Financial Reporting and Analysis

This dissertation examines the importance of financial reporting and analysis in a business context, using Tesco as a case study. It explores the concept of financial reporting, its impact on business performance, and the various methods used for analysis. The research utilizes both primary and secondary data sources, including a survey of Tesco employees and a review of relevant literature. The dissertation concludes with recommendations for improving financial reporting and analysis practices within Tesco.

DISSERTATION

Table of Contents
PART 1- RESEARCH PROPOSAL ...............................................................................................4
Title - “Importance of Financial reporting and analysis in a business" - A case study on Tesco....1
CHAPTER 1 : INTRODUCTION ..................................................................................................1
Background of the study ........................................................................................................1
Research questions.................................................................................................................2
Problem statement .................................................................................................................2
Rational ..................................................................................................................................2
CHAPTER 2 : LITERATURE REVIEW .......................................................................................3
CHAPTER 3 : RESEARCH METHODOLOGIES ........................................................................4
CHAPTER 4 : DATA COLLECTION............................................................................................4
CHAPTER 5 – DATA ANALYSIS................................................................................................4
CONCLUSION AND RECOMMENDATION...............................................................................5
TIME SCALE AND ACTIVITIES ...............................................................................................5
PART 2 – RESEARCH PROJECT.................................................................................................7
CHAPTER 1 - INTRODUCTION ..................................................................................................1
1.1 Background of the study ..................................................................................................1
Breaking Down Financial statement analysis ........................................................................2
1.2 Aims and Objectives ........................................................................................................3
1.3 Rational for the research...................................................................................................3
1.4 Significance of the study .................................................................................................4
CHAPTER 2 – LITERATURE REVIEW ......................................................................................5
2.1 Introduction .....................................................................................................................5
2.2 Concept of Financial reporting and Analysis...................................................................6
2.3 Importance and objectives of financial reporting.............................................................7
2.4 Role of useful financial reporting in crisis ......................................................................8
2.5 Methods of financial analysis...........................................................................................9
2.6 Impact of Financial reporting or statements ..................................................................10
2.7 Comparative statement analysis.....................................................................................11
2.8 Limitation of financial statements .................................................................................12

CHAPTER 3 – RESEARCH METHODOLOGIES......................................................................14
3.1 Introduction ...................................................................................................................14
3.2 Research design..............................................................................................................14
3.3 Research type..................................................................................................................15
3.4 Research philosophy.......................................................................................................15
3.5 Data collection................................................................................................................16
3.6 Sampling.........................................................................................................................17
3.7 Ethical considerations.....................................................................................................17
3.8 Limitation of study.........................................................................................................17
CHAPTER 4 : DATA COLLECTION..........................................................................................19
4.1 Introduction....................................................................................................................19
4.2 Data collection ...............................................................................................................19
4.3 Secondary Data analysis ................................................................................................19
Ratio analysis of Tesco.........................................................................................................25
CHAPTER 5 : CONCLUSION AND RECOMMENDATIONS .................................................30
REFERENCES .............................................................................................................................33

PART 1- RESEARCH
PROPOSAL

Title - “Importance of Financial reporting and analysis in a business" - A case
study on Tesco.
CHAPTER 1 : INTRODUCTION
This research is in context to financial reporting and analysis and its impact on business
performance. Financial reporting or statements are very useful for an organisation to examine
and identify its income or expenses. It helps to determine current financial position of a company
, in the present study examiner will analyze Tesco to measure impact of financial reporting on
business performance. The report will include implementation of various research methodologies
such as Research approach, data collection and analysis etc to achieve aim and objectives of this
examination. It will also include primary and secondary collection of information and data
related to the subject or topic of this research.
Background of the study
In the modern era many businesses or organizations are operating their business activities
in order to achieve more success as compared to their competitors (Santi, Puspitasari and Ghani,
2017). There are various departments which are essential for effective functioning or working of
an organization or business, including marketing, human resources, operations and finance
department (Bushee, Goodman and Sunder, 2018). In order to achieve success it is very
necessary to control and manage each of these areas so that the business activities can be
performed in a most effective manner. This research will focus on identifying the importance of
financial reporting and analysis in a leading supermarket Tesco in UK. This company is
operating in many countries all around the world, Tesco sells more than 40000 food products in
its supermarket stores. Tesco Personal Finance Tesco Personal Finance (TPF) was launched in
July 1997 and is a joint venture with Royal Bank of Scotland (Naranjo, Saavedra and Verdi,
2017). Products consist Clubcard Plus, a grocery budgeting account. Financial statements
demonstrate the status of an organization's expenses, assets, liabilities and revenues. Tesco sells
branded products and own brand products. Tesco label products are at three levels, Value normal
and Finest products. Own brand accounts for around 50% of sales. In 2001-2002 the company
introduced over 3,500 new food lines. Tesco also stocks more than 1,100 organic lines, its owned
brand can now be found in various Groups International Stores (Akins, 2017). Tesco Petrol is
one of the largest independent retailers in Britain, with more than 340 petrol stations, including
Express sites that sells one in every 8 gallons (12.5%) of petrol sold in the United Kingdom.
1

Within the next 2 years Tesco will accomplish its aim of establishing more than 150 Tesco
Express stores. Tesco was the first petrol retailer to introduce low benzene unleaded petrol in line
with the Royal Commission on environmental pollution (Krishnan, Myllymäki and Nagar, 2018).
The overall financial health of a business can be determined from analysis of financial statements
that serves as the complete record for financial records for an organisation. It can also be referred
as a internal business tool that helps in tracking the intake and outflow of finance or money. The
increasing financial concerns of businesses encourage and motivate entrepreneurs to develop an
effective financial reporting system for their organizations (Fernández, Arrondo and Pathan,
2017).
Aim - “ To examine importance of Financial reporting and analysis in Tesco”
Objectives :
 To examine the concept of financial reporting and analysis
 To determine various types of financial statements or reports
 To understand relationship between financial reporting and decision making
 To provide recommendations related to financial reporting
Research questions
1. What is financial analysis and reporting?
2. How financial reporting affects a business?
3. What is the relationship between financial reporting and business performance?
Problem statement
According to the current situation or market conditions investment decisions in
organizations have been very slow due to the improper system or negligence on the utilization of
financial statement and other essential financial records. Many companies are still not familiar
with the benefits of financial statement, therefore limiting their understanding and knowledge
about their financial position as well as their quality to utilize financial statement to make
essential decisions related to investment.
Rational
Financial reporting and analysis is a essential part of every business or organization, it
helps to determine financial position of a company including its income and expenses.
Researcher has a interest in this subject due to its increasing significance in businesses and the
ways it is influencing an organization or company such as Tesco. The financial reporting and
2

analysis needs to be examined in detail to get a better understanding of this functions and
determine its importance for managing business income or expenses effectively.
CHAPTER 2 : LITERATURE REVIEW
This chapter views primary ideas defined in the study, a review of theoretical literature
which gives an perception of the basis of research and eventually links literature to current study
by considering what researchers have written with the conclusions arrived at as far as this study
in concerned. Investment decisions enables corporate leadership to examine different investment
opportunities and to show how departments should make good commercial bets. Improving
financial statement can positively affect a company or business, on the other hand some
examiner also implies that there is impact of developing finance actions on performance of an
organisation. Making financial analysis of a business organization is not a simple job, there are
diverse financial reports and records that is important to be examined and there are also a lot of
elements with financial statements that are required to be cautiously measure, review and
interpret. It is essential to assure that the accountants are aware of proper techniques or methods
to analyse financial statements. This chapter therefore seeks to display the views relating to the
effect of financial statements on investment decisions in a company (Laitinen, 2018). A business
financial health is reported in three financial statements. The balance sheet, which shows a
record of the business assets and liabilities of an organization at a particular time. The income
statement or the profit and loss statement shows a record of its expenses and income for a given
time period. The cash flow statement determined the effect of its business activities on the cash
balances (Lara, Osma and Gazizova, 2018). Each of this required to make informed business
investment decisions, this study will include a literature review based on various secondary
sources and previous studies on the similar topic. If an organization is interested in making
investment within a small business, its financial professionals will likely to analyse the
organization's current and past financial statements. The objective of these financial statements is
to identify possible weaknesses and areas of problems that needs to be discussed with the owners
of the company. The financial professionals look for unusual movements in items from year to
year and for patterns in profits and revenue. Steady growth and development if generally positive
or negative which may be a sign of disorder. Cash flow statements must demonstrate the way in
which a business generally obtains and utilizes cash. The management team of a small business
may conduct a similar analysis as a part of an annual business review. The company's financial
3

