Tesco Plc Financial Performance Analysis Through Ratio Analysis

Running head: STRATEGIC FINANCIAL MANAGEMENT
Strategic financial management
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1STRATEGIC FINANCIAL MANAGEMENT
Table of Contents
Introduction.....................................................................................................2
Theoretical framework.....................................................................................2
Ratio analysis...................................................................................................3
Advantages of ratio analysis.........................................................................3
Financial performance analysis of Tesco Plc through ratio analysis.............4
Areas of concern...........................................................................................7
Limitations of ratio analysis..........................................................................8
Comparison against competitor.......................................................................8
Conclusion.......................................................................................................9
Bibliography...................................................................................................11
Appendix........................................................................................................13

2STRATEGIC FINANCIAL MANAGEMENT
Introduction
Aim of the task is to focus on the key financial areas of Tesco Plc and
the same will be done through using various crucial ratios that can be used
to highlight the financial strength and weaknesses of the entity. The report
will further evaluate and assess theoretical basis for finance critically and will
highlight the advantages and limitations of using financial ratios to analyse
critically the financial position of the company. The report will further
compare the financial position of Tesco’s main competitor Sainsbury Plc and
the reason of min differences for their performance. While comparing with
the competitor both financial as well as non-financial data will be taken into
consideration. Tesco Plc is engaged in retailing along with retail banking. The
organisation operates through various segments including Central Europe,
UK and ROI, Tesco bank and Asia. The company is committed towards
creation of shareholders wealth through focussing on the strategy
implementation that is innovative for the customers. Strategies applied by
the company are based on different principles including value for money that
is providing quality products to the customers at the price which is
undoubtedly unbeatable, customer service that is focussing on the
customers in unique way and providing 1st class services and through stores
that is investing in the existing stores along with developing new and flexible
formats for the stores1.
Theoretical framework
Financial performance is the way of performing the financial activities.
In wider sense, the financial performance is the level to which the financial
objectives are being accomplished. It is the procedure to measure the results
of the organization’s operations and policies in the monetary terms.
Questions related to the organisation regarding its financial position and
financial performance can be answered through evaluating the firm’s
1
Tesco PLC. (2019).
Home. Retrieved 7 August 2019, from https://www.tescoplc.com/

3STRATEGIC FINANCIAL MANAGEMENT
financial performance. It involves usage of the financial statements2.
Financial statement is the collection of data in organised manner in
accordance with accounting procedures and conceptual frameworks. Aim of
the financial statement is conveying the understanding of business’s
financial aspects.
Ratio analysis
It is considered as the most powerful tool for analysing the financial
performance of any company. It is used as the device for analysing and
interpreting the enterprise financial health. It is regarded as one of the best
useful tool available to management in assessing the financial position and
drawing the conclusions with regard to the efficiency and the financial status
of the business concern3. Ratio is termed as indicated quotient of 2
mathematical expressions and a relationship among 2 or more things.
Advantages of ratio analysis
Various advantages associated with ratio analysis are as follows –
 It helps in disproving or validating the operating, investment and
financing related decisions for the entity. It summarizes financial
statements into the comparative figures which in turn help
management in comparing along with evaluating financial position
of the entity and results of the decisions4.
 It assists in recognizing the areas where there is any issues and
thereby bringing management’s attention in such areas. Some of
2 Brigham, E.F., Ehrhardt, M.C., Nason, R.R. & Gessaroli, J., (2016).
Financial Managment:
Theory And Practice, Canadian Edition. Nelson Education.
3 Ehiedu, V. C., (2014). The impact of liquidity on profitability of some selected companies:
the financial statement analysis (FSA) approach.
Research Journal of Finance and
Accounting,
5(5), 81-90.
4 Kroes, J. R., & Manikas, A. S., (2014). Cash flow management and manufacturing firm
financial performance: A longitudinal perspective.
International Journal of Production
Economics,
148, 37-50.