Financial Performance Management

This report discusses the evaluation of financial performance of organizations using ratio analysis. It also explores the relevance of Kaplan and Norton's Balanced Scorecard as a strategic management system. Additionally, it provides insights into the benefits and challenges of adopting integrated reporting.

Financial Performance Management

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
QUESTION 1..................................................................................................................................3
Evaluation of financial performance of organizations by using ratio analysis............................3
QUESTION 2................................................................................................................................10
Evaluation of Kaplan and Norton’s Balanced Scorecard as a Strategic Management System. 10
QUESTION 3................................................................................................................................13
Brief description regarding benefits & challenges adopting integrated reporting.....................13
CONCLUSION..............................................................................................................................15
REFERENES.................................................................................................................................17

INTRODUCTION
Financial performance is systematic procedure which used by manager in order to measure
and evaluate their entity’s performance. This report is formulated for the purpose of find out
tools and technique which develop for the purpose of recognize the performance of business
organization.
Tesco has been taken, thus organization run business in supermarket sector and it is
considering as one of the famous multination entity. Headquarter of Tesco is situated at
London. Balance scorecard is help in measuring performance and able to find out value of
organization by using effective tools and formulation of policies.
It is defining how balance scorecard use as system of strategic management. This
report defines use of financial ratio in order to determine the financial performance of
Tesco and its rival business organization Sainsbury.
On the basis of calculating of various ratio position of organization within the market
determine. This report defines the relevance of Kaplan and Norton’s Balanced Scorecard,
its meaning, impact of perspective of customers, shareholders, and use of tools which
help in measuring growth and success rate of organization define in systematic manner.
This report also includes use if integrate report as well as benefits and challenges
organization face while implementation of this report. All these information is defining
in systematic format.
MAIN BODY
QUESTION 1
Evaluation of financial performance of organizations by using ratio analysis.
Tesco: It is considering as one of the most popular organization of UK, which deals in
super market sectors. It is multinational retailer organization which market is spread all over the
world. It proved best quality of merchandise groceries product and services. This organization is
help in contribute towards the economy of UK by providing employment and through selling
their products in market. Sainsbury is one of the major competitive organization which give
toughest competition to this entity.
Sainsbury: This organization contain its position as the 2nd largest retail organization of
UK. Which chain of supermarket spread more than of 16 % of market share of this country. At

present time by using effective marketing policies this organization gave strong competition to
Tesco.
Financial ratio: The term ratio is used to determine relation between 2 or more then
of 2 variables, thus this tool consider as one of the useful and reliable tool of financial
management. With the computation of following ratio performance of Tesco and Sainsbury
can be determining:
Calculation of ratio
Particular Formula Tesco Sainsbury
Current ratio Current assets/ Current liabilities 0.92 0.63
Quick ratio Liquid assets/ Current liabilities 0.5 0.48
Net profit ratio Net profit/ Sales*100 1.5 0.44
Operating profit ratio operating profit / Sales*100 3.95 2.24
Inventory ratio Cogs/ Average inventory 23.83 14.74
Account receivable
ratio
Net credit sales/ Average account
receivables 42.66 204.18
Debt to equity ratio Debt / Equity 1.36 0.97
Dividend pay-out
ratio Total dividend/ Net income 0.1 0.007
Current ratio: This ratio is calculated for the purpose of identify the relation between
current asset and short term lability of organization The main purpose of recognize relationship
in order to find out the ability of organization to pay their short term liability by using their
current assets (Zainudin and Hashim 2016).

In case of Tesco current ratio is measured at 0.92 and on the other side, Sainsbury’s ratio
is evaluated at 0.62. Which means that Tesco is in good position as they have comparatively
more current assets for fulfil their day to day liabilities.
Quick ratio: This ratio helps in determine the availability of cash and cash relevant
assets with organization to fulfil the liability of short term debts.
Value of Tesco’s quick ratio was measure at 0.5 in 2020 and its rival organization was
evaluated at 0.48, that means that management department of %Tesco able to formulate effect
policies use to manage their cash asset for fulfil their short term debt lability. As they have more
than of sufficient cash asset as compare with Sainsbury.
Net profit ratio: This is considering as part of profitability ratio, by calculating this
manager of organization can be recognising ability of their firm to generate revenue by selling of
products. This ratio indicate relation between net profit and sales.

Value of Tesco’s net profit ratio is comparatively high then Sainsbury which indicates
that the growth position of Tesco is much better than their its rival company and they use
effected marketing policies to increase their sales rate.
Operating profit ratio: This is also a part of profitability ratio, which is calculated in
order to determine ability of business to generate operating profit for fulfil needs of operations
by using revenue of selling products.
Operating ratio of Sainsbury was determining at 2.24 and Tesco was 3.95 which indicates
that These co able to generate more operating profit after deducting operating expenses as
compare with Sainsbury.