accountants and adviser should participate in such reviews. Ratio analysis compares values
within the organisation from year to year and against other organisations or industry. Liquidity
ratios such as the current ratio present the organisation's ability to pay its short term obligations
on time. The debt ratio shows value of organisation's assets provided by debt. The lower
percentage depicts a lower dependence on debt and higher percentage shows higher risk taken by
the company.
CHAPTER 3 : RESEARCH METHODOLOGIES
A research can be defined as a organized process of gathering and analysing information
or data affiliated to chosen subject. The methodologies utilized in an research or investigation are
the ways in which examiner collects relevant data and analyses it so that appropriate conclusion
can be drawn. There are various research methods which can be used in an examination related
to any subject or topic. These methodologies helps in making a specific design, structure and
technique that can help in collecting as well as analysing data in a most appropriate way
possible. These methods will include research approach, themes, data collection, data analysis
etc.
CHAPTER 4 : DATA COLLECTION
The researcher will use both primary and secondary sources to gather relevant data related to
financial reporting and its impact on businesses. In the present research examiner will use
secondary data collection method. It will help in collecting most appropriate, reliable and data
related to the topic. The data will collected through various sources such as previous studies,
books, articles and journals which are used by other researchers as well. This data collection
method is not much reliable as comp red to primary techniques but helps in providing a huge
data relate to the topic chosen for the research.
CHAPTER 5 – DATA ANALYSIS
This part of the research include a statistical and brief analysis of each and every
information or data collected through primary & secondary sources. The data analysis consist
two methods Qualitative and Quantitative. The Qualitative data analysis is a tool that helps to
analyze or examine data on the basis of various themes, on the other hand by using Quantitative
method researcher can study data statistically. Statistical analysis can be descriptive that consist
graphical representation of data along with interpretation and thematic analysis included
4

concepts, words, models etc. In this research, examiner will use a combination qualitative and
quantitative data analysis to get the most effective outcomes of the study. The data collected
through interview and secondary sources will be analyses in thematic and statistical methods.
CONCLUSION AND RECOMMENDATION
This is the last part of every research or examination, that includes a overall result of the
study conducted. The researcher summaries results gathered from data analysis part, it drives a
specific meaning of the research related to the subject. Furthermore, it also includes
recommendations to overcome challenges and issues as identified in the research. The examiner
will examine and provide most appropriate solutions for overcoming challenges related to
financial reporting and analysis in Tesco that can positive affect its business activities.
TIME SCALE AND ACTIVITIES
5

Illustration 1: Gantt chart
6

PART 2 – RESEARCH
PROJECT
7

CHAPTER 1 - INTRODUCTION
Financial report have been accepted by investors and other external stakeholders as the
primary window into an organization's financial position and performance. In addition to being
critical source of data for a company's financial health, the financial reports are also considered
an essential technique to for maintaining the integrity of capital markets all around the world.
This research study is in context to financial reporting and analysis and its impact on business
performance. Financial reporting or statements are very helpful for an administration to analyze
and determine income or expenses. It assist to find out the current financial position of an
organization. In the present study, examiner analyzed Tesco to measure impact of financial
reporting on business performance. This part of the research includes execution of different
research methods such as research approach, data collection and analysis, etc. to achieve aim and
objectives of present study (Santi, Puspitasari and Ghani, 2017). It also involves primary and
secondary collection of information and data related to the subject or topic of this research.
1.1 Background of the study
Financial reporting or statement is the mirror image of organization's real financial
position and health. Stakeholders and shareholders can get a precise ideas with regards to a
business or company by effectively analyzing its financial reports. It also helps the investors to
determine financial profitability, feasibility and growth of a specific organisation. Financial
reports can also have a big effect on financing a business. The investor who render business loan
to an organization examine its financial statements to identify its position, performance and
financial health. The lenders are more attracted towards organizations having good financial
statistics. Accounting department within a company is responsible to develop a financial
statements related to the business transactions, assets and liabilities. It assist stakeholders and
management of a company to take relevant decisions for the business and evaluate pricing
strategy, production trends and efficiency of the operations. Tesco is one of a leading
supermarket chain operating its functions in different countries in the world, it is essential to
record and manage financial elements are linked to the company so that profitability of each and
every unit can be maintained effectively.
Annual financial reports are still of corporate reporting with organizations investing
important effort and time in their preparation. Although, there has been criticism recently that
1

annual financial reports are becoming increasingly less relevant and less useful for decisions to
users. There are various reasons observed for this decline in usefulness of the financial reports
such as -
1. Lack of timeliness because users can now access to more timely alternative sources of
information.
2. Inability to capture corporate value consist of knowledge based intangible assets.
3. Rise in alternative measures that acts as potential substitutes to statutory data provided
within financial reports.
4. Increasing length and complexity specifically to note disclosures.
Breaking Down Financial statement analysis
Financial statement analysis is an evaluative method of understanding the past, present
and projected performance of an organization such as Tesco. Various methods are generally
utilized as part of financial statement analysis including horizontal analysis which compares two
or more years of financial data in both percentage and currency form. Vertical analysis in which
each and every category of accounts on the balance sheet is shown as a percentage of the total
account and ratio analysis that assist in calculating statistical relationship between data.
Financial statements
These statements allows analysts to identify trends by comparing ratios across multiple
statement types and periods. Financial statements allow analysts to measure profitability,
liquidity, cash flow and company -wide efficiency. There are three major types of financial
statement, income statement, balance sheet and cash flow statement. The balance sheet is a
image of organisation's assets, liabilities and shareholder's equity at a particular period of time.
Analysts utilise the balance sheet for analysing debts and assets. The income statement begins
with sales and ends with net income. It also provides information of net profit margin, operating
profit and gross profit to analysts respectively. Cash flow statement provides an overview of the
organisation's cash flows form investing activities, operating activities and financing activities.
Financial statement analysis
Each and every financial statement provides multiple years of data or information. These
statements are used together by analysts for tracking performance measures across financial
statements utilising various techniques for analysing financial statements including horizontal,
vertical and ratio analysis.
2

The present research will focus on identifying importance of financial reporting and
analysis in Tesco along with its impact on the business functions & performance of the cited
company. The research paper will present various research methodologies which are
implemented in order to collect, analyze and interpret the data related to the subject chosen for
this examination. The research methods will include philosophy, data collection methodology,
analyzing technique etc that are used to obtain most appropriate result from the study.
Furthermore, this report will also demonstrate a theoretical and statistical presentation of the
information collected through various sources in order accomplish the examination. A literature
review focusing on the concept, importance and impact of financial reporting & analysis will be
also included in this research paper.
1.2 Aims and Objectives
Aim - “To examine the importance of financial reporting and analysis in Tesco”
Objectives:
1. To examine the concept of financial reporting and analysis
2. To determine various types of financial statements or reports
3. To understand the relationship between financial reporting and decision making
4. To provide recommendations related to financial reporting
1.3 Rational for the research
There have been increasing risks and uncertainties in stock market investment
particularly after the recent global financial crisis, hence, shareholders and regulators have put
pressure on organizations to provide more disclosure, mainly information on risks and risk
management. The costs and benefits of risk disclosure play a critical role in examining risk
disclosure practice of management. The researcher was motivated to address these problems or
issues in order to assist users interpret risk information and to encourage management to provide
more information on risks. This thesis attempts to provide insight about the kinds of risks, about
the attitude towards risks and risk disclosure of management and of users of annual reports &
finally about the determinants of risk disclosure level and practice. Researcher has an interest in
financial reporting and analysis due to its enhancing importance in business organizations and its
impact on large scale companies such as Tesco (Naranjo, Saavedra and Verdi, 2017). Financial
reporting and analysis is a important component of every business or organisation, it assist to
ascertain financial position of a company including its income and expenses. Researcher has a
3

interest in this subject due to its increasing importance in businesses and the ways it is affecting
an organization or company such as Tesco. The financial reporting and analysis needs to be
analyzed in detail to get a better understanding of this functions and determine its importance for
managing business income or expenses effectively. It is necessary to determine the requirement
of financial reporting and analysis in all businesses that driven researcher to execute this
examination.. The financial reporting and analysis needs to be analyzed briefly to get a better
perceptive of these functions and find out their significance for managing business income or
expenses effectively. This research paper included different chapters or parts to develop a
specific structure of the dissertation – such as Introduction, Literature review, Research
methodologies, Data collection, Analysis, Conclusion and Recommendation.
1.4 Significance of the study
This research study will helps to understand the impact of financial reporting and analysis
on business such as Tesco. The examination will analyze various uses and importance of
financial reporting in organizations. Information related to financial statements and reports will
be collected from different sources that will also assist in obtaining a great knowledge of the
subject. The study examines corporate risk disclosure level and practice within the financial
report of Tesco. This examination provides evidence on risk information categories nature,
volume, time frame and types of news. Furthermore, the research attempts to determine
voluntary and mandatory risk reporting requirements & to investigate which is the best practice
in case of risk disclosure with emphasis on the business environment.
4

