Tesco's Corporate Social Responsibility

This assignment delves into Tesco's Corporate Social Responsibility (CSR) commitments, examining their strategies, initiatives, and impact. It further analyzes Tesco's financial performance using key metrics from their financial statements, considering both profitability and sustainability aspects. Additionally, the assignment explores external factors influencing Tesco's operations through PESTLE and SWOT analyses, highlighting opportunities and challenges in the dynamic retail landscape.

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Tesco’s Financial Performance and its
Business Environment
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ABSTRACT
Financial statement analysis may be served as tool, which indicates monetary position of
the firmpertaining to the specified time period. By using such tool business unit can assess
whether firm’s financial performance is improved or deteriorated over the time frame. This
report is based on Tesco Plc., which is the leading supermarket of UK. The main objective of the
present study is to analyze financial position,CSR initiatives and business conditions of Tesco
Plc. In this, mixed research type has been selected by the researcher to attain the aim and
objectives. In this, to analyze the business research issue secondary data sources has been
gathered by the researcher through the annual reports of Tesco Plc, books, journals and scholarly
articles. The scholar to present suitable solution of issue has conducted ratio, horizontal and
business analysis. . It can be summarized from financial evaluation that monetary position and
performance of Tesco Plc is not good.It can be seen in the report that political and economic
condition in the context of UK retail environment is good. However, for attaining success and
building distinct image in the mind of customers firm is required to lay focus on technological
advancements and aspect of environment sustainability.
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TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
1.1 Overview of the study............................................................................................................1
1.2 Research aim and objectives..................................................................................................1
1.3 Rationale of the study............................................................................................................1
1.4 Significance of the study.......................................................................................................2
2. LITERATURE REVIEW............................................................................................................2
Theme 1: Tools and techniques that help in analyzing financial performance...........................2
Theme 2: CSR initiatives and its importance for the business organizations like Tesco Plc......4
3. RESEARCH METHODOLOGY................................................................................................5
3.1 Research type.........................................................................................................................5
3.2 Data collection.......................................................................................................................5
3.3 Data analysis..........................................................................................................................5
FINDINGS AND ANALYSIS........................................................................................................6
Business analysis.........................................................................................................................6
4. FINANCIAL EVALUATION.....................................................................................................8
4.1 Ratio analysis.........................................................................................................................8
4.2 Horizontal analysis..............................................................................................................15
4.3 Tesco’s corporate social responsibility initiatives...............................................................18
5. CONCLUSION AND RECOMMNENDATIONS...................................................................20
5.1 Conclusion...........................................................................................................................20
5.2 Recommendations................................................................................................................21
REFERENCES..............................................................................................................................23
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TOPIC: To assess business environment and investigate financial performance and position of
retail firm: A study on Tesco Plc.
1. INTRODUCTION
1.1 Overview of the study
Financial evaluation may be served as a process of evaluating or summarizing annual
reports of firm through the means of ratio analysis. In the recent scenario, business units laid
high level of emphasis on evaluating financial performance with amotive to develop high
competent and strategic framework for the near future. Now, before makinginvestmentdecision
stakeholders make assessment of financial aspects. Outcomes of financial statement or ratio
analysis providein-depthinsight to the investors and stakeholders about extent to which
profitability, liquidity as well as solvency position of company is sound (Financial evaluation,
2017). Further, internal and external environmental factors also havesignificant impact on the
business operations as well as functions. The present report is based on Tesco Plc, whichis one of
the leading British multinational grocery and merchandise retailersof UK (TESCO Plc, 2017). In
this, report will shed light on the extent to which external environmental aspects of UK retail is
good. Besides this, it also entails the level to which financial performance of Tesco is improved
or deteriorated over the time frame. Report also depicts CSR policies and initiatives, which are
undertaken by firm for the welfare of others.
1.2 Research aim and objectives
Aim: Mainaim behind carrying out present study is to assess the extent to which financial and
non-financial position of Tesco Plc is good.
On the basis of above aim,the researcher has drafted following objectives:
 To analyze the financial performance of Tesco using horizontal and ratio analysis.
 To perform business analysis using SWOT and PESTELanalysis.
 To analyze the Tesco’s policy regarding Corporate Social Responsibility.
1.3 Rationale of the study
Rationalebehind doing present investigation is to evaluate the business and
financialperformance as well as CSR policies of Tesco Plc. It is considered as an issue because
after scandal,investors and other stakeholders believe that monetary position of Tesco Plc is not
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good.Earning higher returns from investment is one of the main motives of firm. Thus, the
current research will highlight on the extent to which financial position of Tesco Plc is
soundthrough ratio and horizontal analysis.
1.4 Significance of the study
The present study and its outcomes will prove to be highly fruitful for Tesco that in turn
helps it in developing competent policies for the upcoming time period. Along with this, business
and financial evaluation also assists stakeholders in taking suitable investment decisions. Further,
such study will also help other scholars in gaining understanding about such issue.