Inventory ratio: managers for recognize the time which organizations needs to take for
sold & replace their stock for given time period. It is calculated by dividing cost of goods sold
with average of inventory.
In case of Tesco this organization took estimated 24 days in order to convert their
inventory into sales then selling it to customer and Sainsbury took 14 days for this work. Higher
ratio of stock turnover indicate that Tesco have access or bulk of stock which they are not
effectively use. And department of Sainsbury is formulating more effective inventory
management policies thus they use their inventory in effect way (Kukharenko, 2016).
Account receivable ratio: This ratio is calculated to identified time required by organization to
collect money from their debtors. It is used for measure efficiency level of organization.

After calculating account receivable ratio of Tesco evaluate that management department of
Tesco needs 42 days from their debtors to fulfil their debt liability and on the other side it took
204 days to Sainsbury for collection of money from debtors. Which indicate that as compare to
Sainsbury management department of Tesco formulate effected polices to manage or collect cash
or amount from their debtor’s.
Debt to equity ratio: Business organization used to calculate this ratio for find out or
measure financial leverage. As it determines relation between debt and equity on the basis of that
manager recognise the degree at which organization able to finance their operation expense
trough debt or funds of equity shareholders.

Tesco’s debt to equity ratio was measure at 1.36 and on the other side Sainsbury ratio
was evaluated at 0.97 which means that the risk rate of Tesco for their shareholder is
comparatively much higher than its competitor organization (Lim and Noh, 2015).
Dividend pay-out ratio: This ratio is calculated for determine the relation between
dividend and revenue. This will help in determine the rate at which business corporation
distribute dividend among their shareholders.

With the calculation of dividend pay-out ratio, it is measured that Tesco able to distribute
0.1 per dividend to their shareholder and on the other side, Sainsbury distribute 0.007 per share
of divided to their shareholders.
From the Calculation of ratio, it is measure that financial performance of Tesco is much
between then its rival company as their rate of profitability equity and efficiency ratio is
comparatively higher than Sainsbury ratio. Which indicates that Tesco’s build strong position in
market an able to effectively pay their debt liability as well and generate more profit and
distribute higher rate of return to their shareholder.
QUESTION 2
Evaluation of Kaplan and Norton’s Balanced Scorecard as a Strategic Management System.
Balance scorecard: It is considering as effective tool of management which use for the
purpose of measuring performance. Manager use this tool in order to execute activities and
control or monitor their actions for effectivity run business life cycle. Balance scorecard is
deciding measurement of tools for this purpose they use financial as well as non-financial
data. For evaluating of performance they use to measure or evaluate performance rate of
critical success factors on the basis of that manager decide financial performance of
organization.
Kaplan and Norton’s Balanced Scorecard model: This model is developed in 1996, them
main purpose of developing this model is to measure performance of organization. In order
determine and recognize performance manager need to focus on 4 prospective which is
consider as essential factors. Theses includes, perception of customers towards the
organization, learning & growth prospective, tools which showcase performance of finance,
and business strategies to manage the quality of goods and services.
It is use as tool of strategic management as while comparing performance. This us is useful to
determine the reflection of different business strategies.
According to Kaplan in order to maintain suitability of organization for long period of time they
need to exploit and analysis non-financial tools which area no reflect by financial tools
(Amelec. and Carmen, 2015).
With the use of this tool manager able to conveying their vision. They use it to maintain the level
of inventory and well as productivity within the organization. With the use of this tool it

helps in improve the communication and align process of organization which useful and
beneficial for the purpose of attaining goals of strategic management. Tesco use four
elements of this model in order to measure their department’s performance, following are
define below:
Vision & strategy: it is considering as the statement which is the final goal of organization.
Main purpose for which organization is formulated. Vision statement is providing guideline
on the basis of which management department formulate strategies. This model is based on
the assumption that how all the perspective is linked with vision.
Financial perspective: Organization have different objective according to their requirement and
at6tainment of their long term business goals. Financial perspective is related with define
how organization look to their shareholder. For this purpose, they measure growth, operating
and harvest life cycle of their organization. In order to measure the financial perspective
manager, need to determine the return on investment, and operating margin ratio on the
basis of that they can measure the performance of organization.
Customers perspective: In this process organization measure their performance on the point of
view of their customers. In order to recognise point of view of market regarding the
company, they use service rating criteria as well as by measuring level of profit return they
can able to identified customer’s perspective.
For measure the relevance of customers, they use to evaluate, market share, retention rate of
customer, as well as profitability satisfaction and acquisition level of customers. According
to Kaplan and Norton in order to attain competitive business advantage, organization need
to focus on formulate effective customer’s satisfaction strategy in which that define what
things should organization need to do and also things which must be avoided during the time
of operating business operations. Strategy is formulated by Tesco’s management department
for the purpose of focusing on each target market segment and build strong relation with
customers as well as spread positive goodwill in each target market by attracting customers
(Nørreklit Kure and Trenca, 2018).
Innovation & learning: According to Kaplan and Norton, it is relevant to find out the answer
of the question is that what are the things and products organization have which help in
provides satisfaction to customers as well as ways which help in fulfil demand of customer.