CHAPTER 2 – LITERATURE REVIEW
2.1 Introduction
This chapter provides a brief overview of previous studies or research on financial
reporting and analysis. It presents a proper framework for the examination that consists main
concern of the research determined in the form of literature. The research literature is in context
to financial reporting and analysis and its impact on business performance. Financial reporting or
statements are very helpful for an enterprise to analyse and identify expenses or income. It assist
to determine the current financial position of a company. In the present study, examiner will
analyse impact of financial reporting on business performance. It is necessary to develop a
structure of the literature review by providing an effective discussion of its particular purpose for
the present research study, explanation on the previous studies on the selected subject of the
examination and scope of the presented work in this chapter. This literature review will describe
concept of financial reporting & analysis along with its impact on performance and functions of
an organization or business.
Shepardson, (2018) stated that financial statement analysis is important to predict future
based on analysing the past. Analysis of financial statement can be made on daily, weekly,
monthly and quarterly report basis. Managers of an organisation analyse and determines overall
productivity and performance of each & every segment of their business. Productivity of
employees can be judged by measuring productivity in the past and gauging the same in the
future. An organisation uses four basic kinds of financial statement as mentioned below -
 Balance sheet
 Income statement
 Cash flow statements
 Statements of shareholders equity.
These statements represents the organisation to a great number of stakeholders, the
proper understanding of these statements is very essential for the managers for collecting
financial information and make appropriate decisions. This information assists managers in
company valuation, valuation of cost, sales and profit of the company. Ratio analysis is used
since 18th century for the study of financial information or data. Financial ratios helps the analyst
to identify the financial condition of an organisation. Although there are different methods used
for financial ratio analysis, but organisation mostly uses balance sheet and income statement are
5

the main sources of financial data or information that utilised to calculate financial ratios. Ratio
analysis is a major tool utilised by management of organisation in order to observe current
performance and compare it with the pre-determined standards. As a result, decisions can be
taken on the basis of differences between actual and standard performances. There are three main
types of users who are highly interested in the evaluation of ratios which are creditors, operating
management and company shareholders. Operational and management strategies as well as
efficient employees strongly influence the success of an organisation. Managers are highly
responsible for productive utilisation of the asset by maximizing profit and minimising cost.
2.2 Concept of Financial reporting and Analysis
According to Kuzey and Uyar (2017), In any organisation whether service or
manufacturing, there are numerous departments which performs various everyday functions
everyday in order to attain business goals and objectives. The operations of these departments
may or may not be dependent on each other but as a whole they all are connected together by one
areas known as Accounting and finance department. Accounting and financial aspects on every
all departments are recorded and reported to different stakeholders of a company. There are two
kinds of reporting Management reporting for internal management and Financial reporting for
various stakeholders of an organisation. Both the reporting are essential and important part of
Accounting and reporting system of a business. But considering the number of stakeholders
engaged and statutory or other requirements financial reporting is very much necessary and
critical function of a company (Crowther, 2018). It is referred as a vital part of corporate
governance.
Financial reporting involves the revelation of financial data and information to different
stakeholder regarding financial position and performance of the organisation over specific period
of time. According to Barth (2018), there are various stakeholders of an organisation including
creditors, investors, public, governments, debt providers and government agencies. If the
companies are listed, the frequency for developing financial report is quarterly and annual.
Diverse studies and books stated that it is one of the most essential activity for an organization
but monitoring of financial performance is also very necessary to determine the health of a
business. According to various researchers and studies it has been identified that companies
monitor its financial performance by measuring sales and turnover. The sales and turnover
present profitableness of the company, it provide a clear picture of whether a company is in
6

profit or its going in loss. Financial reporting is generally considered as a outcome or end
product of Accounting (Bushee, Goodman and Sunder, 2018). Various researcher have presented
general reviews on different facts related to financial reporting and analysis in the business.
Accounting standards harmonization, convergence, growth in disclosure requirements, economic
crisis and other factors have developed an increased focus on financial reporting. Along with this
the global enhancement in accounting scandals in the 21st century has presented that there are
still many weaknesses in quality of financial reporting analysis performed in the organizations all
over the world (Hart, 2018). The important elements of financial reporting are mentioned as
below –
 The financial statements – Profit and loss account, Balance sheet and Statement of
changes in Stock holders equity.
 Quarterly and Annual reports
 Management analysis & discussion
 Prospectus
 The notes to financial statement
2.3 Importance and objectives of financial reporting
According to Bushee, Goodman and Sunder (2018), accounting is not an exact science
neither it is business operation without some judgmental and subjective errors when it comes to
it reporting. A financial report is an statement that helps in informing different interest group
related to an organisation on the performance and operations of their business in a specific time
period. Along with this it also helps to determine its current state of affairs along with prediction
of future with regards to the data. Financial reporting becomes essential with the need for
managers to give accounts of position to owner of an organisation. According to international
accounting standard board, the main objective of financial reporting is to provide information
regarding financial performance, position and changes in financial orientation of an organization
that is useful for many users in making economic decisions. The purposes and objectives of
financial reporting can be discussed as following -
4. Providing data or information to management of an enterprise which is utilized for the
purpose of planning, bench marking, analysis and decision making.
7

5. Providing information to promoters, investors, creditors and debt provider which is
utilized to enable them to make prudent and rational decision related to credit investment
etc.
6. Increasing social welfare by looking into involvement of trade union, government and
employees.
7. Providing information to public & shareholders at a large scale in cases related to listed
companies with regards to various aspects of a business.
8. Giving information relating to sources from which funds have been procured and major
investments.
9. Providing information regarding economic resources of a company, claims related to
them and the ways in which these resources & claim have changes with time.
The importance of Financial reporting can not be determined specifically as it is needed
by each and every stakeholder for multiple purposes and reasons in an organisation According to
Naranjo, Saavedra and Verdi (2017), there are various factors that states that financial reporting
is important for an organisation such as - It assist a company to comply with different regulatory
and statutory requirements. The businesses are needed to file financial statements to government
agencies. In case of listed organizations quarterly and annual outcomes are needed to be filed to
stock exchanges. Financial reports helps in facilitating statutory audit, the auditors are needed to
examine financial report and statements of a business in order to express their opinion. It helps in
developing backbone for financial analysis, planning, decision making and bench marking.
Financial reports are utilized for all the above mentioned purposes by different stakeholders in a
a business. On the basis of financial records or reports the public can identify the management
and performance of an organisation (Krishnan and Myllymäki, Nagar, 2018). For the purpose of
labour contract, bidding, government supplies and so on, companies are needed to furnish their
financial statements and reports.
2.4 Role of useful financial reporting in crisis
 Understandability and Complexity – Complexity within financial reports or statement is
not a new subject for discussion and has been debated since financial crisis in the year
2008. According to a survey by the Chartered Institute of Management Accountants
(CIMA) of 350 directors, 90% thought that financial reports are unnecessarily complex
and 94% thought that the issue had been getting worse in the last five years (CIMA
8