2. LITERATURE REVIEW
Literature review is the process that helps in preparing brief report as per the aims and
objectives of research. In this, scholar presents and summarizesthe findingsof other researchers
by making focus on both positive as well as negative aspect. In this, the researcher on ratio
analysis, external analysis and CSR has prepared several themes. Thus, for doing literature in a
prominent way, several books,journals and scholarly articles have been evaluated by the
researcher.
Theme 1:Tools and techniques that help in analyzing financial performance
According to the views of Temtime (2016), ratio analysis technique is highly effectual
which in turn helps in doing analysis of financial statements in a structured way. By using such
technique firm can getquick indication about the monetary performance in several areas such as
profitability, liquidity, solvency, efficiency and investment.However, on the critical note, Heikal,
Khaddafi and Ummah (2014) found that business conditions highly vary from one year to
another. Thus, in this, it is not possible to evaluate financial performance over the years by
considering the technique of ratio analysis. Further, Jami and Bahar (2016)identified that ratio
analysis technique enables firm to assess the areas of business operations that require
improvements. Hence, by using ratio analysis techniques firm can take strategic measure and
would become able to enhance monetary performance as well as position. Kastalli and Van Looy
(2013) argued that ratios arehistorical in nature because in this past data set is used or considered
for the purpose of evaluation. On the other side, the main motives of firm behind doing ratio
analysis are to take decision about the near future or upcoming time period.
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Laitinen (2017)assessed that by doing or performing ratio analysis firm can capture the
wide view and becomes able to get information about the extent to which performance of firm is
improved over the time frame. In contrast to this, Storey (2016)criticized ratio analysis technique
on the basis of the aspect that different companies pursue varied accounting rules. In this, it is
not possible for the business organization to evaluate its performance in against to the rival firm.
Sattar and et.al., (2017) entails that by doing analysis of profit margin, financial capabilities and
debt-equity position firm would become able to develop competent plan for the near future.
Hence, there are several ratios that can be undertaken by business organization to measure
financial performance isenumerated below:
Profitability ratios:It includes both gross and net margin, which in turn helps in analyzing
return that is generated by the firm during the accounting year over expenses. Hence, by dividing
gross profit from sales business unit can assess the margin earned in against to direct expenses.
In addition to this, NP margin helps in ascertaining the profit level over indirect expenses such as
salaries, rent etc.
Liquidity ratios:Nortey and et.al., (2016) stated in their study that liquidity ratio assists in
evaluating the capability of firmin relation to meeting obligations. Current and quick ratio is the
most effective measures that help in assessing howefficiently firm has managed its working
capital aspect or position. Hence, by using the following formulas firm can measure or evaluate
liquidity position.
 Current ratio: Current assets / current liabilities
 Quick ratio: Current assets – (stock + prepaid expenses) / current liabilities
Solvency ratios:In the study,Smith and et.al., (2017)depicted that solvency ratio helps in
ascertaining the extent to which financial needs are met by the firm through debt and equity.
Thus, by dividing total debt from the shareholders equitycompany can assess how solvent the
company is. In other words, it can be stated thatthrough calculating such ratio firm can assess or
evaluate its debt-equity mix.
Efficiency ratios: This measure helps firm in identifying the extent to which business
unit has made effective or optimum use of assets. The main motives of business organization is
to generate high revenue by making use of stock, fixed and total assets to a great extent (Tsai and
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et.al., 2016). Considering such ratios business unit can identify whether they are performing
activities in an appropriate manner or not.
Theme 2: CSR initiatives and its importance for the business organizations like Tesco Plc
According to the views of Suliman, Al-Khatib and Thomas (2016), CSR implies for the
initiatives or actions which are undertaken by the firm for the welfare of society. In the present
era, companies lay high level of emphasis on undertaking CSR practices which in turn help in
enhancing brand image and market share to a great extent. On the other side, Manning
(2017)described CSR policy functions as a self-regulatorymechanism that focus onmonitoring
business performance and complying with law, ethical standards as well as international norms.
Hence, CSR may be served as a management concept where companies integrate their concern
towards the social and environmental aspects with the business operations (Tai and Chuang,
2014).
Tran (2017) found and presented in their study that CSR is the approach through which
business unit achieves or attains balance of economic, environmental and social imperatives.
Hence, CSR may be served as a strategic approach that is undertaken by the firm to address or
meet the expectations of both investors and other stakeholders. Thus, it can be presented that
CSR refers to the attempt, which is made by the firm for making contribution in the global
sustainable operations (Turker, 2016). By making focus on the aspect of environmental
management, eco-efficiency, stakeholder management, compliance with labor standards,
working conditions and good governance business unit can do CSR.Zentes, Morschett and
Schramm-Klein (2017)mentioned in their study CSR initiatives and brand image, company’s
reputation are positively related with each other. Thus, it can be presented that by performing
activities in a sustainable way Tesco Plc can improve both brand image and market share.
