Strategic Financial Management PDF

Running head: STRATEGIC FINANCIAL MANAGEMENT
Strategic Financial Management
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Introduction......................................................................................................................................2
1. Analysis of the Annual Report of Tesco......................................................................................2
a. Stakeholder Analysis...............................................................................................................2
Stakeholder..............................................................................................................................2
Three Types of Stakeholders in Tesco.....................................................................................3
b. Environmental and Social Performance of Tesco...................................................................4
2. Analysis and Evaluation of the Financial Position of Benedict Co.............................................6
a. Purpose and Relevance of Chosen Ratios................................................................................6
b. Results of Ratios and Reasons for the Movement between Two Years..................................8
c. Aspects of Concern in the Company’s Performance...............................................................9
d. Application of Financial Ratios to Interpret and Measure Company’s Performance............10
Conclusion.....................................................................................................................................11
References......................................................................................................................................13
Appendix........................................................................................................................................16

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Introduction
Strategic financial management is considered as a specific planning process that shows
the usage of the financial resources of the companies by the management with the aim to achieve
the financial goals and objectives (McKinney 2015). Another major aim of this is the
maximization of the value of the shareholders in the long run. Under the process of strategic
financial management, the managements of the companies are needed to consider all the relevant
aspects (Finkler et al. 2016). This report aims to achieve two specific objectives. The aim of the
first part of the report is the analysis of the stakeholder along with environmental and
sustainability aspects of Tesco. For this reason, this part involves in the analysis of the 2016
Annual Report of the company. The next part of the report involves in the analysis as well as
evaluation of the financial position of Benedict Co. For this reason, the analysis of some of the
ratios is performed with the aim to analyze the financial position of the company.
1. Analysis of the Annual Report of Tesco
a. Stakeholder Analysis
Stakeholder
In the modern business organizations, Stakeholder is considered as a major aspect for the
managements of the companies. A stakeholder can be regarded as a person or group having an
interest in the business operations of the companies. It needs to be mentioned that the support of
the stakeholders is needed in order the business organizations to be successful. For this reason,
the actions, objectives as well as policies of the business organizations have impacts on the

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interests of the stakeholders. The stakeholders can be internal or external to the business
organizations (Bourne 2016).
A stake can be regarded as a crucial interest in the activities of the businesses and it may
include property interest, ownership, legal interest, business obligations and moral rights. The
examples of some of the key stakeholders of the businesses are employees, suppliers, creditors,
directors, owners, government, union, communities and others (Mok, Shen and Yang 2015). In
this context, it needs to be mentioned that all the stakeholders are not equal in the companies. For
example, customers of the companies are entitles to fair trading, but they are not entitled to the
same consideration as the employees of the companies. For this reason, it is needed for the
managements of the companies to consider all these aspects in the process of stakeholder
management (Verbeke and Tung 2013).
Three Types of Stakeholders in Tesco
It can be observed from the 2016 Annual Report of Tesco that the company has provided
three stakeholders with most importance and they have considered them as the key stakeholders.
These three key stakeholders are Customers, Suppliers and Colleagues.
Customers: The 2016 Annual Report of Tesco states that the company has considered customers
as one of their key stakeholders. Customers are the people and organizations that buy the
products and services of the company. Tesco has made some major commitments for their
customers. The main aim of the company is to take simple steps to make big difference for them
(tescoplc.com 2018).

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Suppliers: After the customers, Tesco has considered their suppliers as another key stakeholder
of their business operations. In this context, the main aim of the company is to work with their
suppliers by developing a cordial relationship with them (tescoplc.com 2018).
Colleagues: Among the three key stakeholders, Tesco has considered their colleagues one of
them. According to Tesco, they can achieve the goals and objectives of their business with the
skills, expertise and dedication of their colleagues all over the world (tescoplc.com 2018).
b. Environmental and Social Performance of Tesco
In the current business environment, the companies have to consider some major aspects
at the time to conduct their business operations and one of them is their corporate and social
responsibilities towards their key stakeholders. There is not any exception of this fact in case of
Tesco as the company is also responsible for their corporate and social responsibilities. In this
process, the business organizations have the option to select the ways to disclose the information
about their corporate and social responsibilities (Schwartz 2017).
As per the first method, companies can publish their corporate and social responsibility
report separately for every year that will contain the information about their performance in
corporate and social responsibilities towards the key stakeholders (Tai and Chuang 2014). As per
the second method, the companies can publish their integrated annual report where they will
publish the information related to social and corporate responsibilities in the annual report. It can
be observed from the 2016 Annual Report of Tesco that the company has provided the required
information for their corporate and social responsibilities in one single report (Cheng, Ioannou
and Serafeim 2014).