2009). The survey indicated that respondents would rather have financial reports be
understandable and relevant than entirely certain. According to Naranjo, Saavedra and
Verdi (2017), the idea of principles-based rather than rules-based accounting, is
supported by both the Global Accounting Alliance and CIMA along with this he also
states that current financial reporting standards are complex for both the end-users and
compilers (Bala, 2017). Bushee, Goodman and Sunder (2018) states that the complex
financial instruments utilized by banks and their valuation in the market should mean that
banks are different in their financial reporting. The integral complexity of financial
instruments utilized by banks results in an asymmetry in information between sellers and
buyers. The researcher commented that the 8 valuation of the debatable assets of banks
and the standards used for their measurement for different banks were not clear and
contributed to the decreasing assurance in various financial markets. Complexity
influences understandability negatively, which contributes to the usefulness of financial
reports. If the information is too complex for a user, it decreases the utility of the report.
 Fair Value accounting – An argument that was raised during financial crisis concerned
the role of fair value accounting in intensifying or causing crisis. Fair value accounting
was said to be contributing to the crisis negatively in terms of the decreasing value in
bank assets. According to Call (2017), various parties including American International
group called for the suspension of fair value policies stating that it enforced organizations
to value assets at much lower prices as compared to their real value. A summary
including feedbacks provided by the FASB in the year 2010 concluded that majority of
groups did not aid fair value for financial liabilities. These outcomes suggest that there is
a difference in total support and opinions for fair value.
2.5 Methods of financial analysis
Evaluation of the business performance can be challenging and needs a systematic
collection & review of financial data or information. Financial statements provide this summary
of gathered data. The three primary statements consist balance sheet, income and statement of
cash flows. Organizations have a statement of equity, reviewing and analyzing financial
statement provide the user understanding of trends and indicators to compare management and
operations. The various methods of analyzing financial reports or statements can be described as
below -
9

Horizontal and Vertical analysis – In horizontal method of analysis, financial data or
information is compared on a sequence of reporting periods (Shepardson, 2018). The vertical
analysis method helps in analyzing financial data in a proportional way, that includes recording
of every item on a financial statement as a proportion of another. Generally, this states that each
and every line item mentioned on the income statement is quantified as a proportion of gross
sales, whereas every item included in the balance sheet is quantified as a proportion of total
assets.
Ratio analysis – Ratio are utilized for calculating the comparative size of a number in relation to
another number. After a ratio is calculated, it can be utilized for comparing a similar ratio
calculated for a previous period or a ratio identified on an average of a specific industry for
analyzing companies performance with respect to the set goals and objectives. In a critical
financial analysis practice, most of the ratios will be within set goals while some will highlight
potential challenges and issues. Ratios have been categorized into four types – activity ratios,
liquidity ratios, profitability ratio and activity ratios.
Trend analysis – This implies review of financial statements of at-least three or more periods, an
expansion of horizontal analysis. The earliest year in the set information or data demonstrate
the base year. In trend analysis, users examine statement for additive patterns of change. A
change in financial reports or statements represents that there is either decreased expenses or
increased income.
2.6 Impact of Financial reporting or statements
According to Bala (2017), there are various effects of financial reporting or statements on
a business or organizations such as Impact on stock price – Financial reports can have drastic
impact on the stock price of an organization such as Tesco. Many investors analyze the financial
reports when making investment decisions. If data or information is presented in a financial
statement can affect the stock price. Investors generally utilize financial ratios on the basis of
information from statement or reports to develop most reliable assumptions. Due to this reason
financial statement can have a great impact on the business investors. Financial decisions –
Financial reports can also have a huge impact on financing a business can get. The lender who
provides business loan to a company examine its financial statements to identify its position,
performance and financial health. The lenders are more attracted towards organizations having
10

good financial statistics. Attract new Investors – The financial statement also plays an important
role in attracting new investors towards a business or organisation (Shepardson, 2018). It
influences the decisions of new investors in the market, whenever a company issues new shares
of stock in marketplace, it needs to distribute financial reports to potential investors. These
investors analyze the financial statements of the company in order to determine benefits of
investing their money in that particular organization. Negative or low financial performance
could negatively affect their decisions to make investments in the business. Impact on decision
making – Each and every organisation needs to develop new strategies related to their business
functions and changing environment in the market (Zhang, 2017). These decisions are highly
linked to the financial position of a company, maximum functions performed in an organization
are linked with the accounting and finance department. For example – Making a new marketing
strategy such as TV advertisement requires sufficient amount of fund, the board of directors
examine business profitability and financial before developing this marketing strategy to set the
budget. Therefore, financial reporting helps in making effective decisions in a company and can
affect it negatively or positively. It can help to make more relevant decisions related to functions
and changes in the firm as financial reports can assist in developing a appropriate budget for a
new project or change in the business functions such as marketing, operations or etc. It can also
affect the decision making negatively as financial statements only includes the financial health of
an organization which is a major limitation (Lara, Osma and Gazizova, 2018).
2.7 Comparative statement analysis
The comparative financial statement represents the financial condition or position at
different period of time (Shepardson, 2018). The elements of financial position are shown in a
comparative form in order to provide an idea of financial position at 2 or more periods. Two
financial statements: income statement and balance sheet are developed in a comparative form
for financial analysis purpose. These statements helps in performing a deep study of financial
position operating outcomes or results. The analyst is able to draw significant conclusions when
figures are presented in a comparative position. The quarterly, half yearly or annually figures of
sales, may determine only current position of sales efforts. When sales figures of previous
periods are presented along with the figures of present periods then the managers or analysts will
be able to examine the trends of sales over various time periods. Similarly, comparative figures
will represent the direction and trend of financial position and operating outcomes or results. The
11

financial information or data will be comparative only when similar accounting principles are
utilized in developing these statements. In case of any difference or deviation in the utilization of
accounting principles this fact should be mentioned at the foot of financial reports and analyst
must be careful in utilizing statements. Comparative statements can be developed for both
balance sheet and income statement.
11 Comparative income statement – It helps in providing information to examine direction
of change within a business. balance sheet determines the financial position of a business
at the end of an accounting period and the financial statement. Income statement shows
the operating as well as non-operating outcomes for a period. But top management and
financial managers are also interested in knowing whether the business is moving in a
favorable or unfavorable direction (Ni and et.al., 2018)11 Comparative balance sheet – Comparative balance sheet as on two or more different
dates can be utilized for comparing liabilities and assets as well as finding out any
increase and decrease in those items. There are two main types of assets: current assets
and non-current assets are likely to be utilized and converted into cash within one
business cycle which is generally treated as twelve months. Three essential current assets
items identified on the balance sheet are investors are normally attracted to organizations
with a good amount of cash in their balance sheet as it provides protection to them in
tough situations. It also provides more option for future growth to the companies,
increasing cash reserves generally represent strong organizational performance. It
demonstrates that cash is getting collected quickly which makes it difficult for the
managers to make most appropriate use of the figures.
2.8 Limitation of financial statements
Financial statement analysis and interpretation are the basic elements for decision-making
process for stakeholders, creditors, managers and other groups. The external analysts such as
bank credit officer needs to answer questions related to a organization's earning capacity, ability
to meed principle obligations and interest, ability to pay dividends and general financial strengths
and weaknesses based on the financial statement analysis. Many limitations are inbuilt in
financial statement analysis because the statements themselves have the following limitations.
The financial statements have the following limitations -
12

1. Financial statement analyzed in aggregate form – Many financial statements are created
in aggregate form without a break-down by such essential factors such as geographical
area, fixed cost, variable costs, product line and responsibility centers (Pandey, Kim and
Pandey, 2017).
2. Financial statement is analyzed on the basis of estimates – It is another limitation in the
analysis of financial statement, many dollar items involved in the financial statements are
estimates. Such items consist valuing inventory, computing the annual expense for
depreciation, determining doubtful accounts and deciding whether to write off goodwill
or carry it on the balance sheet as intangible assets. Therefore, financial statements are
not appropriate and exact, although they generally give an impression of preciseness by
showing the data or transaction of each and every penny. For example – the tax law may
specify the time period over which an asset must be depreciated for tax purposes but
good financial accounting practice may need a different period. Tax rules are not a
foundation for sound financial reporting or analysis.
3. Different accounting techniques and method in financial statement analysis – According
to Kraft, Vashishtha and Venkatachalam (2017), various organizations even within the
same industry may utilize different accounting methods & techniques in the financial
statement analysis procedure which is also a major limitation. The most common
alternatives are the last in – first out vs first in – first out inventory methods and
accelerated depreciation vs straight line depreciation. Most of the organizations operating
in the steel industry adopted last in -first out accounting method in the 1950s as soon as it
was allowed. Accordingly, a considerable portion of their inventory is still carried out at
prices in that era. This presented their inventory to sales relationship like a food retailer
that turns its inventory right or more times in a year.
4. Financial statement analysis does not project the actual or issues of an organization –
Financial reports or statements do no demonstrate many factors that influence the
financial condition and potential profitability of a business. The factors such as proposed
capital expenses, order backlog and significance of intangible assets & key personnel are
generally not revealed.
5. Variable environmental conditions in financial statement analysis – Environmental
conditions are frequently changing. Therefore, the operational and economic environment
13