For this purpose, they need to formulate policies and develop idea regarding innovation and
launching or applying new products or services within their organization.
Tesco’s management department formulate policies on the basis of measuring integrated process
of multiple departments, they also focusing on cross culture of organization through which
they are able to measure and satisfying their customers demand. And build maximize
shareholder’s wealth.
Internal business strategy: It is related with finding put opportunities and challenges in
upcoming future on the basis of that organization can able to maintain their position in
market for long time period as well as they provide services to customers and create future
value. In order to develop organizations capacity, they focus on reduction of cost and
develop new ideas. Management department of Tesco in order to formulate their business
strategies use this tool which the help of balance scorecard theory is able motivate their
employee by offering them incentive and recognition which boost their career growth.
Management department of Tesco focus on the goals that if their employee is motivated then
the goals of their perspective can be easily achieved by organization as human resource
consider as essential factor of organization. Kaplan and Norton’s Balanced model generally
help in improve the performance of employee as they focus on future investment and growth
organization. For achieving the goals of learning and growth prospective organization
generally focus on capabilities motivation and enhance productivity. By measuring
satisfaction level of employee Tesco can control their rate of employee retain as well as it
will also beneficial for alignment of goals of human resource with organization as motivated
employee run toward the achievement of goals of business organization (Zahoor and Sahaf,
2018).
Tesco’s management department on the basis of evaluating their marginal ratio, operating and
rate of return able to effectivity evaluate perception of their customer as well as find out
those strategies which help in implementation of effective system which that can easily
recognise or measure value of organization.
Balance score card is effective tool of strategic management system with the evaluation and
implementation of these system, manager of Tesco can easily measure performance and
evaluate the reason which become the main case of arising of difference between achieved

and standard target. On the basis of that strategies are formulated which help in attaining
goals of organization and build up strong position within the market.
QUESTION 3
Brief description regarding benefits & challenges adopting integrated reporting
Integrated reporting: It is a document which is formulated to define how business
organization on the point of view of their prospects, governance and performance able to create
value for specific period of time, in order to attain their long, short or medium term goal. It can
be referring as instrument which is use in order to demonstrate link between internal
organization’s goals with external factors of organization.
With the use of formulation of integrated reporting management department of Tesco
able to understand the relevance and impact of factors of external department on the performance
pf organization and took effective business decision which useful in lead success of business
organization and help in decision making procedure.
For formulation of integrated report some rules and regulation needs to be follow by
organizations. Which includes that report must be cover all the essential area of performance
management and formulate audit committee in order to measure and give assurance related with
material sustainability as well as engage with the assurance for external environment.
Following are the benefit of formulation of this integrated report by management
department of Tesco:
Create value: This report help in clearly identified goals and purpose of various factors
which related with organization. Due to this manager can clearly explain what tare the
requirement of customer, expectations of shareholders as well as market condition. With the
formulation of this report it will help in recognize the impact of both on capital and financial
performance of organization. Manager of Tesco on the basis of this report able to formulate
effective model’s as well as use different business model and tools of risk management, which
will help in create value (Gupta and Salter, 2018).
Connectively: This report help; in engagement of employee and employers to words
attainment of goals of organization. Which will help in improve communication and well as
build connection among them which directly reduce rate of internal coherence of organization.

This report also beneficial in order to improve relationship of organization with their
stockholders.
Use to define performance measurement: integrate report also useful in measure the
tools and elements which useful for recognize their performance of organization. On the basis of
that organization set their target which help in measuring financial performance of organization.
Control risk: On the basis of formulation of this report management department of
Tesco able to understand and realise the reason or case of decline rate of performance of specific
department, on the basis of that they capitalised more opportunity & able to mitigate risk of
organization.
As compare with traditional report it proceeds more accuracy and transparency.
Other benefits of integrate report:
This report help in boost confidence of users of integrated reporting, as the information
accurate and reliable which show within this report.
This report useful in manage and control risk by recognizing more opportunities. This will useful
in enhance commitment, to investors & stockholders in order to facilitates attraction and retain of
employees.
Following are the risk which must be face by Tesco due to implementation of integrated report:
Time consuming: Formulation of iterated report require time as it require time for collect
data to analysis all the criteria of measuring performance because in this financial as well as non-
financial factors value are measured and on the basis of that manager formulate their report.
Require integrated mind set: Tesco face issue and problems as it require clear mind set while
formulation of this report (Flower, 2015).
Difficult in value creation: In order to measure performance manager, feel issue and
problem at the time of collection of business data as is really tough to find key indicators and use
them for the purpose of measuring performance.
Conciseness: Integrate reports are formulated for more than of 160 Pages. It became
challenging to management department of Tesco to communicate with stakeholders. Thus they
found difficulties at the time of reviewing the whole data and then take decision for their
shareholder. on the basis of that it found that due to formulation of this report they face many
issue. They need to formulate integrated report in such manner through which they can easily
interpret and analysis performance of the organization.

