Business Analysis of Tesco

Running Head: Business Analysis of Tesco Plc
Business Analysis of Tesco Plc
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Author Note

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Business Analysis of Tesco Plc
Table of Contents
1.0 Introduction.....................................................................................................................3
1.1 Report objectives.........................................................................................................3
1.2 Case context of analysis..............................................................................................3
1.3 Overview of Organization...........................................................................................3
1.4 Current key issues and rationale for choosing the organization..................................4
2.0 Financial analysis including benchmarking....................................................................4
2.1 Profitability Ratio........................................................................................................4
2.2 Liquidity Ratio.............................................................................................................7
2.3 Leverage Ratio.............................................................................................................9
2.4 Investors Ratio...........................................................................................................10
3.0 Strategic analysis...........................................................................................................12
3.1 Macro environmental analysis – PESTEL................................................................12
3.2 Micro environmental analysis – Porter’s 5 forces.....................................................13
3.3 Key performance indicator........................................................................................15
4.0 Proposed strategy – Ansoff matrix................................................................................17
4.1 Market penetration.....................................................................................................17
4.2 Market development..................................................................................................17
5.0 Limitations of strategic analysis....................................................................................18
5.1 Limitations of PESTLE model..................................................................................18
5.2 Limitations of Porter’s five forces.............................................................................18

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Business Analysis of Tesco Plc
6.0 Conclusions...................................................................................................................18
6.1 SAF analysis..............................................................................................................18
7.0 Recommendations modelling........................................................................................19
7.1 Scenario forecasting – Best case scenario.................................................................19
7.2 Scenario forecasting – Worst case scenario..............................................................20
8. References...........................................................................................................................22
9. Appendices...........................................................................................................................24
9.1 Appendix-1.....................................................................................................................24
9.2 Appendix-2.....................................................................................................................25

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Business Analysis of Tesco Plc
1.0 Introduction
1.1 Report objectives
The main focus of the report is carrying on an investigation on the financial and the
strategic position of Tesco Plc, which is the third largest retailer in the world. The financial
analysis includes the profitability, liquidity, leverage and investor analysis. Furthermore, the
strategic analysis discusses about the Porter’s five forces and the PESTLE framework’s
economic and social factors and the important KPIs of the organization.
1.2 Case context of analysis
The analysis of Tesco Plc has been performed considering the financial and strategic
analysis. The financial analysis has been performed in two ways. The first analysis has been
performed using the five years’ data (2015-2019) of Tesco for evaluating the profitability,
liquidity, leverage and investor ratio taking into account the industry standard as benchmark.
The second analysis has been conducted considering the major competitors of Tesco which
are Sainsburry and Morrison. The financial data of the financial year 2019 of these
companies have been used as a benchmark for making a comparison with Tesco. On the other
hand, the strategic analysis have been performed discussing about the Porter’s five forces and
the PESTLE framework along with the six important key performance indicators of Tesco
according to the annual report of Tesco.
1.3 Overview of Organization
Tesco Plc popularly known as Tesco is a public limited company operating in retail
industry with headquarter in Hertfordshire, England, United Kingdom. It is a British
multinational groceries and retailer of general merchandiser. It has been positioned as the
third largest retailer in the word as per gross revenues and ninth largest retailer in the world in

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Business Analysis of Tesco Plc
terms of revenues. Tesco was founded in the year 1919 by Jack Cohen and it has shops across
Asia and Europe and it is the market leader of groceries in U.K (Tesco PLC. 2019).
1.4 Current key issues and rationale for choosing the organization
During F.Y 2011 Phil Clarke became the chief executive of Tesco before the
announcement of the record profits which amounted to £3.8 billion. The price cutting plan
was announced in this year but this strategy failed as the customers were not convinced with
the savings on offer. There was fall in the UK profit during 2012 due to its loss making
business in USA following with its first annual profit drop in the last 20 years in 2013.
Furthermore, it experienced drop in the market shares of 28.7% in 2014, the lowest level in
the decade (BBC News. 2019).
2.0 Financial analysis including benchmarking
2.1 Profitability Ratio
The profitability ratio consists of financial metrics which help in the assessment of the
ability of the business for the generation of earnings with respect to shareholders’ equity,
assets, revenue and operating costs. It also helps to assess the use of the company’s existing
assets for generating profit and the value of the shareholders (Agha 2014). The profitability is
mainly measured with respect to return on assets and it can be improved either with the
improvement of profit margin or with the generation of more amount of sales revenue.
Industry Benchmark

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Business Analysis of Tesco Plc
2015 2016 2017 2018 2019
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
4.70% 5.15% 5.40%
5.91%
6.60%
Gross Profit Ratio
Figure 1: Gross Profit Margin
The effectiveness and efficiency of managing the revenue and direct costs are
measured with the help of gross profit margin. Higher gross profit margin is better for the
organizations (Edwards 2016). According to the chart above, Tesco has a rising trend of gross
profit margin following the last five years (2015-2019). There has been increase in the
revenue was well for all these five years and from the financial viewpoint Tesco has
increased its amount of revenue and the gross profit margin but it is not up to the benchmark
as per the industry standard of gross profit which has been calculated as 16.19%.
Competitor Benchmark
Figure 2: Gross Profit Margin