Scholarly article presents that Tesco Plc encourages its customers and employees to
become moresocially responsible. Such retail unitplays a vital role and takes several initiatives in
relation to promotinguse of healthy food among the customers. Further, concerned retail unit has
taken initiatives and made best efforts in relation to fulfilling responsibilities towards the society
(CSR Initiatives at Tesco, 2014). Hence, list of CSR includes charitable activities, initiatives for
sustainable environment and operations etc. All such actions will help Tesco Plc in building
effective image over other retail units.
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3. RESEARCH METHODOLOGY
3.1 Research type
In the present investigation, the researcher has selected mixed research type. On the basis
of such aspect, by doing both qualitative and quantitative evaluation,business and financial
performance havebeen evaluated by the researcher.The reason behind the selection of
quantitative research is that solution of the concerned issue pertaining to the assessment of
financial performance of Tesco Plc is based on numeric data set.Hence, by analyzing numeric
figures, scholar has presented the extent to which financial position of Tesco Plc is good.Further,
by doing qualitative investigation, scholar has analyzed both internal and external factors in
context of Tesco Plc (Starman, 2013). Thus, by considering the research issues both qualitative
and quantitative type has been selected which in turn assists in meeting objectives to the
significant level.
3.2 Data collection
There are mainly two types of sources that can be used for data collection such as
primary and secondary.When scholar collects data, specifically for meeting the research aimand
objectives, through the means of survey, interview, observation,etc. then it is known as primary.
On the other side, secondary data sources contain books, journals and scholarly articles which in
turn implies for the findings of other researchers (Palinkas and et.al., 2015). In this, to analyze
the business environment and assessing financial performance of Tesco Plc,the researcher has
used secondary data sources. Hence, by evaluating journals and articles pertaining to strengths,
weaknesses, opportunities andthreats as well asexternal environmental factors data have been
gathered by the researcher. In addition to this, annual reports of TescoPlcpertaining to the year
2015 &2016have also been evaluated by the researcher to collect financial data set regarding
profitability, liquidity, solvency, etc.
3.3 Data analysis
In order to analyze the gathered data set,different financial techniques have been
undertaken by the researcher such as ratio and horizontal analysis. The rationale behind the
selection of ratio analysis technique is that it helps in evaluating monetary performance of firm
in terms of various categories such as profitability, liquidity, efficiency, solvency and
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investment. In this, outcomesof ratio have also been supported by the researcher through findings
of business analysis and graphical presentation (Ott and Longnecker, 2015). Along with this,
horizontal analysis is highly significant which in turn helps in evaluating improvements that take
place over the period of time.
FINDINGS AND ANALYSIS
Business analysis
SWOT analysis of Tesco
Strengths:
 Tesco Plc has built its strong presence across Europe, South and North America, North
African as well as Asian market.
 Multi-format strategy in the form of hypermarket, supermarket, discounting and
convenience store is recognized as a major strength of Tesco.
 High brand equity
 Wide offerings
 Reinforcement of UK market leadership
 Strong online presence
Weaknesses:
 Lack of or weak presence in other countries
 Negative media coverage and public image due to the recent controversies or scandal
 High reduction in margin due to high bad debt, credit card arrears and insurance claim of
households.
Opportunities:
 Firm has opportunity to explore business operations and functions in emerging market
through the means of acquisition and tie up. Hence, by expanding operations, firm would
become able to attain high margin (SWOT analysis of Tesco Plc, 2017).
 Along with this, by focusing more on innovative digital media, rebranding and private
label growth, firm can improve overall business performance.
Threats:
 Tesco Plcis facing heavy threats from other leading discounting retail stores such as
Morrison’s, ASDA, LIDL, ALDI, etc.
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 BREXIT will place direct impact on the operations of Tesco inboth monetary and non-
monetary terms.
 Rising cost of material pertaining to food and non-food items impacts the profit margin.
Interpretation of SWOT analysis
 Strengths: Tesco provides customers with the wide range of products or services
including both financial and non-financial. Hence, along with the grocery products Tesco
also offers insurance and banking facilities to the customers (TESCO Plc, 2017). In
addition to this, by offering discounts to the customers Tesco has built its effectual image
in several markets such as European, Asian etc.
 Weaknesses: By doing evaluation, it has found that currently Tesco is operating in only
13 countries. Hence, for enhancing customer base business unit needs to increase its
presence at global level (Tesco worldwide, 2018). Due to the accounting scandal and
quality related issues pertaining to the products or services negative media coverage were
faced by Tesco.
 Opportunities: Now, customers prefer to purchase labeled products or services as they
can be recognized easily. Further, by taking entry in the developing countries like
Tanzania etc Tesco can attain success and explore operations.
