by firm during
the year.
Kumbirai and Webb
(2010)
Higher management Activity ratios Managers can make
modification in the
strategic framework
according to the
outcome of activity
ratios.
RESEARCH METHODOLOGY
In order to conduct investigation in the right direction it is required for the scholar to opts
suitable research approach according to the study. In this regard, there are mainly two types of
philosophies such as inductive and deductive. Selection of research approach is highly based
upon the investigation which will be carried out by the researcher (Hamdan, Suhaila and Jemain,
2013). To assess the business and financial performance of Tesco, researcher will make use of
deductive approach. Moreover, in the present study, quantitative investigation will be carried out
by the researcher. Thus, deductive approach will provide high level of assistance to the
researcher in the collection and analysis of data to a large extent.
To conduct study in a right direction, researcher is required to make assessment of the
nature of research. By assessing the nature of research, researcher will be able to conduct study
in an effectual manner (Weigold, Weigold and Russell, 2013). Moreover, selection of the data
collection and analysis of the research is highly influenced by the type of investigation carried
out by the scholar. Descriptive, exploratory as well as hypothesis testing are the main types of
research which researcher will be employed in his or her own study. In the present investigation,
exploratory research will be employed by the researcher. With the help of such investigation,
researcher will be able to conduct in-depth analysis of the issue.
It refers to the process which assists scholar in the collection of suitable amount of data.
Through this, researcher is become able to draw valid conclusion or result by making analysis
of data. There are mainly two types of research philosophy such as interpretative and positivism
(Banerji, 2013). In order to assess the business and financial performance of Tesco, quantitative
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investigation will be conducted by the researcher. Thus, for the present study, researcher will
undertake positivism philosophy which helps in fulfilling the objectives of research. In this,
researcher will analyze the facts as well as figures and thereby, present fair outcome of the study.
Research design may be served as a strategic tool which is employed by the scholar for
conducting investigation in the right direction. Through this, scholar become able to present the
suitable outcome of the investigation. Qualitative and quantitative investigation is the main two
types of investigation which researcher can use to find out the suitable solution of research issue
or problem. In qualitative investigation, researcher places emphasis on the qualitative aspects or
characteristics (Friend and Jessop, 2013). On contrary to this, in quantitative investigation,
researcher makes evaluation of the numerical facts and figures. Thus, with an aim to assess the
business and financial performance, quantitative investigation will be conducted by the
researcher. For the present investigation, researcher will employ competent strategies which help
in conducting research in the best possible manner. On the basis of this aspect, researcher will
clarify all the steps which he or she will undertake for the accomplishment of research. This
aspect prevents confusion in the mind of researcher. Through this, researcher is able to perform
each and every part of the research in an efficient way.
Outcome of the research is highly influenced by the techniques which are adopted by
researcher for the collection and analysis of data. There are specifically two types of data namely
primary and secondary. Primary data implies for those information which are gathered by the
researcher in accordance with the research issue or purpose (Friend and Jessop, 2013). On
contrary to this, secondary data consists of that information which is collected by some other
authority. Sources of secondary data include books, journals, articles, research papers and
government records. In the present study, researcher secondary data sources will be undertaken
by the researcher for data collection. To assess the business and financial health or performance,
researcher will undertake annual financial statements which are published by the government at
the end of accounting year. In addition to this, researcher will also access to the website of Tesco
and Sainsbury in order to gather suitable amount of data for the investigation. Thus, secondary
data will provide high level of assistance to the researcher in making evaluation of the business
and monetary performance of Tesco.
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Along with data collection, researcher also needs to select suitable techniques to analyze
the data which is gathered by him or her. Data analysis technique is also highly affected by the
type of investigation which will be undertaken by the firm. In the present study, quantitative
investigation will be used. Thus, researcher will conduct ratio analysis to analyze all the
quantitative data which are collected by him/her.
Researcher can present the fair solution of the research issue only when it makes analysis
of data in an appropriate manner. In the present study, thematic perception technique has been
used by the scholar to analyze the secondary data. In this, by making suitable themes according
to the research objective scholar can present the outcome of issue more effectively and
efficiently.
During the investigation there are issues namely ethical and accessibility will be faced by
the researcher. In secondary research, scholar will be required to make proper citation of the
source from which data is gathered by him/her. It is one of the mains ethical issue which have
high level of influence upon the outcome of research. Thus, researcher will be needed to give
credit to the author or sources from which data is gathered by him/her. This aspect will reflect
that research is being conducted by the scholar in an ethical manner.