is generally different for the same organization from one year to another. Along with this
environment may vary for organizations of the same relative size operating in the
similarly general industry depending on factors such as product niches and geographic
location.
6. Financial statement analysis depends upon historical accounting data – This another
major limitation of financial statement analysis is that it is based on historical accounting
information or data, examination of these statements shows the past relationships. The
owner and analysts within a business are more interested in the current activities and
future of the company. While characteristics of an organization or business often change
rapidly and analysis depends highly upon past data in prediction of the future, the
financial professionals must be aware of the future that may be different (Mardani and
et.al., 2017).
CHAPTER 3 – RESEARCH METHODOLOGIES
3.1 Introduction
There are various types of research methods and tools that can be used in an examination
in order to achieve the aim and objectives of the study. A research can be characterized as a
systematic procedure of gathering and analyzing information or data related to selected subject.
The methodologies used in an investigation or research are the ways in which examiner collects
relevant data and analyzes it so that suitable conclusion can be drawn. These methods are
developed in order to acquire knowledge validly and reliably (Ledford and Gast, 2018) A
research methodology is purposeful and systematic plan that can help in collecting data on the
specific research issue. This chapter of the research paper will determine and discuss rationale
for the selection methodologies in the present examination. Various research methods such as
data collection, design, analysis etc are discussed as below -
3.2 Research design
Research design can be referred to a Master plan or logic of a research that focus on the
way a research is conducted. It presents the utilization of all the main elements of a study such as
sample, treatments, measures or programs etc. work together in a attempt to address the research
questions. Research design is same as an architectural outline, it can be seen as actualization of
logic in a set of processes that optimizes the data validity for a given research issues. The design
14

of research serves to plan, structure and execute the research to maximize the validity of the
findings. It provides directions from the underlying philosophical assumptions to research design
and collection of data (Humphries, 2017). Research design is an action plan that helps to get
from here to there, in which here may be referred to initial set of questions that are to be
answered and there is some set of answers. In the present research examiner has used descriptive
research design in order to describe and explain certain types of possibility related to a specific
group of individuals. This type of research design will assist researcher to identify the role of
financial reporting effectively and systematically. The Descriptive research will the most suitable
research design for this particular research in order to understand the importance of financial
analyzing and statement on businesses.
3.3 Research type
Research is divided according to their nature and purpose of the examination, it is a
systematic and scientific procedure of gathering data, compilation, analysis, implication and
interpretation with respect to a specific research issue or problem. There are two major types of
research such as quantitative and qualitative. The Quantitative research is based numerical data
or information that includes quantifiable elements where as Qualitative type of studies are related
to values and meaningful information that generates new ideas subjectively. Both the methods
depends upon the nature of a research or examination.. On the other hand, purpose of study can
divide a research on the basis of two methods Applied and fundamental. The applied research
helps to solve of a issue or problem by analyzing it from the point of single discipline. It tries to
eliminate the theory by adding to the basis of the specific discipline. Another one is fundamental
research that aims at solving a issue by adding to the field of application of a discipline. It is uses
various disciplines for solving the research problems (Litosseliti, 2018). In the present
examination examine researcher has used Quantitative and fundamental research types to get the
most beneficial and appropriate outcome from the investigation to identify the importance of
financial reporting and analysis in Tesco.
3.4 Research philosophy
Research philosophy is on the most important part in a study or examination. It is a
detailed description about the way in which information about a phenomenon needs to be
collected, analysed and utilized. It is specific There are various kinds of research philosophies
such as epistemology, positivism, interpretivism and ontology which assists in deciding which
15

can be the most effective approach for the research. Ontology is a kind of research that is based
upon nature of reality. It is further classified on the basis of Subjectivism and Objectivism.
Ontology philosophy is used by researcher to determine the temperament and attitude.
Furthermore, epistemology is a kind of philosophy that demonstrate acceptable knowledge
regarding a specific area. There are two main elements of this philosophy, feeling and resources
related to a research. The another philosophy is known as realism philosophy, it is directly
related to the scientific investigation. The main objective of this philosophy is to identity or
discover the facts of reality. Interpretivism philosophy is also very effective in an examination or
study, it is highly focused on the analysis of difference between human and social factor. In the
present study research has utilized positivism philosophy that explains positive knowledge based
upon natural phenomenon. In this particular philosophy, theories are time tested and results are
confirmed by the examiner.
3.5 Data collection
In order to perform any research related to a subject, topic or phenomenon it is very
essential and important for examiner to collect most relevant, reliable and valid information
through various sources. The data collection methodology refers to gathering information on any
subject in systematic manner. There are two main types of data collection methods Primary and
secondary data collection. Primary method includes gathering data from first hand or fresh
resources which are not used by any other research or studies. This type of data collection
method helps in collecting highly valid and reliable information related to any topic or subject.
On the other hand secondary data collection refers to gathering of data from different books,
articles and journals or previous studies on the similar subject (Weber, 2017). This type of data is
not much reliable and valid as it is already used and modified by various examiners in their
examinations. In the present study research has utilized a combination of both primary and
secondary data collection method to get a huge and sufficient amount of information which can
be analysed in order to get most relevant outcomes. In order to collect data related to financial
reporting and analysis researcher has been used secondary sources such as various studies which
are conducted by different scholars along with various books, journals and literature. This
gathered data is further analysed to identify most meaningful information that can be used to
determine importance and impact of financial reporting on the cited organisation.
16

3.6 Sampling
It is very important to select or choose a specific group of individuals to collect
significant primary data in a research. Sampling is one of the most important part or method that
helps in achieving the aim and objectives of an examination. It assists in reducing cost, time and
other resources use in a search as the population or participants are already selected and are
limited. The data is collected using various methods such as survey, survey or polls through a
specific sample of people who can potentially provide most relevant data related to a study. In
the present research, examiner has focused on secondary sources of data collection such as
books, previous studies and articles. The studies conducted by various authors will be examined
in order to collect most appropriate information related to financial reporting and analysis in
respect to Tesco.
3.7 Ethical considerations
Ethical considerations can be referred as one of the most essential part of a research
study. It greatly influence an examination in both negative and positive way. There are various
ethical considerations are as mentioned below -
 Participants in a research should not be subjected to any harm in any ways.
 Respect for the dignity of research participants must be a key priority
 It is important to ensure the protection of privacy related research participants.
 Adequate level of confidentiality of the research data must be ensured.
 Any kind of wrong or misleading information and representation of primary data
collection in a biased manner should be avoided.
In order to address each and every ethical consideration effectively researcher has
focused on voluntary participation of respondents in this research by giving them rights to
withdraw from the research study. Examiner also ensured that use of discriminatory, offensive or
other unacceptable language is avoided in formulation of question in the survey.
3.8 Limitation of study
There are various limitations of a research or examination that negatively influence
outcomes of a study. They are the conditions, influences and shortcomings that can not be
controlled by research that develop restrictions on the methods and conclusions of research. It
includes lack of data or information available related to the topic or research is available on
internet or within previous studies. Another limitation of a research is less number of
17

respondents selected through probability sampling. In order to overcome these limitations or
challenges researcher has utilized most appropriate sources of information and also conducted a
survey to collect most reliable and valid data related to the research topic or subject.
18