 Threats: From assessment, it has identified that after Brexit prices of the food products
will incline significantly. Considering this, it can be stated that Brexit will closely
impacts both sales and profitability aspect of firm (To go or not Tesco? Brexit’s Potential
Impact on the UK Food Industry, 2018). Further, positive image developed by Sainsbury,
Morrison, Waitrose etc in the mind of customers also impact business performance of
Tesco (Tesco makes the loudest noise in the media, with more coverage than Asda,
Morrisons and Sainsburys put together, 2018).
PESTLE analysis of UK retail industry
 Political factors:Tax policies that are set down by the government authorityhave high
level of impact on organizational profitability. In the present era, tax rates are moderate
which in turn places positive impact on the profit margin of British retailers including
Tesco Plc.
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 Economicfactors: In the recent times, UK economy is recovered from the situation of
economic crisis to some extent. It is a positive indicate which in turn places positive
impact on the growth and success of supermarkets including Tesco.However, after the
recessionary period customers become price conscious in nature and give preference to
the retailer that offers high discount. Thus, for stimulating demand and customer’s
decision making Tesco is required to provide customers with quality products at
discounted price level.
 Social factors:By doing assessment of social factors, it has assessed that, in UK, elderly
population is increasing with the very high pace. Ageing population prefers to purchase
quality and healthy food from the retailer who charges affordable prices (PESTLE
analysis of Tesco Plc, 2017). Thus, while determining marketing mix business unit needs
to keep in mind such factors.
 Technological factors: In recent times, technological advancements are taking place
within the business environment more frequently. Now, customers prefer to do online or
mobile shopping. In this regard, for the maximization of productivity and profitability
Tesco is required to strengthen its online presence.
 Legal factors:Laws and legislation arechanging with the very high pace pertaining to
agricultural aspects, food prices, safety and packaging, labor laws etc. Hence, for
ensuring smooth functioning of operations and building distinct image at marketplace
Tesco Plc is required to comply with changing rules and regulations.
 Environmental factors:Now, concern of customers and other stakeholders towards
environmental protection is increased with the very high pace. Hence, customers give
priority to retailers who perform business activities in a sustainable way. Thus, for
enhancing brand image as well as market share firm is required to carry out operations in
an eco-friendly manner and lays high level of emphasis on recycling.
4. FINANCIAL EVALUATION
In order to carry out financial evaluation, the researcher has done both ratio and
horizontal analysis.
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4.1 Ratio analysis
Ratio analysis of Tesco Plc for the period of 3 years isenumerated below:
Profitability ratio analysis
Particulars Formula 2015 2016 2017
Gross profit -2112 2854 2902
Net profit -5,741 138 -40
Sales revenue 62,284 54,433
(Financial
statements of
Tesco Plc,
2017)
55,917
GP ratio Gross profit /
net sales * 100
-3.4% 5.2% 5.2%
NP ratio Net profit / net
sales * 100
-9.2% 0.3% -0.1%
2015 2016 2017
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
Profitability ratios
in %
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Interpretation: Graphical presentation of profitabilityratios show that as compared to
2015, GP ratio of Tesco Plc improved and constant such 5.20%. In the accounting period 2015,
due to having high direct expenses such as 64396 GBP millionTesco Plc failed to generate
positive gross margin. Along with this, in the upcoming time period, sales revenue of company
decreased and GP margin was also not good. Decreasing sales pattern can clearly be supported
with the findings of business analysis, which shows that now majority of the leading retailers, are
offering heavy discounts to the customers.Further, negative media coverage and public image is
another main cause behind decreasing sales and lower profit margin (Tesco to pay £129m fine
over accounting scandal, 2018). SWOT analysis section also presents that Tesco Plc failed to
build its strong presence in other countries, whichin turn places negative impact on sales and
profit margin. By doing external environmental analysis it has found that now customers make
focus on purchasing quality products at affordable prices. Due to all reasons company failed to
generate high gross margin irrespective of having control on direct expenses.
Further, tabular presentation depicted above clearly shows that NP margin of Tesco Plc
was negative in FY 2015 and 2017. Only in 2016, the firm generated positive margin of 0.3% but
it was highly lower. Through financial statement analysis, it has found thatdue to the high level
of indirect expenses firm failed togenerate suitable margin in three concerned years taken into
consideration for evaluation. The main reasons behind decreasing level of profit margin are high
interest and other expenses (Tesco PLC financials, 2018). Thus, firm is required to take strategic
measure for reducing the level of expenses and enhancing profit margin.
