Financial Analysis of Asda Retail Company

This assignment provides a comprehensive financial analysis of Asda retail company using various ratio calculations such as Fixed Asset Turnover Ratio, Inventory Turnover Ratio, and Debt to Equity Ratio. The results show that the company's financial performance is unfavourable in most conditions, with high budget requirements for future financial years.

BUSINESS RESOURCES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
P1 Describe the recruitment documentation used in a selected organisation.........................1
P2 Describe the main employability, personal and communication skills required when
applying for a specific job role...............................................................................................2
P3 Describe the main physical and technological resources required in the operation of ASDA
................................................................................................................................................4
P4 Describe sources of internal and external finance for a selected business........................5
P5 Interpret the contents of a trading and profit and loss account and balance sheet for ASDA
................................................................................................................................................6
P6 Illustrate the use of budgets as a means of exercising financial control of ASDA...........8
Forecast of income and expenditure.......................................................................................8
Tool for decision making........................................................................................................8
Monitoring business performance of Asda.............................................................................8
P7 Illustrate the financial state of ASDA...............................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
An economic or productive factor required to accomplish an activity, or as means to
undertake an enterprise and achieve desired outcome. Three most basic resources are land,
labour, and capital; other resources include energy, entrepreneurship, information, expertise,
management, and time. At the current report there are Asda business entity is chosen which
dealing in the retail sector. It shows about several kinds of skills as well as physical and
technological resources required in the for start and run the firm. Apart from this, it describes
sources of internal and external finance as well as contents of a trading and profit and loss
account and balance sheet for a selected Asda.
P1 Describe the recruitment documentation used in a selected organisation
Recruitment documentation for Sales Assistant
Sales assistants can be found in a variety of retail venues and locations, from small retail stores
on a High street to large superstores in shopping malls. The job requires a high level of customer
interaction, meaning sales assistants should have good customer facing and communication skills
(Amess, Stiebale and Wright, 2016).
Job Description
 Greeting customers who enter the shop.
 Be involved in stock control and management.
 Assisting shoppers to find the goods and products they are looking for.
 Being responsible for processing cash and card payments.
 Stocking shelves with merchandise.
 Answering queries from customers.
 Reporting discrepancies and problems to the supervisor.
 Giving advice and guidance on product selection to customers.
 Balancing cash registers with receipts.
 Dealing with customer refunds.
 Keeping the store tidy and clean, this includes hovering and mopping.
 Responsible dealing with customer complaints.
 Working within established guidelines, particularly with brands.
 Attaching price tags to merchandise on the shop floor.
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 Responsible for security within the store and being on the lookout for shoplifters and
fraudulent credit cards etc (Aquino and et.al., 2013).
 Receiving and storing the delivery of large amounts of stock
 Keeping up to date with special promotions and putting up displays.
Person Specification
  Having a friendly and engaging personality.
  Comfortable working with members of the public.
  Should have a confident manner.
  Must be helpful and polite.
  Assistants should be physically fit as they will be on their feet for most of the day and
may be required to lift large amounts of stock.
  You should have a comprehensive understanding of your area of sales i.e. retail, Fast
Moving Consumer Goods, sports equipment etc.
  Able to work as part of a sales team.
  Knowledge of inventory techniques.
  Should be of a smart appearance and articulate (Himme and Fischer, 2014).
P2 Describe the main employability, personal and communication skills required when applying
for a specific job role
Employability skills
Generally speaking, there are eight skills that employers want their employees to have
with a special consideration of Sales Assistant in ASDA-
1. Communication
2. Teamwork
3. Problem solving
4. Initiative and enterprise
5. Planning and organising
6. Self-management
7. Learning
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8. Technology
Personal skills
Personal skills are those that allow you to interact with others, express yourself, and
manage yourself. Your personal skills shape not only the way you work, but also the way you
live your daily life. There are many examples of such skills which would benefit the business
including; speaking different languages, trustworthy and having a sense a humour. It is good if
employees or applicants possess such sills when applying for a job as it will make them more
likely to get the job as it shows the employer other skills that the employee/applicant have that
can help the business: these skills are useful for a lot of different jobs.