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As per the 2016 Annual Report of Tesco, there are two parts in the report where the
Tesco has provided the required information; they are Environmental and Social Review; and
Corporate Governance. It has been discussed in the earlier section that there are customers,
supplies and colleagues are the three key stakeholders for Tesco. The following discussion shows
the performance of Tesco in terms of corporate and social responsibilities for customers and
colleagues in the Environmental and Social Review and Corporate Governance report (Servaes
and Tamayo 2013).
Customers: In case of the customers, the main aim of Tesco is to create a big difference for their
customers with the help of small steps. The aim of the company is to make the customers choose
the healthier products with reduction in wastes. In addition, the tendency of the company is to
respect the human rights of their customers according to the UN Universal Declaration of Human
Rights. It can be seen that the company has addressed the issue of the customers with the help of
their Risk Management Framework (tescoplc.com 2018). For example, Tesco is facing the issue
to loss the market share as they are unable to consolidate loyalty and rebuild trust among the
customers. As a corrective measure, Tesco has updated their Brand guidelines for providing
group-wide consistency for their customers so that they can use the brand name of Tesco. In
addition, the company has also introduced new Performance Share Plan (PSP) for their key
stakeholders like customers with a 20% weighting (tescoplc.com 2018).
Suppliers: In case of the suppliers, the main aim of Tesco is to work collaboratively with their
suppliers with the aim to source responsibly so that sustainable supply chain can be developed.
The company is on the process to develop a range of methods for forecasting and ordering from
the suppliers with the aim to reduce waste (tescoplc.com 2018). Apart from this, like the
customers, the company has also introduced new PSP in order to build more effective

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relationship with their suppliers. According to the new Code of Conduct launched by the
company in 2015, it is now required for the company to deal with their suppliers in more fairly
and lawful manner. This code also contains some specific provisions related to the payment to
the suppliers that include retailer obligation to pay the suppliers without any delay and others
(tescoplc.com 2018).
It can be seen from the above discussion that Tesco has disclosed the information about
their corporate and social performance towards their key stakeholders like customers and
suppliers. Most importantly, it needs to be mentioned that Tesco has developed six simple key
business performance metrics with the aim to measure their performance in both the financial
and non-financial aspects (tescoplc.com 2018). Two of them are Customers and Partnership. As
per these KPIs, there an 1.2% growth in the customers loyalty for the company and the supplies
satisfaction has increased to 70% with a boost to 12% (tescoplc.com 2018). All these aspects
indicate towards the fact that Tesco has been able in disclosing the information about their
performance in corporate and social responsibilities. Hence, on the basis of the above discussion,
it can be said that Tesco has been able in providing their corporate and social responsibilities in a
well manner with the assistance of Environmental and Social Review and Corporate Governance
(tescoplc.com 2018).
2. Analysis and Evaluation of the Financial Position of Benedict Co.
a. Purpose and Relevance of Chosen Ratios
Gross profit ratio is a profitability metric for assessing the financial health of the
companies by assessing the money left over from revenue after the cost of goods sold. It is
relevant as it expresses whether there is sufficient revenue to cover the costs.Net profit ratio