Liquidity ratio analysis
Particulars Formula 2015 2016 2017
Current assets 11,958 14,828 15,417
Current liabilities 19,810 19,714 19,405
Stock 2957 2430 2301
Prepaid expenses 516 440
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Quick assets (CA –
(inventory + prepaid
expenses)
8,485 11,958 13,116
Current ratio Current assets /
current
liabilities
0.60 0.75 0.79
Quick ratio Quick assets /
CL
0.43 0.61 0.68
2015 2016 2017
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Liquidity ratios
Interpretation: Outcome of ratio or liquidity analysis shows that current ratio of Tesco
Plc improved over the time frame. In the accounting year2015, current ratio was .60:1, whereas it
reached on .79:1 at the end of 2017. In comparison to ideal ratio such as 2:1, it can be said that
company is not highly capable in relation to meeting its obligations from current assets. The
rationale behind decreasing level of liquidity was reduction in other current assets from 8006
GBP million to 5998 GBP million at the end of 2017 (Tesco PLC financials, 2018). Thus, Tesco
Plc is required to exert control on expenses and need to make focus on maintaining enough cash
and its equivalents as well as other current assets that helps in meeting liabilities on time. This in
turn ensures improvement in the liquidity position and performance.
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Further,by doing analysis of statement of financial position it has assessed that quick ratio
of Tesco Plc hasincreased from .43:1 to .68:1 in the year of 2017. On the basis of ideal ratio or
standard such as .5:1, business unit needs to maintain 1 asset that can be converted into cash for
meeting current obligations. Referring the ideal measure, it can be presented that business unit
has maintained enough quick assets within the firm. On the basis of overall evaluation, it can be
said that Tesco plc needs to take action for making improving the liquidity position as now it is
not good.
Efficiency ratio analysis
Particulars Formula 2015 2016 2017
Total assets 44,214 43,904 45,853
Sales revenue 62,284 54,433 55,917
Fixed assets 32,256 29,076 30,436
Stock or inventory 2957 2430 2301
Cost of goods sold
(COGS)
64,396 51,579 53,015
Inventory turnover
ratio
COGS / inventory 21.78 21.23 23.04
Total assets turnover
ratio
Net sales revenue /
Total assets
1.41 1.24 1.22
Fixed assets turnover
ratio
Net sales revenue /
Fixed assets
1.93 1.87 1.84
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2015 2016 2017
0
5
10
15
20
25
Inventory turnover ratio
Total assets turnover ratio
Fixed assets turnover ratio
Interpretation: By doing assessment, it has identified thatinventory turnover ratio
ofTesco Plc is inclined from21.78 to 23.04 times in the accounting period 2017. This is good
indicator for the firm, which in turn shows that inventory is sold and replaced by the firm more
frequently.Such finding can clearly be supported with strengths of Tesco Plc such as wide
products or services, high brand equity and strong online presence. However, still for making
improvement in such ratio Tesco Plc is required to undertake stockmanagement tools and make
focus on promotional aspects.
Column graph presents that fixed assets turnover ratio of Tesco Plc declined from 1.93 to
1.84times in the financial year 2017. This aspect shows that business unit failed to generate
optimum return or sales by using fixed assets. For making optimal use of plant& machinery,
furniture’s and furniture &fixtures etc. business unit requires highly skilled workforce.
Moreover, incompetent workforce is not capable to make optimum use of assets. Section of
business analysis presents that Tesco Plc failed to conduct appropriate training session for
personnel on periodic basis. In the dynamic or strategic business environment, changes are
taking place with the very high pace. In this regard, firm is required to conduct training session
for persuading personnel about the manner in which need to carry out activities.Thus, it is one
the main cause due to which firm failed to generate high or enough sales through using assets.
Result of ratio analysis shows that total assets turnover ratio declined from 1.41 to 1.22
times.In the financial year2017, total assets turnover ratio of Tesco plc. has dropped down
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significantly which in turn indicates that strategic managementof the company is not sound
during such period. Trend of total assets turnover ratio shows that after the period of 2015,sales
generated by the firm through using both fixed and current assets decreased that is not a good
indicator. Thus, it can be presented from overall evaluation that efficiency performance and
position of Tesco Plc is not good.
Solvency analysis
Particulars Formula 2015 2016 2017
Long-term debt 10,520 10,623 9,330
Shareholders’ equity 7,071 8,626 6,438
Debt-equity ratio Long term debt /
shareholder’s equity
1.49 1.23 1.45
2015 2016 2017
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Debt-equity ratio
Debt-equity ratio
Interpretation: Graph depicted above shows fluctuating trend in the performance of debt-
equity position of Tesco Plc. During the period of 3 years, from 2015 to 2017, debt-equity ratio
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of retail firm lies within the range of 1.23:1 to 1.49:1 significantly. Standards present that for
making solvency position good Tesco Plc needs to maintain the ratio of .5:1. In accordance with
such aspect, business unit should issue 2 equities in against to 1 debt for the development of
highly optimal capital structure.Referring the current positionof debt-equity mix, it can be stated
that solvency position of Tesco is not good.Moreover, inclusion of high debt in capital structure
places negative impact on the profit margin of firm. The reason behind this,in debt sources firm
is obliged to make interest payment irrespective of the aspect that they attain profit or not during
the financial year. The presentsolvency position of Tesco Plc entails that firm has met most of its
financial needs through the means of debt rather than equity. Thus, for managing obligations and
expenses firm need to keep in mind ideal ratio while taking decision in relation to raising funds.