In addition to this, there are several accessibility issues which will be faced by the
researcher during the investigation. In order to collect secondary data sources online websites
will be used by the researcher. In this, there are most of the sites which are restricted or required
long procedure for logged in. Besides this, lack of authenticate websites or data is also the main
factor which creates problem in the collection of suitable data. In order to overcome such issues
researcher will gather data from the website of the company which is protected by copyright.
Further, permission is being taken by researcher before accessing the sites. By this, researcher
would be able to gather the latest and appropriate data for the present study.
During the preparation of plan researcher have identified that there are several limitations
which are present in the ratio analysis. Thus, researcher is required to keep in mind all the
solicitations while doing ratio analysis. Moreover, unavailability of the appropriate financial
data is one of the main factors which hamper the effectiveness of research study. Hence,
researcher needs to make focus on the collection of appropriate secondary data. Through this,
researcher wold become able to offer valid result or outcome of the study. Besides this, it can be
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concluded that research approach, philosophy and other strategies provide assistance to the
researcher in drawing the suitable outcomes.
Time frame
Researcher also needs to make an effectual time frame which entails the amount of time
which will be taken by him/her while performing each activity of the research. In the dynamic
and strategic business arena, researcher can build or sustain competitive edge only when he or
she presents the outcome of study within the predetermined time period.
Project activities Time period (in quarter )
Understanding the topic 2
Literature review 2,3
Examination of findings of LR 2, 3
Determination of aims and objectives 2,3
Making proposal 3, 4
Setting RM 5, 6
Analysis of data 7, 8, 9
Assessment of findings 9, 10
Making final report 10, 11
Submission of the report 12
Justification of the plan: In the first researcher will take one quarter or lesser for the
preparation of proposal for the investigation. Thereafter, in the second quarter secondary data
sources would be critically evaluated by the researcher. In the third quarter researcher will make
efforts to set the appropriate aims and objectives for the investigation. In the fourth quarter
researcher will frame suitable methodology by taking into consideration the aims and objectives
of the study. On the basis of this aspect researcher will gather suitable data from the secondary
sources in the 5th and 6th quarter. After this, researcher will analyze all the data which is gather by
him. This analysis will require the time period of 7 and 8 quarter. With the help of analyzed data
researcher will draw valid conclusion in the 9th quarter. This section requires whole quarter
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because it represents specific information or outcome which is derived by the research through
the investigation. In the 10th quarter researcher will draw the aspects which Tesco plc needs to
improve. Beside this, researcher will also entail the way through which firm needs to adopt to
flourish its business and financial performance.
Network diagram and Gantt chart will be prepared by the researcher for the effective
implementation of plan. This chart and graphs clearly represents the extent to which activities of
the projects are interrelated with each other. It provides deeper insight to the route which will be
followed by the researcher for the accomplishment of project within the suitable time frame at
low cost.
Activity/quarters (3 months) 1 2 3 4 5 6 7 8 9 10 11 12
Understanding and evaluating the varied
aspects of research project
Conducting literature review for getting deeper
insight about the research topic or issue
Examining the findings of the several
researchers for preparing thesis for the study
Setting aims and objectives for conducting
research study in the right direction
Outlining the proposal of research project
Framing research methodology
Analysis of secondary data
Determining findings, drawing conclusion and
giving recommendations
Creation of final report in a structured manner
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Submission of report
RESERACH [PLAN FLOW CHART
Contribution to knowledge
The present study will provide in-depth knowledge about the manner in which ratios
assist stakeholders in making suitable and profitable business decisions. It will offer appropriate
findings about the areas of ratios and its limitations. This study will provide stakeholders with
the wide framework which helps them in making decision about the investment. Along with this,
each ratio offers valuable information to the stakeholders. In this regard, researcher has defined
each and every ratio in a well defined manner along with its importance. By considering such
aspects stakeholders namely suppliers, employees, lenders and investors etc. can make effectual
decisions which aid in their growth and profitability. Along with this, scholar has also
highlighted the limitations due which influences the appropriateness of stakeholders decision.
Besides this, in this study limitations and significance of ratios are critically evaluated by the
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scholar. In this way, such study will provide stakeholders with deep analysis which helps them in
decide whether they should invest money in Tesco's business operations or not.
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of Economics and Finance. 3(5). p. 3.
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the lymph node ratio: analysis of 4,172 patients from multi-institutional database in Japan.
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Togashi, H. F. and et.al., 2015. Morphological and moisture availability controls of the leaf area‐
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Online
Financial Performance - Understanding its Concepts and Importance, 2016. [Online]. Available
through: <http://www.simplilearn.com/financial-performance-rar21-article>. [Accessed
on 21st March 2016].
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