Financial Performance Management: Analysis of Two Companies

This report analyzes the financial performance of two companies, Tesco and Marks & Spencer, using ratio analysis. It also critically determines the balance scorecard and its importance in strategic management.

Financial performance
management

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Financial performance using the ratio analysis of two companies.............................................3
Critically determine the Balance scorecard.................................................................................8
Evaluating the benefits and challenges of the Integrated reporting..........................................10
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial performance management refers that company is manages and monitor
financial results across organisation. The primary objective of the company to compare the goals
and objective of forecasted and make adjustment accordingly (Agyabeng-Mensah, Afum and
Ahenkorah, 2020). In this report the company that is chosen is Asda, which is UK based
company that deals in supermarket chain and it is second largest supermarket chain in the UK.
The second company that is chosen is Tesco, this is also UK based company that deals in retail
stores and largest supermarket chain in Britain. In this report, it is being discussed about the
financial performance of the companies and evaluate their annual financial performance. Apart
from that critically evaluate the Kaplan and Norton's balance scorecard as strategic management,
It is being analysed the benefits and challenges of adopting integrated reporting for the selected
organisation and determine the effectiveness of the company.
MAIN BODY
Financial performance using the ratio analysis of two companies
Tesco Ratios 2018-2019
2018 2019
Liquidity ratios
Current ratio: Current assets/current
liabilities
Current assets 13577 12570
Current liabilities 5512 8012
current ratio. 2.46 1.57
Quick ratio: Quick assets/current
liabilities
Quick assets 11314 9953
Current liabilities 5512 8012
Quick ratio 2.05 1.24

Profitability ratio
Gross profit ratio: GP/sales*100
Gross profit 3350 4144
Net sales 57491 63911
GP Ratio 5.83 6.48
Net Profit ratio; NP/Net sales*100
Net Profit 1208 1320
Net sales 57491 63911
Net profit ratio 2.1 2.07
Efficiency ratio
Inventory Turnover
Ratio:COGS/Inventory
COGS 54141 59767
inventory 2263 2617
ITR 23.92 22.84
Fixed Assets Turnover ratio:
Revenue/Fixed Assets
Revenue 57491 63911
Fixed Assets 54474 55541
FATR 1.06 1.15
Investment Ratios
Debt 20678 21545
equity 10480 14834
Debt/equity 1.97 1.45

Return On equity
Net Profit 1208 1320
equity 10480 14834
ROE 0.12 0.09
Marks & Spencer Ratio 2018-2019
2018 2019
Liquidity ratios
Current ratio: Current assets/current liabilities
Current assets 1317.9 1490.4
Current liabilities 1826 2228.4
current ratio. 0.82 0.67
Quick ratio: Quick assets/current liabilities
Quick assets 536.9 790
Current liabilities 1826 2228.4
Quick ratio 0.29 0.35
Profitability ratio
Gross profit ratio: GP/sales*100
Gross profit 4047 3830
Net sales 10698 10377
GP Ratio 37.83 36.91
Net Profit ratio; NP/Net sales*100
Net Profit 26 34
Net sales 10698 10377
Net profit ratio 0.24 0.33

Efficiency ratio
Inventory Turnover Ratio:COGS/Inventory
COGS 6651 6547
inventory 781 700
ITR 8.52 9.35
Fixed Assets Turnover ratio: Revenue/Fixed
Assets
Revenue 10698 10377
Fixed Assets 4993 4529
FATR 2.14 2.29
Investment Ratios
Debt 1748 1746
equity 2957 2681
Debt/equity 0.59 0.65
Return On equity
Net Profit 26 34
equity 2957 2681
ROE 0.01 0.01