Require high quality of data: Management department of Tesco face issue and the
biggest challenge in order to provide accurate business data is that they need high quality of
business data which help in formulation of accurate business report, which will beneficial for
attaining success criteria of organization. On the basis of that they can easily
Materiality: While formulation of report it is really difficult to find out the relevance and
requirement of each segment of their target market and group of stakeholder there for Tesco is
not able to fulfil the requirement of each group of customer or their relevant stakeholders. Thus
organization face challenges during the time of finding out which growth or segment of target
market is more beneficial for Tesco of their company.
Reliability and completeness: According to the study only % of integrated reports are able
to collect or fulfil criteria of good report. As theses report able to effectively present equal
measurement of performance of organization on the basis of measuring each factor of
organization (Atkins and Maroun, 2015).
Tesco is face many issue while using this tool to measure and evaluate the accurate
performance of organization for define period of time, as with the formulation of integrated
report they can able to evaluate the value of shareholders for given time period however they
also suffer from many of issue while impanation of this report (Feng, Cummings and Tweedie,
2017).
CONCLUSION
From the above analysis it has been concluded that in order to measure performance of
organization, manager can use tools and techniques of financial management. There will be
many techniques which help in indicate and define the relation between variables or items of
financial statement. Financial ratio is one of them, by calculating profitability, efficiency,
and liquidity ratio, performance of organization for specific time period can be measure.
In case of Tesco and Sainsbury, Tesco is much better then its rival entity as their value of
current, net profit, operating and debt equity ratio is comparatively higher than Sainsbury.
Which indicate that this management department to this organization use effective business
policies for give toughest completion to their competitors. Manager also use of Kaplan and
Norton’s model, this help in find out perspective essential element or sector of organization
on the basis of that performance measure and manager able to formulate policies which
useful in attaining their goals.

They on the basis of using this model able to find opportunities, perception of customer,
things which help in staffed stakeholders al these beneficial in maintain long term
sustainability of organization. Manager also implemented integrated report which useful in
mitigate risk by improving relation between internal parties by enhance communication and
connectivity between different parties of organization.
This report useful in accurately measure the relevance performance of organization which
further beneficial in attain long term goals of business entities.

REFERENES
Books and Journal
Zainudin, E. F. and Hashim, H. A., 2016. Detecting fraudulent financial reporting using financial
ratio. Journal of Financial Reporting and Accounting.
Kukharenko, O. G., 2016. THE ANALYSIS OF FINANCIAL RATIO-CONTROL''S
EFFICIENCY LEVER OF ACTIVITY OF THE OIL AND GAS COMPANIES. Бизнес в
законе. Экономико-юридический журнал. (4). pp.45-50.
Lim, J. Y. and Noh, W., 2015. Key components of financial‐analysis education for clinical
nurses. Nursing & health sciences. 17(3). pp.293-298.
Amelec, V. and Carmen, V., 2015. Relationship between variables of performance social and
financial of microfinance institutions. Advanced Science Letters. 21(6). pp.1931-1934.
Nørreklit, H., Kure, N. and Trenca, M., 2018. Balanced scorecard. The international
encyclopedia of strategic communication. pp.1-6.
Zahoor, A. and Sahaf, M. A., 2018. Investigating causal linkages in the balanced scorecard: an
Indian perspective. International Journal of Bank Marketing.
Gupta, G. and Salter, S. B., 2018. The balanced scorecard beyond adoption. Journal of
International Accounting Research. 17(3). pp.115-134.
Flower, J., 2015. The international integrated reporting council: a story of failure. Critical
Perspectives on Accounting.27. pp.1-17.
Atkins, J. and Maroun, W., 2015. Integrated reporting in South Africa in 2012. Meditari
Accountancy Research.
Feng, T., Cummings, L. and Tweedie, D., 2017. Exploring integrated thinking in integrated
reporting–an exploratory study in Australia. Journal of Intellectual Capital.
valuation. Review of Quantitative Finance and Accounting. 47(4). pp.1221-1250.

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