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helps in assessing the remaining profit after the deduction of all kinds of costs (Delen, Kuzey and
Uyar 2013).
Current ratio is considered as a tool to measure the company’s ability for paying the
current business obligations. It is relevant as it helps in identifying the weaknesses in the
liquidity position. Quick ratio expresses the ability of the companies to pay off the current
liabilities with liquid or quick assets. For this reason, inventory in removed from the equation.
This company is relevant as it assesses whether the companies heavily rely on inventory or other
assets to pay the current obligations (Weil, Schipper and Francis 2013).
The main aim to use interest coverage ratio is to assess how easily a company can pay
their expenses related to interest on the outstanding debts and this aspect makes this ratio
relevant to the businesses. The debt-to-equity ratio helps in measuring the company’s financial
leverage that is the amount of debt financing to the amount of equity financing. This ratio is
considered as relevant as it helps in measuring the ability of the companies to repay the long-
term business obligations (Baños-Caballero, García-Teruel and Martínez-Solano 2014).
Inventory turnover days help the companies in assessing the average number of days they
hold the inventors before selling them. This ratio is relevant as it shows how much money a
business is carrying with the inventories. Trade receivable days show the number of days per
year the companies collect their average accounts receivable. This ratio is important as it shows
the ability of the companies to effectively issue credits to the customers and to collect funds from
them on timely manner. Trade payable days help in assessing the average time the companies
take to pay their current business obligations to the trade creditors that are vendors, suppliers and
other companies (Gitman, Juchau and Flanagan 2015).

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b. Results of Ratios and Reasons for the Movement between Two Years
According to table 1 in appendix, there is an increase in the gross profit of Benedict Co.
in 20X1 from 20X0 that is from 41.77% to 48.05%. Increase in both the sales and gross profit in
20X1 is the main reason for the increase in gross profit ratio. The same table shows opposite
result in net profit ratio as there this ratio decreased in 20X1 from 20X0 that is 21.43% from
28.11%. It can be observed that net profit of the company decreased in 20X1 from 20X0; and it
is the main reason for the decrease in this ratio (Dahmen and Rodríguez 2014).
As per table 2 in appendix, Benedict Co. witnessed decrease in the current ratio in 20X1
as compared to 20X0 that is from 1.25 to 1.19. The main reason behind the decrease in current
ratio is the increase in current liabilities in 20X1 from 20X0. At the same time, the proportion in
the increase in current liabilities is bigger than the increase portion in the current assets. The
same table shows decrease in quick ratio in 20X1 from 20X0 that is from 0.75 to 0.70. Increase
in inventory in 20X1 from 20X0 can be considered as the main reason for this (Vodová 2013).
According to table 3 in appendix, major decrease in the interest coverage ratio can be
seen for Benedict Co. in 20X1 from 20X0 that is 7.38 from 18.40. The reason is that the
proportion of increase in interest expenses is more than the proportion in the increase in EBIT.
As per the same table, increase in debt-to-equity ratio of the company can be seen in 20X1 from
20X0 that is 0.81 from 0.51. It can be seen from the provided information that there is increase in
the non-current liabilities of the company in 20X1 from 20X0 and it is the reason for the increase
in this ratio (Damodaran 2016).
According to table 4 in appendix, Benedict Co. has witnessed an increase in inventory
turnover days in 20X1 from 20X0; that is from 65.45 days to 118.63 days. Increase in the

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amount of inventory in 20X1 can be considered as a major reason for this increase in this ratio.
As per the same table, there is also increase in the trade payable days in 20X1 from 20X0; that is
155.13 days from 108.24 days. Increase in the amounts of total purchase as well as accounts
payable can be considered as the reason for this difference. The same table also states that the
company has registered increase in trade receivable days in 20X1 from 20X0; that is 90.06 days
from 55.70 days. It can be seen that there is increase in both the credit sales and accounts
receivable in 20X1 from 20X0; and it is one reason for the difference (Persson and Remling
2014).
c. Aspects of Concern in the Company’s Performance
The first aspect of concern for Benedict Co. is the decrease in their net profit margin in
20X1 from 20X0. Profitability is considered as a major mean for ensuring the survival of the
companies. Thus, the decrease in net profit as well as net profit ratio can cause harm for the
company (Selfano, Peninah and Sarah 2014).
The next area of concern for Benedict Co. is decrease in current ratio in 20X1 due to
increase in current liabilities. In addition, the current ratios in both the years are less than the
industry standards that is 1.6. At the same time, the quick ratios of Benedict Co. for both the
years are less than the industry standards that is 1.0. All these aspects imply that the liquidity
position of the company is not as effective as it requires to be. In this situation, it will not be
possible for Benedict Co. to compete with the other companies in the same industry (Hong,
Huseynov and Zhang 2014).
After that, another area of concern for the company is the decrease in power to make
interest payment in a year as decrease in this ratio can be seen in 20X1 from 20X0. It will