Investment ratio analysis
Particulars Formula 2015 2016 2017
Earnings per share -2.12 0.05 -0.01
Dividend per share .33 - -
Payout ratio 135.1%
2015 2016 2017
-2.5
-2
-1.5
-1
-0.5
0
0.5
Investment ratios
Interpretation:from the above-depicted graph it can be presented that with the motive to
maintain the trust of shareholder, irrespective of attaining negative margin, Tesco Plc offers
dividend of .33.However, due to the attainment of negative returns, in the year of 2016 and
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2017,Tesco Plc offered no dividendto its shareholders. Hence, considering such aspect it can be
presented such policy will place negative impact on brand image and market share of firm.
Further, from assessment, it has found that EPS offered by Tesco Plc to its shareholders was
negative in the period of 2015 and 2017. Thus, considering overall evaluation it can be depicted
that due to the company’s failure in relation to generating enough margin EPSof the company
was negative. Along with this, payout ratio of Tesco Plcaccounts for 135.15% respectively. In
the upcoming period, 2016 and 2017, payout ratio was NILas no dividends were offered by the
firm to shareholders during such period. Thus, to revitalize the image firm needs to lay emphasis
on offering dividends to the shareholders.
4.2 Horizontal analysis
In order to assess growth, which takes place in the financial aspect or
performance,horizontal analysis has been done by Tesco plc. Bycomparing performance over the
years firm has assessed the extent to which income or revenue is increased and level
ofexpenditures are decreased. Along with this, movement of assets and liabilities can also be
assessedthroughthe means of horizontal analysis.
Income statement (horizontal analysis)
Particulars 2015 2016
%
change 2017
%
change
Revenue 62,284 54,433 -12.6% 55,917 2.7%
Cost of revenue 64,396 51,579 -19.9% 53,015 2.8%
Gross profit -2,112 2,854
-
235.1% 2,902 1.7%
Operating expenses
Sales, General and
administration 2,695 1,852 -31.3% 1,734 -6.4%
Other operating expense... 985 -44
-
104.5% 151
-
443.2%
Total operating expense... 3,680 1,808 -50.9% 1,885 4.3%
Operating income -5,792 1,046
-
118.1% 1,017 -2.8%
Interest Expense 499 498 -0.2% 517 3.8%
Other expense 85 286 236.5% 355 24.1%
Income before income t... -6,376 162
-
102.5% 145 -10.5%
Provision for income t... -657 -54 -91.8% 87 -
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261.1%
Minority interest -25 -9 -64.0% -14 55.6%
Other income -25 -9 -64.0% -14 55.6%
Net income from continue... -5,719 216
-
103.8% 58 -73.1%
Interpretation: The above depicted table shows thatin the year of 2016, sales revenue of
Tesco Plc decreased by -12.6%. Along with this, declining trend has found in the net margin or
income of Tesco Plc with -73.1% respectively. Considering the same, it can be presented that
earnings of the retail unit were not good during the concerned years taken for the investigation
purpose. Further, outcome of horizontal analysis presents that in FY sales, general and
administration expenses were declined by -31.3% &-6.4% respectively. Results of analysis show
that effectual control has made by the firm ondirect expenses. In contrast to this, operating
income of Tesco Plc decreased significantly over the time frame by -118.1% &-2.8%
significantly in FY 2016 and 2017. In addition to this, interest expenses of Tesco Plc increased
by 3.8% at the end of 2017, which is, also may cause of declining profit margin. Thus, it can be
presented that firm needs to take effective measure or action for making improvement in
profitability aspect.
