Financial Account Management

INTRODUCTION
Financial account management refers to the process of effective and efficient
management of funds for the purpose of meeting organizational objectives (Brigham and
Ehrhardt, 2013). This aspect is applied for effective management of long as well as short term
resources for successful operation of business. Present report is based on Tesco a British
multinational grocery and general merchandise retailer of UK. This corporation is second largest
retailer in world in accordance with revenue and third largest retailer on the basis of profit.
Furthermore, financial trends of company are identified which rationale of change as result of
internal and external environmental actions. In addition to this, financial ratios of company are
calculated and analyzed in relation to its ability to meet financial ambitions. Moreover,
recommendations have also been provided to prospective investors for business by focusing
upon its strength and weaknesses.
PART A OVERVIEW
Background to the company & why it was selected
The current report is based on Tesco, British multinational grocery retailer. It is grocery
market leader in UK with market share around 28.4%. This corporation was founded in 1919 by
Jack Cohen in the form of market stall. However, the first store of Tesco opened in 1929 in Burnt
Oak, Barnet which was expanded rapidly. During 1990s Tesco diversified itself into several
areas such as retailing, furniture, electronics and clothing as well as financial services. Along
with that, telecom, internet services, petrol and software are also included. This organization is
listed on London Stock Exchange and had market capitalization of £18.1 billion s of 22 April
2015. Tesco introduced loyalty card in 1995 for attracting more buyers and persuading them to
take quick purchase decision. It was considered as the most effective strategy of marketing for
retaining buyers for longer time span.
Furthermore, in 2013 Tesco purchased the restaurant and cafe china Giraffe for £48.6
million and then during 2014 it started to open restaurant in some of its stores. However, at
present corporation is facing issue because of low profitability. In current financial year shares of
Tesco were the biggest faller in the FTSE 100. Here, investors were threaten because of
uncertain and deflationary market where discounting stores are outtperforming. Owing to this,
company is cutting prices and also planning to sell of some of its other side businesses. It shows
that company is unable to manage its rate of return due to shifting of customers from one to

another brand. For this purpose, Tesco has been selected as there are variations in its financial
performance over recent years (http://www.ft.com/fastft/2016/04/13/tesco-hails-progress-as-uk-
business-returns-to-sales-growth/). Owing to this, Tesco has been selected for the current report
for assessing its financial performance over last years.
Identification of key announcements or events 300
According to Chairman, John Allan, year 2015 was the challenging year for Tesco,
however, company remain extremely positive and confident about the future. The company is
proved to be an iconic brand and an enormous employer, which has huge responsibilities towards
customers, business partners, employees and shareholders as well as suppliers. Tesco is focused
towards corporate governance as it has a solid governance framework which is extremely
transparent. In the last year, company continued with range of corporate renewal plans that have
provided great success to company. The corporate entity puts customers at the heart of business
and makes decisions based on their needs and wants. Recently, company has sold its Homeplus
business in Korea which was a difficult decision, but was important for company to reposition
the finances of the Group by generating £3.3bn of funds (Annual Report and Financial
Statements 2016). This decision taken by company enabled company to strengthen the balance
sheet of company. The decision taken for replacing the UK defined benefit pension scheme with
a defined contribution scheme seen as the most important step which is taken by company in
respect to be competitive and sustainable for business partners over in long run. Tesco got its
images back as an investment grade and paying dividends. The main focus of company is on
achieving business goals for the long-term success. The corporate entity is evident for
stable pricing, investing in lower, improving services as it has simplified every food ranges on
shop floor for improving customer service which directly affects financial position of business.
In the month of October 2015, Tesco was the first and sole retailer within the United
Kingdom to offer customers an immediate price along with brand guarantee. Through this,
company does not charge more in case competitors such Asda, Morrisons or Sainsbury’s are
offering it in less. Recently, business entity has launched a new fresh food brands which are
offered at great prices. This is the way, company attracts customers by providing them great
value for money and fresh food under a roof. The company has made improvements across
offers which has strengthened market, along with this, in Europe and Asia, Tesco has built strong

and positive sales momentum in the last year (Annual Report and Financial Statements. 2016).
In Thailand, the company has captured higher market share and transformation programme
in Europe has boosted business growth while reducing operating expense.
Changes in key financial trends 300
PART B FINANCIAL HEALTH
Computing and analyzing key financial ratios for the company
Financial ratios are very important for assessing financial position of an organization for
certain time span. It enables corporation in arranging appropriate sources of finance by providing
right information to all important stakeholders (Brigham and Ehrhardt, 2013). Also, important
information related to liquidity and operational performance of Tesco can be extracted with ratio
analysis. It includes several ratios such as liquidity, risk expectations, profitability and
price/earning ratio. These are explained below along with calculation-
1 Meeting liquidity needs (liquidity ratios)
Liquidity ratio is helpful to assess ability of corporation to pay off its short as well as
long term debt. In common parlance, higher liquidity ratio tends to enhance margin of safety for
corporation in order to cover short-term debts. Furthermore,
2 Meeting operational performance (Efficiency ratios)
Efficiency ratios are calculated to analyze how well a business entity uses its assets and
liabilities to generate sales. By calculating efficiency ratio, business can identify how profitable
a business is in using its assets. Here, table below represent the efficiency ratios for Tesco for the
year 2015 and 2016.
Table 1 Efficiency Ratios for Tesco
Efficiency Ratios Formula 2016 2015
Asset turnover ratio Net sales /Average total sales 3.7 4.8
Inventory turnover
ratio
Cost of Goods Sold/ Average
Inventories 21.2 20.0