Communication skills
 Language – The vocabulary that you use can totally change the message that is being
given to the customer. Make sure that language used is appropriate for the target market
e.g. the teenage market might be happy with slang, but will the rest of your customers
(Ho and Wang, 2015).
 Grading – If customers don't understand what you are saying, don't just keep repeating
the same thing more loudly and slowly! Maybe the customer doesn't understand because
he/she is from another country, has literacy problems, or maybe you are just using the
wrong vocabulary. Grade your language – if the customer doesn’t understand what you
are saying, find another way of saying it.
 Intonation & Tone – The intonation and tone you use can change the meaning of your
message. Something that is meant to be a simple instruction can sound rude or aggressive
if said in the wrong way.
 Body Language – You may be saying one thing, but your body language could be saying
something else. Looking bored/uninterested or panicked doesn’t give the right impression
to customers. Dealing with customers in a confident manner will make you appear more
professional.
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 Eye Contact – Make eye contact with customers when you are talking to them. This will
make you appear interested in what they are saying and make you more approachable and
friendly (Koynov and Muzzio, 2016).
 Smile – Nobody wants to be served by a shop assistant who looks like he/she wants to be
anywhere else but in the shop. Customers want to feel welcome when they enter the store
and feel that they can approach you.
 Find someone who can – If you really can’t help the customer then find someone who
can. Either direct the customer to the correct person/counter or take them there yourself –
don’t just say you don’t know and walk away!
P3 Describe the main physical and technological resources required in the operation of ASDA
Physical resources
Physical resources may encompass a wide variety of specific items and objects depending on the
nature of the business.
 Land, buildings, water and water rights
 Machinery and manufacturing equipment
 Vehicles and distribution networks
 IT equipment and hardware
 Point-of-sale systems
Some physical assets are specific to a particular industry. Livestock, feed and crop
reserves are specific to the agricultural sector, for example. Physical resources may be more or
less crucial depending on the nature of the industry (Pavitt, Robson and Townsend, 2015).
Physical resources typically require a significant outlay of capital. A car manufacturer must
invest considerable amounts into production facilities that can only be housed in a suitable area,
while a small software developer can set up in any number of available office locations at a
competitive rate.
Technological resources
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Energy is one of the most important technological resources. Most forms of technology rely on
energy for power. Machines driven by energy are an invaluable resource in industries that rely on
continuous and mass production. Moreover, energy is used in households and businesses to
power various necessities and conveniences.
Information is also an important technological resource. Introduction of highly efficient
technological devices has resulted in increased information sharing across the globe (Sala and
et.al., 2017). Many people can access updated and accurate information using various devices
such as cellphones and computers. As such, people have greater access to more information.
Furthermore, computers provide a safe and economical storage of information for companies,
organizations and individuals.
P4 Describe sources of internal and external finance for a selected business
Internal sources of finance
Retained earnings
Retained profits/earnings are called the internal source of finance for a business for the simple
reason that they are the end product of running a business. The phenomenon is also known as
‘Ploughing Back of Profits’. Retained profits can be defined as the profit left after paying a
dividend to the shareholders or drawings by the capital owners
Sale of assets
Another internal source of finance is the sale of assets. Whenever business sells off its assets and
the cash generated is used internally for financing the capital needs, we call it an internal source
of finance for sale of assets. It can work as a short term or long-term finance depending on what
kind of assets are sold. Say, selling a car can cater short term and smaller finance needs and
selling land, buildings or machinery can cater to long term and bigger finance needs (Swallow
and et.al., 2016).
Fixed Assets
Fixed assets are those that are not easily converted to cash. Typically, these assets include
equipment, property and factories. Because these assets take time to convert to cash, they cannot
be relied on for short-term access to finance. If you have the time, however, you could — for
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example — sell off some equipment or even property to invest in your business. This is
particularly useful if your needs have outgrown some of your fixed assets — for example, if you
need to purchase newer equipment.