CHAPTER 4 : DATA COLLECTION
4.1 Introduction
It is another important part of this research, data collection refers to collecting
information through various sources of information for example interviews, surveys, books,
journals and articles. This method is used in order to collect relevant, reliable and valid data
related to the topic of a research study or examination. Statistical analysis can be descriptive that
consists of graphical representation of data along with interpretation and thematic analysis
included concepts, words, models, etc. In this research, examiner has used a combination of
qualitative and quantitative data analysis to get the most effective outcomes of study. The data
collected through survey and secondary sources will be analyzed in thematic and statistical
methods. In the present research researcher has conducted a brief secondary research to gather
primary data which is very useful to identify the impact of financial reporting and analysis in the
business. Various themes will be developed in order to collect and analyze the data to identify
importance and impact of financial reporting upon Tesco's business functions & performance.
4.2 Data collection
Secondary data consist of pre-existing data that were gathered for some other purpose for
example a previous study or research question. These secondary data helps in obtaining
significant advantage in terms of efficiency as compared to primary data as tie is not wasted in
collection of data. Depending on the specific source of data, secondary data also offer benefits in
terms of generalization and sample size. These advantages are the main reasons for utilization of
secondary data in research examinations. It is used to study a wide variety of topics, including
concept of financial reporting, importance of financial reports and so on. In the present research
data is collected through various books & articles as well as previous studies based in financial
reporting and analysis. The collected data will be analysed on the basis of different themes to
obtain best outcomes from this study.
4.3 Secondary Data analysis
Theme 1 – Financial reporting and analysis is important for the organisation
It has been identified in this research that financial reporting and analysis is very essential
for organisation such as Tesco. According to studies, it can be concluded that these reports are
useful to determine the financial position and performance of a company. The literature
concluded that financial reports is required by each and every stakeholder for different purposes
19

and reasons in business. There are different elements that concludes that financial reporting is
essential for an organisation such as Tesco because it assist a company to comply with
significant regulatory and statutory requirements. Therefore, Tesco needs to perform financial
reporting and analysis effectively to identify the profitability and financial position of the
company in marketplace.
Theme 2 – Company should perform financial reporting on yearly basis
This theme represents that organisation such as Tesco needs to perform financial
reporting every year. Previous studies and researches described that analysing financial report of
the company on yearly basis can assist an organisation to improve their business strategies with
respect to its performance. The performance of a company can be identified better if financial
position is determined early or prior to any major damage to the business. Most of the authors
and researcher stated that yearly analysis of the financial reports can be very helpful in
developed effective strategies for better results leading towards improved performance and
profitability of the company. Another theme was developed in order to identify the interval on
which financial reporting should be performed in Tesco. Employees in Tesco supported that
financial reporting must be performed on yearly basis as accounts of a company can be analysed
after every financial year. Some individuals working in Tesco stated that it should be performed
half yearly so that it can be easy to calculate the financial status or position of the organisation
regularly. None of the managers supported that financial reporting should be performed on
quarterly basis. Therefore, it can be concluded that it is very significant for Tesco to perform
financial analysis or reporting on yearly basis.
Theme 3 – Tesco has written accounting processes and policies
Another theme was developed in order to identify the nature of processes and policies
used in Tesco. The organisation has written accounting processes and policies as determined
from studies and observations which helps in maintaining useful accounting reports of the
organisation and its transactions. The written accounting processes and policies helps in
eliminating any kind of error and its highly reliable in terms of validity and accuracy of data
related to financial transactions of the business. Therefore, Tesco is utilising effective methods of
written accounting processes and policies to manage and maintain their financial reports. As it
used by a successful organisation such as Tesco, it can be concluded that it is a useful technique
and can be very helpful for various businesses. This questionnaire of the survey was developed
20

in order to identify whether Tesco has written accounting processes and policies. Most of the
employees said that the organisation performs written procedures for their financial reporting.
Few managers disagreed that it utilise only computer based accounting. Therefore, it can be
concluded from this theme that Tesco performs written as well as digital accounting system so
that financial statements can be managed and analysed effectively.
Theme 4 – Company keeps invoices ,vouchers and receipts for all payments made from grant
funds
Another theme developed by the researcher was to identify that Tesco is keeping invoices
, vouchers and receipts or not for each and every payments made from the grant funds. It is
observed from previous studies on Tesco that the organisation give high importance to receipts
and invoices. It is essential to keep record of transactions or payments so that financial reports or
accounts of the company can be managed properly and accurately. These receipts also act as a
proof for payment made to stakeholders such as suppliers, logistic partners, shareholders etc.
Therefore, it can be concluded from this report that keeping invoices, vouchers and receipts of
the payments is very essential for a business to effectively manage and maintain its accounts and
financial records. This questionnaire was developed in order to identify whether Tesco keeps
invoices ,vouchers and receipts for all payments made from grant funds or not. Most of the
employees agreed that company keeps all types of receipts for the payments made so that it can
be recorded in the accounts. Some workers disagreed that organisation does not keep the
invoices as they directly report the payments in the financial statements. Some of the managers
said that they are not sure. Thus, it can be defined that Tesco keeps invoices and receipts of
payments made so that it can be used in the financial reporting & analysis of the company.
Theme 5 – Organisation keeps accounting records including invoices, vouchers, receipts and
time sheets for at least three years
Once the importance of keeping invoices, vouchers and receipts it is very essential to
identify the duration for which they required to be kept with the organisation. The studies and
literature concluded that it is essential for Tesco to keep accounting record such as time sheets,
vouchers, invoices etc for atleast three years. The organisation can change its policies or
processes every year but it is beneficial for the accounting department to maintain and manage
all the payments and transactions for minimum three years. Organisations should keep
accounting records for longer times as it can be useful for auditing the financial reports. This
21

particular theme was developed in order to identify whether Tesco keeps accounting records
such as invoices, receipts and other statements related to the transactions up to 3 years. Managers
agreed that organisation keep the statements to manage & control any kind of claims related to
the payments. Some employees said they do not have much idea but they think it might be
possible. Therefore, it can be determined from this theme that Tesco keeps all the receipts and
invoices for at least three years so that financial records can be effectively managed and
maintained.
Theme 6 – Buy side lender/ money employee use general purpose financial statements
This theme was developed in order to discuss the purpose of financial statements with
regards to money employees or buy lender associated to Tesco. According to the literature
developed it can be identified that these stakeholder of the organisation use general purpose
financial statements to make decisions related to money and transactions. It can be determined
from the research that financial statements are used for multi purposes in a business or company.
Therefore , it can be stated that financial reports or statements are very necessary for a business
to perform various activities or tasks related to different stakeholders of Tesco. his theme was
developed in order to understand deep concept of using general purpose financial statement.
Some employees said that these statements or reports are used by existing or potential equity
investor. Few workers stated that it is used by existing or potential lender. Managers in Tesco
said that general purpose financial statements are used by Buy-side analyst or money employee.
Therefore it can be identified from this theme that general purpose financial statements are used
mainly by money employee and buy-side analysts in Tesco to manage and and maintain financial
resources of the organisation effectively.
Theme 7 – Improvement in financial accounting and an analysis can positively affect the
business
Researcher also developed a theme to identify the impact of financial accounting and
analysis on Tesco. The literature described that financial it is very essential for each and every
business to have effective financial reporting and analysis to determine financial position of the
company. It helps to manage and maintain accounts in an effective way that assist in making
effective strategies for the business. Therefore, it can summarised form this theme that
improvement in the financial accounting and analysis can have a positive impact on
organisations such as Tesco. It can assist the company to manage and maintain its accounts
22

appropriately to identify any loss in performance or profitability as well as developing plans to
overcome the issues and challenges affective the revenue generation of the business. This
questionnaire was developed in order to determine the positive impact of financial accounting
and analysis on business performance of Tesco. Managers agreed that improving financial
statement can positively affect business, few workers disagreed that there is impact of
developing finance activities on organisation's performance. Some employees had no idea due to
lack of experience in this field. Therefore, this theme determined that improvement in financial
accounting and analysis can positively influence Tesco and its business functions by effectively
and efficiently maintain its accounts and transactions.
Theme 8 - Monitoring financial performance by measuring sales and turnover
It is also very important for an organisation to monitor its financial performance with the
help of various methods and techniques. The companies can not sustain without handling or
managing its financial position and performance. Various studies and books stated that it is one
of the most important task for a company but monitoring of financial performance is also very
essential for identifying the health of a business. According to previous observations and studies
it is identified that Tesco monitor its financial performance by measuring its sales and turnover.
The sales and turnover demonstrate profitability level of the company, it provide a clear image of
whether a company is in profit or its going in loss. Therefore, it can be concluded that Tesco is
using an effective technique to monitor its financial performance which is a necessary task for
the organisation. This theme was created in order to identify the most effective way that can be
used for measuring financial performance of the organisation. Employees said that assessing risk
and return can be used to measure performance of a company, some individuals in Tesco stated
that measuring sales & turnover can be useful to monitor financial performance of the
organisation. Managers of the organisation said that they prefer measuring profit drivers to
monitor financial position of the business. The directors supported calculation of break even
point, therefore it can be concluded that measuring sales and turnover can be very effective as
well as beneficial for monitoring financial position of Tesco as it helps to determine profit or loss
within the business.
Theme 9 – Financial reporting can improve cash flows in the organisation
Another theme developed by the researcher focuses on cash flows in Tesco, it is
identified that effective or smooth cash flow in an organisation can help in maintaining a good
23