Statement of Financial position
Particulars 2015 2016 % Change 2017 % Change
Assets
Current assets
Cash and cash
equivalents 2,165 3,082 42.36% 3,821 23.98%
Short-term investments 746 3,639 387.80% 3,297 -9.40%
Total cash 2,911 6,721 130.88% 7,118 5.91%
Inventories 2,957 2,430 -17.82% 2,301 -5.31%
Prepaid expenses 516 440 -14.73% -100.00%
Other current assets 5,574 5,237 -6.05% 5,998 14.53%
Total current assets 11,958 14,828 24.00% 15,417 3.97%
Non-current assets
Property, plant and
equipment
Land 25,298 22,557 -10.83% -100.00%
Other properties 11,493 10,468 -8.92% 33,371 218.79%
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Property and
equipment... 36,791 33,025 -10.24% 33,371 1.05%
Accumulated
Depreciation -16,351 -15,125 -7.50% -15,263 0.91%
Property, plant and
equipment 20,440 17,900 -12.43% 18,108 1.16%
Goodwill 2,288 2,517 10.01% 2,426 -3.62%
Intangible assets 1,483 357 -75.93% 291 -18.49%
Deferred income taxes 514 49 -90.47% 707 1342.86%
Other long-term assets 7,531 8,253 9.59% 8,904 7.89%
Total non-current
assets 32,256 29,076 -9.86% 30,436 4.68%
Total assets 44,214 43,904 -0.70% 45,853 4.44%
Liabilities and
stockholders’ equity
Liabilities
Current liabilities
Short-term debt 1,998 2,815 40.89% 2,549 -9.45%
Capital leases 10 11 10.00% 11 0.00%
Accounts payable 5,076 4,545 -10.46% 8,875 95.27%
Taxes payable 461 807 75.05% 613 -24.04%
Other current liabilities 12,265 11,536 -5.94% 7,357 -36.23%
Total current liabilities 19,810 19,714 -0.48% 19,405 -1.57%
Non-current liabilities
Long-term debt 10,520 10,623 0.98% 9,330 -12.17%
Capital leases 131 88 -32.82% 103 17.05%
Deferred taxes liabilities 199 135 -32.16% 88 -34.81%
Pensions and other
benefits 4,842 3,175 -34.43% 6,621 108.54%
Minority interest -10 -24 140.00%
Other long-term
liabilities 1,641 1,553 -5.36% 3,892 150.61%
Total non-current
liabilities 17,333 15,564 -10.21% 20,010 28.57%
Total liabilities 37,143 35,278 -5.02% 39,415 11.73%
Stockholders' equity
Common stock 409
Additional paid-in cap... 5,094 5,095 0.02% 5,096 0.02%
Retained earnings 1,985 3,265 64.48% 332 -89.83%
Accumulated other
comp... -8 266 -3425.00% 601 125.94%
Total stockholders'
equity. 7,071 8,626 21.99% 6,438 -25.37%
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Total liabilities and
stockholders' equity. 44,214 43,904 -0.70% 45,853 4.44%
Interpretation: Outcome ofhorizontal analysis presents that in 2016 and 2017, total
current assets of Tesco plc increased by 24% & 3.97. On the other, total current liabilities of
Tesco Plc was decreased by -.48%&-1.57%. However, still in comparison to liabilities, assets
maintained by the firm considered as lower. In FY 2017, long-term debt of Tesco Plc decreased
by -12.17%, whichis considered as good indicator. Moreover, high debt imposes periodical
burden and affects profit margin of firm. On the other side, shareholder’s equity decreased by -
25.37% that is comparatively higher. Thus, on the basis of overall assessment, it can be said that
action needs to be undertaken for improving monetary health and performance.
4.3 Tesco’s corporate social responsibility initiatives
By doing assessment of annual reports, it has found that for ensuring effective food and
waste management several initiative s are undertaken by Tesco Plc. Reportspresentedby
TescoPlc clearly shows that on an average British family’swaste food amounted to £700
respectively. For this purpose, business organization has made its best efforts to reducing the
level of food wastage and saving money (An update on our Corporate Responsibility
commitments, 2016). Thus,to develop distinct image in the mind of society Tesco Plc has
redesigned packaging by including hints into it in relation to waste and other tips. Further, tips,
which are included by the firm on packages, are highly aligned with the Waste &Resources
Action program’s (WRAP).
In addition to this, Tesco has also made efforts in relation to making contribution in the
economic growth and development. Firm has setting down its aim or ambition in relation to
creating employment opportunities for young people. Now, young people are facing complex
and varied issues that closely influence their career growth and advancement. Thus, for offering
guidance to personnel and contributing in their career youth academy has established by Tesco
Plc. Such academy trains personnel about the manner in which activities need to be carried out
and develop them for the near future. Along with this, Tesco plc also owesresponsibility towards
thecitizens of London (Preuss, 2013). In this regard, several actions by the firm have
beenundertaking along withlocal development projects such as housing, hospitals and schools. In
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addition to this, annual report of Tesco Plc also reveals or exhibit that it has reduced carbon
emission with the rate of 3.1% year on year.
Apart from this, Tesco plc has expanded or introduced MSC label scheme for pre packed
and frozen fish which in turn contributes in the aspect of sustainable operations. Now, such retail
unit is also laying emphasis on taking sustainable agricultural initiatives, whichhelps firm in
building distinct image at marketplace (Corporate Responsibility 2014/15 half-year update,
2015). CSR report of Tesco plc also presents that with the motive to provide customers with
healthier foods Tesco Plc has cutting downsugar content from soft drinks by 5% each year.
Further, Tesco offers free fruit for children in all the large stores of UK. Company has taken
strategic initiative and raised over £13.7 million for tow charitable trusts such as National
Charity Partnership with Diabetes UK and British heart foundation.Forcomplying with human
rights and labor standards social programmers have also introduced by the firm that is supporting
450000 people.