Analysis of Ratio -
Liquidity Ratios -
Current Ratio-
Current ratio is a liquidity ratio that measures company's ability to meet its short term
obligations within one year. Ideal current ratio is 2:1.
Current Ratio can be calculated as – Current assets/current liabilities
After analysing current ratio of Tesco we found that current ratio in 2018 was 2.46. It means
company can meet its short term obligations easily where as current ratio in 2019 was 1.57 that is
less compared to 2018. It means company will be facing problems in meeting its short term
obligations. Similarly, for Marks & Spencer Current ratio was higher in 2018 than 2019
(Albuhisi and Abdallah, 2018).
Quick Ratio-
Quick ratio can be calculated as- Current assets – Inventory/Current Liabilities
Quick Ratio measures company's ability to meet its short term obligations with its most liquid
assets. It is also known as an “Acid Test”. Ideal quick ratio is 1:1. As mentioned in above table
tesco's Quick ratio in 2018 is higher compared to 2019 it means company had more liquid assets
in 2018 compared to 2019. Similarly for marks and spencer quick ratio in 2018 was higher than
2019.
Profitability Ratios -
Gross profit -
Gross Profit can be calculated as – Gross Profit/Revenue*100
When a company makes profit after deducting cost associated in making that product and selling
the same. Gross Profit of 65% is considered as healthy ratio.
Now coming to analysis, In the above table gross profit of tesco in 2018 and 2019 was 5.83 and
6.48, respectively which is very low. It means cost associated in making its product is very high.
For Marks and spencer, Gross profit in the year 2018 was 37.82 and in 2019 it was 36.90 which
is quite better than tesco. It mean company has control over cost associated in making its
products compared to Tesco (Chen, 2018).
Net Profit -
Net profit can be calculate as – Net profit/Net sales *100

When all the business expenses are subtracted from the revenue then remaining amount of
money is known as net profit. 10% of net profit is considered as average profit. 20% is
considered as high net profit and 5% profit is considered as low net profit. Net profit of Tesco in
2018 and 2019 is 2.10 and 2.06 respectively which is very low and for marks and spencer net
profit is only 0.24 and 0.32 in 2018 and 2019 respectively, which is also very less. It means
companies are not performing better as they have more expenses than revenue. So companies
should control expenses in order to increase net profit.
Efficiency Ratios -
Inventory Turnover Ratio -
Inventory turnover ratio can be calculated as – Cost of goods sold/Inventory
It measures that number of times inventory is sold or consumed in given time of period. Ideal
inventory turnover ratio is between 5 to 10. From the above table we can see that inventory
turnover ratio of tesco in 2018 and 2019 is very higher than ideal ratio, Whereas for marks and
spencer inventory turnover ratio in 2018 is 8.51 and in 2019 it's 9.35. and it is quite good because
it ranges between 5 to 10 (Cui and et.al., 2019).
Fixed Asset Turnover Ratio -
Fixed asset turnover ratio can be calculated as- Revenue/ Fixed assets
Fixed asset turnover ratio indicates that how well company uses its fixed assets to generate
sales. Higher fixed asset turnover ratio indicates that companies are using its fixed assets
effectively. Fixed asset turnover ratio of tesco in 2018 is 1.05 and in 2019 it is 1.51 and for
marks and spencer this ratio in 2018 is 2.14 and in 2019 it is 2.29. it means companies are using
its fixed assets properly in order to generate sales.
Investment Ratios-
Debt to Equity Ratio-
Debt to equity can be calculated as - Total Debt/Total equity
Debt to equity ratio compares company's total liabilities to shareholder's equity. It can also be
used to evaluate how much leverage company is using. Ideal debt to equity ratio is around 1 to
1.5. For Tesco Debt to equity ratio in 2018 is 1.97 and in 2019 it's 1.45 and it lies between ideal

ratio means company is using its assets properly but for marks and spencer 0.59 and 0.65 which
is quite low it means company is not using its assets properly (Franco and et.al., 2020).
Return On Equity-
ROE can be calculated as – Net Income/shareholder's equity
It measures how efficiently company is handling the money that shareholders have contributed
into it. Higher the ROE , higher the company's management is at generating income. In the above
mentioned table, Tseco and marks and spencer are not giving high ROE hence, companies are
not handling shareholders money properly.
Critically determine the Balance scorecard
Balance scorecard- This concern is frameworks in which it helps in implementing the
management strategy of the company. Through this company able to boost the performance of
the employees to perform well in the exams and that will be useful in improving the benefits of
the company in proper manner. This tool is useful in providing the help in maintaining the
efficiency in much better manner as it helps in fulfilling the short- term and long term objective
of the company. This model is basically lustful in improving the efficiency of the company in
better manner and reduces the inefficiency in the company. This model is develop by the Kaplan
and Norton in the year of 1992 and that become the famous frameworks that is useful in
achieving the overall performance of the company and useful in attainment of goals and
objectives. In the context of Tesco and Marks and Spencer, it is important system which required
to be implementation within the process and system and therefore it will help in ensuring the
strategic implementation that could be use in efficient manner to operate the organisation. Hence
the use of this system will be essential for both the company that could use to measure the
performance of objectives and goals of the company (Hutahayan, 2020). Following are the
multiple perspective that used to analyse the balance scorecard in following manner-
 Financial- This is higher level of financial perspective that required to be consider by the
company and will be useful in managing the position of funds in better manner. This will
help in managing the funds in the right manner. This help in attainment of overall goals
and objectives of the company. In the context of Tesco, this perspective plays the
important role in financing the companies in much better manner.
 Customer- This helps in viewing the organisation from the perspective of customer of
the organisation and useful in framing the goals and objective of the company. Customer,