External sources of finance
Equity Shares
Equity shares are a common source of finance for big companies. Not all the businesses can use
this source as it is governed by a lot of legislations. A key feature of equity share is the ‘sharing
of ownership rights’ and therefore, the current shareholders rights are diluted to some extent.
Long-Term Debt
One type of external debt financing is long-term debt. Long-term loans typically include any
debts that you expect to take more than a year to repay. Commonly, though, your long-term
loans are used to purchase buildings, equipment and other major assets (Tung, 2016). An
advantage of long-term financing is that you can repay the loan over an extended period, which
minimizes your monthly payment obligation. Plus, interest on property purchases is often tax-
deductible. One drawback to this type of loan is that it's usually secured by property, meaning if
you can't take it back, the lender can seize your building, equipment or inventory.
P5 Interpret the contents of a trading and profit and loss account and balance sheet for ASDA
Profit and loss account
Turnover-
It is the value of sales made in a trading period. It is sometimes referred to as sale revenue and is
calculated by the average price of items sold x the number sold.
Gross Profit -
This is the amount of money received from the sale of products (and/or services) minus the cost
of sales. This figure only relates to goods sold in the accounting period that the profit and loss
account covers. The gross profit section of the profit and loss account is known as the trade
account as it covers trading activity. Gross profit does not cover overheads and expenses that do
not relate directly to the production or purchase of goods (Weaver, 2014).
Gross Profit = Sales Revenue MINUS Cost of Sales
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Net Profit -
This section takes into account all of the money received by the business and all of expenses
incurred by the business.
Net Profit = Gross Profit MINUS Non-Cost of Sale Expenses
Balance sheet
Assets –
These are anything the Asda owns, such as cash, investments, land, buildings, inventory,
supplies, buildings, prepaid insurance, accounts receivable, and anything else the business has on
hand. These asset accounts usually have a negative or debit balance.
Contra assets –
These are assets that have a positive or credit balance, and they are “contrary” (contra) to regular
assets. Examples of these are depreciation on buildings or machinery, accumulated depletion,
and allowances for doubtful accounts. Accountants usually group asset accounts together on the
balance sheet. The categories they use include Current Assets, Investments, Property, Plant, and
Equipment, Intangible Assets, and Other Assets (Wu and et.al., 2016).
Liabilities –
The liabilities of the Asda include obligations the company owes others. These include accounts
payable, salaries payable, taxes payable, customer deposits, unearned revenue, etc. Liabilities are
just about any kind of obligation the Asda has, including liability from lawsuits, bonds, or any
other kind of fiscal responsibility. Liabilities normally have credit balances.
Contra liabilities –
Just like contra assets, these liabilities are contrary to regular liabilities. They have debit
balances. Examples include discounts on bonds or notes payable. Accountants classify liabilities
as either long-term or short-term liabilities on the balance sheet (Wu and et.al., 2016).
Owners (Stakeholders) equity –
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The owner’s equity is thought of as an asset to the Asda. The equation for finding owner’s equity
is assets equal liabilities + owner’s equity. If the company has one owner, it is called “owner’s
equity,” if it has many, it is called “stakeholders’ equity.” The equity account can include
retained earnings, shares of stock, and paid-in capital, and it is usually a credit balance account.
P6 Illustrate the use of budgets as a means of exercising financial control of ASDA
In the context of Asda management, the purpose of budgeting includes the following
three aspects:
 A forecast of income and expenditure (and thereby profitability)
 A tool for decision making
 A means to monitor business performance
Forecast of income and expenditure
Budgeting is a critically important part of the Asda planning process. Asda owners and
managers need to be able to predict whether a business will make aprofit or not. The purpose of
budgeting is basically to provide a model of how the retail company might perform, financially
speaking, if certain strategies, events, plans are carried out. In constructing a Asda Plan, the
manager attempts to forecast Income and Expenditure, and thereby profitability (Himme and
Fischer, 2014).