financial position. According to studies it can be identified that financial reporting or statements
can be useful for improving cash flows in Tesco. It is a huge company with stores in different
countries, it is very essential for managing transactions, income,payments and flow of cash in
other forms. Cash flows can be improved by effective financial reporting and analysis as observe
by various previous studies on this subject. The above theme was developed by researcher to
identify whether financial reporting assist in improving cash flows in the organisation or not. 30
respondents agreed that proper reporting & analysis of financial statements or accounts can helps
to improve cash flows by monitoring and eliminating any errors in the transaction or records of
the same. Some authors disagreed that there is no impact of financial reporting on cash flows.
Employees were neutral and has no ideas related to the cash flows in the organisation. Therefore,
it can be summarised that effective financial reporting and analysis can assist in improving cash
flows in Tesco by managing, measuring and analysis transactions of the company in best
possible manner.
Theme 10 - Working in concert with other departments & Moving financial data to the cloud
can improve financial system of the organisation
This theme is in context to working with different department and transferring financial
data to online database. It has summarised from the literature and previous studies on the topic
that moving financial data to the cloud is helpful for a business to manage and maintain its
accounts in an effective manner. The online database of a company can store important
information and data related to financial records or transaction securely which can be useful for
Tesco. The wide supermarket chain performs a huge number of transactions that are important to
be recorded and maintained. The last theme developed by researcher focuses on method to
improve financial system of the organisation. Employees supported that moving financial data to
the cloud online can helps in improving financial system. It is also stated that the empowering
users with self services can be helpful. Some individuals of stated that working in concert with
other departments can contribute in the improvement of functions of the financial department.
Hence, it can be summarised from this theme that working in concert with other departments &
Moving financial data to the cloud can improve financial system of Tesco by keeping
information related to transactions safely which can be used for financial reporting. Financial
system of Tesco depends upon it accounts and financial reports as well as its management.
Therefore, it can be concluded from this theme that working with various departments of the
24

organisation and moving financial data to the cloud can improve financial system of the
organisation.
Ratio analysis of Tesco
Profitability
Margin % sales 2014-2015(in million) 2015-2016(in million) 2016-2017(in
million)
Revenue 100 100 100
Cost of goods sold 93.69 93.69 93.69
Gross Margin 6.31 -3.39 5.24
The above illustration states that revenue of Tesco has been constant since 2014 to 2017,
the revenue of 100 million is same in each year. Cost of goods sold is also same since 2014 to
2017 which is 93.69 million. On the other hand gross margin has been fluctuating in the selected
time period. Between 2014 to 2015 the gross margin was 6.31 million, in 2015 to 2016 it
decreased with a high level, the gross margin was -3.39 million during this time period Tesco
faced a huge loss due to which margin declined. In end of 2017 the gross margin increased to
5.24 million. Therefore, it can be concluded that Tesco achieved growth by effective strategies
and market position.
Profitability 2014-
2015(in
million)
2015-2016(in
million)
2016-2017(in
million)
Net Margin % 1.53 -9.22 0.25
Asset Turnover 1.27 1.32 1.24
Return on Assets % 1.94 -12.17 0.31
Return on Equity % 3.4 6.25 5.09
The above illustration states that the net margin % of Tesco observed at 1.53 million in
the year 2014 to 2015. In 2015 to 2016, the net margin drastically went down to -9.22 million,
25

by the end of the year 2017 the number raised again to 0.25 million. Therefore, it can be
concluded from the above analysis that net margin of Tesco is fluctuating. Asset turnover of the
company was 1.27 million it increased to 1.32 million and again declined to 1.24 million by the
end of the year 2017. Return on assets % in the end of 2015 for Tesco was 1.94 million, till 2016
it declined to -12.17 and till the end of 2017 it increased again to 0.31. At last the illustration also
determined the return on equity of the company, it was also observed to be fluctuating, the ratio
were 3.4 million, 6.25 million and 5.09 million. Therefore, it can be concluded that Tesco's
profitability was highest in the time period between 2014 to 2015 and lowest in 2015 to 2016.
Financial health
Liquidity/Financial
Health
2014-
2015(in
million)
2015-2016(in
million)
2016-2017(in
million)
Current Ratio 0.73 0.6 0.75
Financial Leverage 3.4 6.25 6.25
Debt/Equity 0.63 1.51 1.51
The above illustration consist current ratio, financial leverage and Debt of Tesco, The
current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term
obligations. Financial leverage is the degree to which a company uses fixed-income securities
such as debt and preferred equity. A debt fund is a kind of mutual fund that invests shareholder's
money in fixed income securities such as bonds and treasury bills. Current ratio of Tesco
decreased in 2015 to 2016, the debt ratio increased after 2015 from 0.63 million to 1.51 million
till the end of 2017.
Discussion
The above ratio analysis concluded that Tesco is constantly improving its financial
position and value with increasing sales and profit. Although the company's gross profit margin
is fluctuating due to increased cost of production or reduction of sales in the market. It is very
important for the organisation to increase its profit margin and return on assets % in order to
increase overall revenue of the business. On the other hand it is important for Tesco to reduce its
26

debt and liabilities which can alternatively affect the proficiency of the company. The balance
sheet and income statement of the company concluded that Tesco has drastically increased its
profit for financial year which demonstrate that the company is getting profitable. The financial
statements shows that the Tesco's financial position is improved in recent years due to effective
cash flow in the business.
27

Balance sheet
The above balance sheet present statement of the assets, liabilities and capital of Tesco
for the time period 2014 – 2018. It is showing the details related to the balance of income and
expenses over a specific period of time. The income statement of Tesco shows that value of total
assets of the company has decreased from 50,164 in the year 2014 to 44,862 in the year 2018. It
depicts that the value of the assets is reduced due to the increase in debtors and Cash &
securities. On the other hand liabilities and equity of Tesco has also been influenced with
decreasing value since 2014 to 2018.
Income statement
28

The income statement of Tesco depicts that turnover of the company has been decreasing
since 2014 till 2018. Along with the turnover the net profit of the organisation has also been
reduced in this time period. The company has controlled its expenses in order to maintain the
profit ratio. The value of expenditure from 61,204 in the year 2014 decreased to 55,902 in the
year 2018. On the hand investment ratio in Tesco has been increased including the major
increment in EPS growth % from 33.46% in 2014 to 94.61% in 2018.
29

CHAPTER 5 : CONCLUSION AND RECOMMENDATIONS
Financial statements are prepared primarily for decision making. They play an important
and dominant role in setting the framework of decision making process of the management. But
the data provided in financial reports or statements is not an end itself as no meaningful
conclusions can be made from the statements. The information provided by in the financial
statements is very useful in making strategies or decisions related to the business or organisation
through financial analysis and reporting. It is concluded from the research that financial analysis
is the process to identify the financial strengths and weaknesses of a company by properly
developing relationship between the items of the balance sheet & profit and loss account of the
organisation. There are different techniques or methods which are used in financial analysis
such as trend analysis, comparative balance sheet statements, common size statements, schedule
changes in working capital, cash flow analysis, cost volume profit analysis etc. It is very
effective in dealing with public money, and managing capital or funds within a business. The
report summarised that betterment in the financial accounting and analysis can have a optimistic
impact on companies such as Tesco. It can help the organisation to manage and maintain its
accounts suitably to identify any loss in profitability or performance as well as developing plans
to overcome the issues and challenges affective the revenue generation of the business. This
questionnaire was developed in order to determine the positive impact of financial accounting
and analysis on business performance of Tesco.
Improving financial statement can positively impact business, on the other hand some
scholars also states that there is impact of developing finance activities on organisation's
performance. Making financial analysis of a business is not an easy task, there are various
financial reports and records that is important to be examined and there are also a lot of elements
with financial statements that are needed to be carefully evaluate, review and interpret. It is
important to ensure that the accountants are aware of proper methods to analyse financial
statements. This can highly influence the development of the business financial analysis, along
with this it is also important for the accountants of the company to have enough knowledge of
understanding and interpreting financial statement structures and strategies that are utilised in
order to develop them in such as way that it can provide competitive advantage to the company.
Financial reporting becomes necessary with the requirement for managers to give accounts of
position to owner of an organisation. According to international accounting standard board, the
30