stakeholder play important role in the success of the company and will help in developing
the efficient structure of the company. This become essential role in developing and
application of all needs and requirement of the customer demand. To become the leader
in the market, it is necessary to satisfy their needs and all expectation from the company.
 Internal process- This is wide range that measure the internal process of the company to
undertake in the improvement in the internal process that has to be measure the
operational efficiency and effectiveness. In the context of Tesco, the internal process is
core business process that decide the operational strategical effectiveness of the company.
So, balance score card useful in maintaining the performance metrics of the company
(Karami, Samimi and Ja'fari, 2020).
 Organisational capacity- This is wide range of measure that undertaken in order to
ensure the substantial growth in the company and will be helpful in managing the
capacity of the company. This also leads to increase the overall efficiency in proper
manner to improve the organisational performance. In the context of Company A which
is Tesco, the measuring of organisational performance is very effective in terms of
measuring the improvement in the company so that it able to give maximum profit in its
business to achieve the goals.
Following are the Critical success factor for the organisation are as follows-
Identifying the CSFs helps in track and measure the performance of the progress towards
achieving the strategic goals. In the context of Tesco, following are the activities that need to be
carefully and constantly give attention from the management to adequately perform the function
in the firm.
 Strategic focus- This is one of the critical success factor that need to be consider by the
company in order to facilitates in the company. This factor is very useful in terms of
giving successful process of the company and need to be focus. It include the Leadership,
management and planning in the management and will help in maintaining the
effectiveness. This ensure that it will help in achieving the goals and objectives to make
the organisation more effective.
 People- This is also critical success of factor that will help in managing the proper
relationship with the loyal and potential staff personnel. This also useful in development
of effectiveness in employee performance as they has to be trained enough to perform

any kind of task and it will increase the overall performance of the employees and
company as well. This gives the major goals and objective to achieve the main mission of
the company. This helps in improving the efficiency of the company and will help in
maintaining the efficiency of the company. In the context of Tesco, this factor plays
important role in achieving the goals and objective of the company as they are playing
essential part in fulfilling the main objectives (Le and et.al., 2018).
 Operations- This is also could be consider as the critical success factor of the company
as this involve the process and work of the company. This helps in developing the
effectiveness of the company through controlling and regulating the internal process of
the organisation. This increases the overall efficiency and effectiveness of the company
as this concentrate on the improvement of all operational effectiveness.
 Finances- This refers to the important role in the company in order to enhance the
financial stability and performance of the company as this help in analysing the best way
to improving the effectiveness. In the context of Tesco, the need to increase the
productivity of the company it important to identify the following perspective in the
company to understand the requirement of finance function as it facilitates in analysing
the project which are profitable for the investment purpose that will be useful for the firm
(Miroshnychenko, Barontini and Testa, 2017).
 Marketing – This also play essential role in managing the overall activities and function
that used to attract the customer to make the better use of their products. This include the
customer relations, sales and promotional activities that were basically responsible for the
success of the company. This factor is playing essential role in sales and profitability in
the organisation and will be useful in maintaining the effectiveness of the company. In
the context of Tesco, the need of monitoring this factor helps in improving the efficiency
and effectiveness of the organisation.
Evaluating the benefits and challenges of the Integrated reporting
Integrated reporting refers to the corporate communication that is process for refers to the
communication about the creation. This is concise information about the how business strategy,
governance, performance lead for the short, long term goals. This is the representation of
financial and non-financial performance of the company in single report. This is more beneficial
in the context of non-financial data such as how company is performing the environmental,