To build and maintain effective relationship with the customer’sstrategic action has also
taken by the suppliers. High level of standardization has ensured by the firm in relation to
making payment across UK and Central Europe. Supplier helpline has also launched by Tesco
Plc that evolves highlevel of satisfaction among the concerned stakeholders. Moreover, in
survey, which is conducted by Groceries, code adjudicator, Tesco plc is recognized as the most
improved retailer. Thus, by taking into account all the above depicted aspects it can be stated that
Tesco Plc’s initiatives are highly significant which in turn improves its image in the mind of
target market (Carroll, 2015). Hence, all such CSR initiatives will help company in building
competitiveadvantage over others. Now, investors prefer to invest in thecompany thattakes
initiative for the welfare of society. In this way, all such initiatives will help company in
attracting more investors and thereby would become able to attain organizational goals.
5. CONCLUSION AND RECOMMNENDATIONS
5.1 Conclusion
From the above report, it has been concluded that the main aim is to measure and
evaluate financial position, CSR as well as business environment of Tesco Plc. For this purpose,
mixed investigation has been done by the researcher. It can be inferred that to meet research the
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scholar has gathered aim and objective datafrom both primary as well as secondary sources. It
can be summarized from financial evaluation thatmonetary position and performance ofTesco
Plc is not good. It can be summarized from SWOT analysis that high brand equity, online
presence and multi-format strategy are the main strengths of Tesco which in turn contributes in
the organizational success. Hence, for grabbing opportunities available in the market pertaining
to expanding business operations in the developing countries firm needs to focus on developing
competent framework. Along with this, it has been articulated from PESTLE analysis that tax
policies and purchasing power of the customers have significant influence on the sales revenue
and profit margin of Tesco. Thus, by providing customers with suitable discounts company can
enhance revenue and thereby margin. In addition to this, external environmental evaluation
presents that for building distinct image in the mind of customers Tesco needs to focus on
strengthening brand image and compliance with the regulatory aspects.
Besides this, it can be depicted that Tesco has several strengths that helps in grabbing or
capitalizing opportunities to a great extent. Further, it has been articulatedthatfor avoiding
weaknesses and threats company is required to take strategic action. It can be seen in the report
thatpolitical and economic condition in the context of UK retail environment is good. However,
for attaining success and building distinct image in the mind of customers firm is required to lay
focus on technological advancements and aspect of environment sustainability. Considering the
evaluation of three years period such as 2015, 2016 and 2017 it can be stated that profitability;
liquidity, solvency and efficiency performance of the business organization is not good. In such
years, business unit failed to generate high and positive profit margin that in turn places negative
influence on firm’s operations as well as decision-making aspect of shareholders. Thus, for
making improvement in the financial position Tesco Plc needs to take strategic action that aid in
the growth and success of firm. It also has been presented that best possible efforts have taken by
Tesco Plc to contribute in the welfare of society, personnel,investors, suppliers and other
stakeholders. Along with this, strategic measure has also taken by the company to reduce the
level of emission and food wastage. Thus, all the initiatives that have undertakenby Tesco plc
assists in enhancing reputation as well as profitability aspect.
5.2 Recommendations
On the basis of findings, following recommendations are given to Tesco Plc such as:
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 For enhancing sales and thereby profit margin, Tesco Plc is required to lays emphasis on
high quality offering. By providing customers with the quality products or services
business unit can enhance both sales revenue and brandimage. Along with this, for
making control over indirect expenses firm need tomake focus on undertaking modern
budget techniques. Thus, through continuous monitoring of actual expenses in against to
the budgeted figures firm can assess deviations and would become able to take action for
improvement.
 Further, business unit should make focus on considering optimal capital structure while
raising finance. By controlling dependency on debt sources firm can reduce the level of
obligation and would become able to enhance profit margin.
 For enhancing liquidity position and performance Tesco plc needs to make focus
oncontrolling spending and improving debtoras well as inventory period. Bydoing firm
would become able to improve or strengthen liquidity position.
 Tesco plc needs to undertake several actions for making improvement in the efficiency
performance and position. In order to improve fixed assets turnover ratio business unit is
required to conduct effective training sessions for personnel. Such activity or session will
provide deeper insight to the personnel about the manner in which activities need to be
performed. Thus, by performing activities in the best possible way Tesco can generate
high returns from fixed assets. Along with this, for improving total assets turnover ratio
such retail unit needs to develop strategic policy framework. With the help of competent
strategies business organization can make contribution in the attainment of goals.
 It is advised to the management team of Tesco Plc to consider both internal and external
factors while developing policies. Moreover, external environmental factors have high
level of impact on the operations and overall functioning of firm. Thus, after analyzing
all such aspects business unit should formulate strategies.
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