main objective of financial reporting is to give data related to financial performance, position and
changes in financial orientation of an organization that is helpful for many users in taking
economic decisions. For any financial professional, it is very essential to understand how to
analyse the financial statement of the company effectively. In order prepare an effective financial
analysis Tesco can use the following useful tips that can assist to make a functional and detailed
financial analysis of the business.11 Identifying the economic characteristics of the industry – The first step the financial
professionals needs to follow is determining a value chain analysis for the industry. The
chain of activities involved in the development, production and distribution of the
organisation's products or services (Mardani and et.al., 2017). Approaches such as
Porter's five forces or analysis of economic attributes are typically utilised in this step.11 Identify organisation's strategies – The next step is to look at the nature of the products
or services being offered by the company, including the unique characteristics of the
product, creation of the brand loyalty, level of profit margins and control of cost. In
addition to this, factors such as supply chain integration, industry diversification and
geographic diversification needs to be considered.11 Assessing the quality of the organisation's financial report and statements – It is
important for the organisation to review the key financial statements in context of the
relevant standards of accounting practices. In analysing balance sheet accounts, problems
or issues such as recognition, classification and valuation are key elements of proper
evaluation. The major question must be whether this balance sheet is a complete
representation of the organisation's economic position. When evaluating the income
statement, the main point is to properly assess the quality of earnings as a overall
representation of the organisation's economic performance. Evaluation of the cash flow
statement assists to understand the influence of the organisation's liquidity position from
its operations, financial activities and investments over the period in essence, where funds
came from, where they went and how the entire liquidity of the organisation sis
influenced.11 Analysing current risk and profitability – In this particular step financial professionals
can effectively add value in the evaluation of the organisation and its financial
statements. The most generally used tools or techniques of analysis are key financial
31

statement ratio related to asset management, liquidity, debt management, profitability and
risk or market valuation. There are two broad questions arises with respect to profitability
, how profitable are the operations of the organisation are related to its assets,
independent of the ways in which organisation finances those assets and how profitable
the organisation is from the perspective of the equity shareholder. It is also very essential
to learn the methods to disaggregate return measures into the primary impact factors. At
last, the critical top analyse any financial statement ratios in a comparative way looking
at the current ratios in relation with the earlier periods or related to other organisations or
industry averages.11 Developing forecasted financial statements – Financial professionals should make
reasonable assumptions related to the future of the company or industry and identify the
influence of these assumptions on the funding and cash flow. This generally takes the
form of pro-forma financial statements on the basis of techniques for example percentage
of sales approach.11 Value the business or firm – Although there are wide range of valuation of approaches,
discounted cash flow methodology is a most commonly used method. These cash flow
may be in the form of projected dividends or more detailed techniques for example free
cash flows on ether enterprise basis or to equity holders.
32

REFERENCES
Books and Journals
Akins, B., 2017. Financial Reporting Quality and Uncertainty about Credit Risk among Ratings
Agencies. The Accounting Review.
Akins, B., 2017. Financial Reporting Quality and Uncertainty about Credit Risk among Ratings
Agencies. The Accounting Review.
Bala, S.K., 2017. Importance of the Financial Reporting Act in the Corporate Sector of
Bangladesh.
Barth, M.E., 2018. The Future of Financial Reporting: Insights from Research. Abacus. 54(1).
pp.66-78.
Bushee, B.J., Goodman, T.H. and Sunder, S.V., 2018. Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Bushee, B.J., Goodman, T.H. and Sunder, S.V., 2018. Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Bushee, B.J., Goodman, T.H. and Sunder, S.V., 2018. Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Call, A.C., Campbell, J.L., Dhaliwal, D.S. and Moon Jr, J.R., 2017. Employee quality and
financial reporting outcomes.Journal of Accounting and Economics. 64(1). pp.123-149.
Crowther, D., 2018. A Social Critique of Corporate Reporting: A Semiotic Analysis of Corporate
Financial and Environmental Reporting: A Semiotic Analysis of Corporate Financial and
Environmental Reporting. Routledge.
Fernández Méndez, C., Arrondo García, R. and Pathan, S., 2017. Monitoring by busy and
overlap directors: An examination of executive remuneration and financial reporting
quality. Spanish Journal of Finance and Accounting/Revista Española de Financiación y
Contabilidad. 46(1). pp.28-62.
Hart, C., 2018. Doing a Literature Review: Releasing the Research Imagination. Sage.
Humphries, B., 2017. Re-thinking social research: anti-discriminatory approaches in research
methodology. Routledge.
Krishnan, G.V., Myllymäki, E.R. and Nagar, N., 2018. Does Financial Reporting Quality Vary
Across Firm Life Cycle?. Available at SSRN 3233512.
33

Krishnan, G.V., Myllymäki, E.R. and Nagar, N., 2018. Does Financial Reporting Quality Vary
Across Firm Life Cycle?.Available at SSRN 3233512.
Kuzey, C. and Uyar, A., 2017. Determinants of sustainability reporting and its impact on firm
value: Evidence from the emerging market of Turkey. Journal of cleaner production.143.
pp.27-39.
Laitinen, E.K., 2018. Financial Reporting: Long-Term Change of Financial Ratios. American
Journal of Industrial and Business Management, 8(09), p.1893.
Lara, J.M.G., Osma, B.G. and Gazizova, I., 2018. Identifying Causal Relations between
Corporate Social Responsibility and Financial Reporting Quality.
Lara, J.M.G., Osma, B.G. and Gazizova, I., 2018. Identifying Causal Relations between
Corporate Social Responsibility and Financial Reporting Quality.
Ledford, J.R. and Gast, D.L., 2018. Single case research methodology: Applications in special
education and behavioral sciences. Routledge.
Litosseliti, L. ed., 2018. Research methods in linguistics. Bloomsbury Publishing.
Naranjo, P., Saavedra, D. and Verdi, R., 2017. Financial reporting regulation and financing
decisions.
Naranjo, P., Saavedra, D. and Verdi, R., 2017. Financial reporting regulation and financing
decisions.
Santi, M., Puspitasari, E. and Ghani, E.K., 2017. Analysis of Unconditional Conservatism and
Earnings Quality on Financial Reporting Practices in Indonesia upon IFRS Convergence.
Management & Accounting Review. 16(1).
Santi, M., Puspitasari, E. and Ghani, E.K., 2017. Analysis of Unconditional Conservatism and
Earnings Quality on Financial Reporting Practices in Indonesia upon IFRS
Convergence.Management & Accounting Review. 16(1).
Saunders, P., Wong, M. and Bradbury, B., 2018. INEQUALITY IN AUSTRALIA: NEW
ESTIMATES AND RECENT TRENDS RESEARCH METHODOLOGY FOR 2014
REPORT.
Shepardson, M.L., 2018. Effects of individual task-specific experience in audit committee
oversight of financial reporting outcomes. Accounting, Organizations and Society.
Weber, M., 2017. Methodology of social sciences. Routledge.
Zhang, Y., 2017. Client importance and audit quality, office level evidence from the banking
industry: a pitch. Accounting Research Journal. 30(2). pp.147-152.
34

Mardani, A., Zavadskas, E.K., Streimikiene, D., Jusoh, A. and Khoshnoudi, M., 2017. A
comprehensive review of data envelopment analysis (DEA) approach in energy
efficiency. Renewable and Sustainable Energy Reviews, 70, pp.1298-1322.
Pandey, S., Kim, M. and Pandey, S.K., 2017. Do mission statements matter for nonprofit
performance? Insights from a study of US performing arts organizations. Nonprofit
Management and Leadership, 27(3), pp.389-410.
Kraft, A.G., Vashishtha, R. and Venkatachalam, M., 2017. Frequent financial reporting and
managerial myopia. The Accounting Review, 93(2), pp.249-275.
Ni, Y., Huang, P., Chiang, P. and Liao, Y., 2018. Cash flow statements and firm value: Evidence
from Taiwan. The Quarterly Review of Economics and Finance.
35