social and governance parameters. This is helps to the shareholder and different stakeholders in
terms of analysing the core business efficiency and effectiveness. This is important in the veiw of
determining the sustainability and overall performance of the organisation. It aims to develop the
reporting development to provide more holistic form of reporting to create the value for the
company (Ricci and Civitillo, 2018). As this consider many other factors also other than the
financial aspects of the company. This is backed by IIRC, powerful global coalition of
regulators, investor, companies, standard setters to share the better communication about the
evolution of corporate reporting. In the context of Tesco, this is not just corporate report, it relies
that proposition that companies should be given in proper manner to understand the issue in
many ways. This also helps in traditional approach of the thinking in much better manner and
will be useful in managing the effective way to consider the efficiency. This also helps in
fulfilling the efficiency in greater context. This is useful in many ways and will be helpful in
managing the single task in efficient manner. Some of the following benefits are as follows-
 This helps in demonstrating the company in serious form and incorporating sustainability
into it core business. In the context of Tesco, this is useful in increasing the overall
profitability of the company (Xie and Wang, 2017).
 This also helps in communicating the impact of company's operations on the
environment and community that helps in mitigating the effects and the commitment of
the organisation. This tells the basic form of understanding the need of the organisation
and useful in delivering the better results, In the context of Tesco, this helps in forming
the major form of efficiency to handle various other benefits and will give the
appropriate manner of results.
 Integrated reporting also helps in analysing the informed decision making to improve
overall performance and it also improve the competitive edge of the company in longer
terms to lower the cost of capital. In the context of Tesco, this assist in reducing the cost
of capital and increasing the profitability in longer period and also helps in analysing the
risk and opportunities to improve the sales and correctly identify the ESG. This gives the
better way to improve the effectiveness (Sardo and Serrasqueiro, 2018).
 This also increases the brand value and customer loyalty to interpret better image of the
organisation as this helps in improving the effectiveness in order achieve the goals and
objectives. In the context of Tesco, this helps in improving the effectiveness for

developing the better relations with the customer to enhance the productivity (Sroufe and
Gopalakrishna-Remani, 2019).
 This increase the engagement with the internal and external stakeholders through
consistent and balance reporting and that will help in developing the effectiveness to
build the trust among the shareholder. This become important to maintain the importance
effectiveness in the company and will be useful in maintaining better relationship with
them. In the context of Tesco, this is useful in attracting the effectiveness in terms of
attracting the customer and address the effectiveness of the company in order to give the
better results to the company (Sardo and Serrasqueiro, 2018).
Challenges of Integrated reporting are as follows-
 This has raised the question of providing the assurance to the company about the
reported data and there are multitudes of well-establish agencies about the assurance of
the organisation. In the context of Tesco, the need to understand that it has faced the lack
of confidence among the organisation to use the integrated reporting as its application is
very few in the corporate world and has to be done by the organisation.
 There is complexity in measuring quantifying non financial metrics and then integrating
them into financial performance of the company and it develops the ineffective form of
doing the business. In the context of Tesco, the need to calculate the effectiveness of the
performance and will be difficult in managing the different data sources for the
sustainability of an organisation.
 It create the challenge as compared to financial metrics as Integrated reporting is quite
difficult in evaluating the performance of the company as this build the problem for the
organisation to identify the exact efficiency of an organisation. In the context of Tesco,
the need to understanding the achieve of goals and objectives. It difficult to calculate the
performance of the company and has daunting task (Song, Zhao and Zeng, 2017).
 It need to standard yet to be establish the need to be done in the organisation. In the
context of Tesco, it become difficult to establish the adoption of financial performance
of the organisation and become difficult plans and framework. This necessary to
understanding the efficiency of the company and through the integrated reporting in the
form of providing the proper proposal of the firm.

CONCLUSION
From the above report it is concluded that Financial performance management helps in
analysing the financial results across the organisation and manages and monitor overall
efficiency. The primary objectives of this is to compare the actual results to the budget and
forecasted and make adjustment accordingly. This defining the company's key performance
indicator, formulating strategic plans and forecasted in handling the performance of reporting. In
this report it has been concluded the different ratio analysis technique to identify the financial
performance of the company such as Profitability ratio, Efficiency ratio, Investment ratio and
Liquidity ratio. In this it has been evaluated the Balance scorecard as strategic management
strategy to analyse the critical success factor of the organisation some of the CSFs are Strategic
focus, People, Operations, Finances, Marketing. These are important factor that need to be focus
and require improvement in order to improve the efficiency in the organisation. Apart from that
Integrated reporting has been discussed to examine its challenges and benefits to the company
and proof as essential way to identify the financial and non-financial metrics of the organisation.
This is single kind of report that integrated many factors in one and making it ineffective for the
company to evaluate the performance of the company. In this report the need to understand the
importance of reporting in the company and helps in managing the efficiency of the organisation.

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