Tool for decision making
The purpose of budgeting is to provide a financial framework for the decision-making
process i.e. is the proposed course action something we have planned for or not.
In managing a Asda responsibly, expenditure must be tightly controlled. When the budget
for advertising has been fully expended, the decision on "can we spend money on advertising" is
likely to be "no".
Monitoring business performance of Asda
The purpose of budgeting is to enable the actual business performance to be measured
against the forecast entity's performance i.e. is the business living up to our expectations.
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P7 Illustrate the financial state of ASDA
Ratio analysis is used to evaluate various aspects of a Asda's operating and financial
performance such as its efficiency, liquidity, profitability and solvency. The trend of these ratios
over time is studied to check whether they are improving or deteriorating (Ho and Wang, 2015).
Liquidity Ratios (ASDA): (2009 and 2008)
Gross Profit Ratio
6.284
6.307
Unfavourable
Lower gross profit in proportion to sales in 2009
Net Profit Ratio
3.166
4.271
Unfavourable
Lower net income in relation to sales in 2009
Current Ratio
0.526
0.491
Favourable
 Assets increased more in proportion to liabilities
Quick Ratio
0.282
0.252
Favourable
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More C. Assets in proportion to C. liabilities
Working Capital ratio
(958)
(943 )
Unfavourable
Lower proportion of Assets to Liabilities
Fixed Asset Turnover Ratio
2.029
1.928
Favourable
The proportion of sales to fixed assets was a bit higher
Inventory Turnover Ratio
29.091
25.963
Favourable
CGS increased in 2009
Debt to Equity Ratio
1.470
0.744
Unfavourable
Total Equity decreased
CONCLUSION
It can be concluded that in the firm such as Asda there are mainly physical and
technological resources required in order to operate in the retail industry. On the basis of
financial state and performance of the Asda it can be articulated that financial performance of the
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company is unfavourable in most of the conditions. Furthermore, there are budget is highly
important and significant for the Asda in order to estimate the financial data for the further
financial years.
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REFERENCES
Books and Journals
Amess, K., Stiebale, J. and Wright, M., 2016. The impact of private equity on firms׳ patenting
activity. European Economic Review, 86(5), pp.147-160.
Aquino, M. and et.al., 2013. Regioselective entry to bromo-γ-hydroxybutenolides: Useful
building blocks for assemblying natural product-like libraries. Organic letters, 8(21),
pp.4831-4834.
Himme, A. and Fischer, M., 2014. Drivers of the cost of capital: The joint role of non-financial
metrics. International Journal of Research in Marketing, 31(2), pp.224-238.
Ho, W.H. and Wang, Y., 2015. Capital Income Taxation Revisited: The Roles of Information
Friction and External Finance. Pacific Economic Review, 20(2), pp.225-242.
Koynov, S. and Muzzio, F.J., 2016. A Quantitative Approach to Understand Raw Material
Variability. Process Simulation and Data Modeling in Solid Oral Drug Development and
Manufacture,15(8), pp.85-104.
Pavitt, K., Robson, M. and Townsend, J., 2015. Technological accumulation, diversification and
organisation in UK companies, 1945–1983. Management science, 35(1), pp.81-99.
Sala, S., and et.al., 2017. In quest of reducing the environmental impacts of food production and
consumption. Journal of Cleaner Production. 140. pp.387-398.Hayre, A., 2015. Managing
Financial Resources and Decisions. GRIN Verlag.
Swallow, P. and et.al., 2016. Measurement and recording of historic buildings. London:
Routledge.
Tung, R.L., 2016. New perspectives on human resource management in a global context. Journal
of World Business, 51(1), pp.142-152.
Weaver, L., 2014. Managing the Transition to IFRS-Based Financial Reporting: A Practical
Guide to Planning and Implementing a Transition to IFRS or National GAAP. John Wiley
& Sons.
Wu, P. and et.al., 2016. Managing reputation loss in China: in-depth analyses of financial
restatements. Chinese Management Studies. 10(2). pp. 312-345.
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