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increase the burden of interest payment on the company. In 20X1, increase in debt-to-equity ratio
can be seen for Benedict Co. It implies that the capital structure of Benedict Co. consists of 81%
of long-term debts and 20% of equity. This is a major concern for the company as it makes
Benedict Co. highly leveraged and increases the amount of interest payment in a year (Dener and
Young 2013).
Massive increase in the inventory turnover days is a matter of concern for the company as
it can be seen that the inventory turnover days of Benedict Co. are more than the inventory
standards that is 60 days. It implies that the company is holding inventory for longer time before
selling it. Another area of concern for the company is trade payable days as this is also higher
than the industry standard that is 90 days (Mien and Thao 2015). It implies that the company is
holding the money for more time before making the payment to the creditors. The last area of
concern for Benedict Co. is the trade receivable days. The industry standard for this is 55 days
while the company has 90.06 days in present. It implies that the company has not been able in
recovering the money from their trade debtors on speedy basis. All these are the areas of concern
for Benedict Co..
d. Application of Financial Ratios to Interpret and Measure Company’s Performance
The analysis of financial ratios is majorly helpful in the interpretation as well as
measurement of the performance of the business organizations. The analysis of different kinds of
financial rations is regarded as a major tool to analyze and evaluate various components of
financial statements. For example, the liquidity ratios are concerned with the current assets and
current liabilities in the financial statements (Zeitun, R. and Tian 2014). This analysis leads to
gain understanding about the financial position of the companies. For this reason, various users
like investors and creditors use ratio analysis to assess the financial position of the companies. In

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addition, with the application of the financial ratios, the users can judge the efficiency of the
management and operations of the companies. It helps them acquiring knowledge on the fact that
how well the companies are utilizing their assets in order to earn profits (Zeitun, R. and Tian
2014).
With the application of the analysis of different ratios, the users like investors and
creditors can know about the weaknesses in the financial performance of the companies; it is also
helpful in establishing the future trend of the financial performance of the business organizations
(Chandra 2017). After that, the users become able in the interpretation of the financial
performance of the business organizations in different segments; such as profitability, liquidity,
efficiency, investment, working capital and others. Thus, on the basis of the above discussion, it
can be said that the users can analyze the financial performance of the companies in an effective
manner with the help of ratio analysis (Chandra 2017).
Conclusion
The above discussion indicates towards the fact that the companies are needed to take
into consideration the interests of the key stakeholders of their business. For the business
operations of Tesco, the key stakeholders are customers, suppliers and colleagues. The above
discussion indicates towards the fact that the company has been able in disclosing the
information in the areas of their corporate and social responsibilities with the help of the
Environment and Social Review and Corporate Governance sections in their financial
statements. The second part of the report indicates towards the fact that each of the chosen ratios
has own purpose as well as relevance in the financial interpretation. The ratio analysis part shows
that there are certain differences in the ratios between these two companies; and certain aspects

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can be held responsible for these differences; like increase in liabilities, decrease in net profits
and others. In addition, it can also be seen that some of the major ratios are less than the industry
average; and all these aspects create concern for the company.

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References
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management, corporate performance, and financial constraints. Journal of Business
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Bourne, L., 2016. Stakeholder relationship management: a maturity model for organisational
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Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic management journal, 35(1), pp.1-23.
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Appendix
Table 1
Particulars 20X1 ($'000) 20X0 ($'000)
Sales (A) 30800 24900
Gross Profit (B) 14800 10400
Net profit (C) 6600 7000
Gross Profit Ratio (B/A) 48.05% 41.77%
Net Profit Ratio (C/A) 21.43% 28.11%
Table 2
Particulars 20X1 ($'000) 20X0 ($'000)
Current Assets (A) 12800 6400
Current Liabilities (B) 10800 5100
Inventories (C) 5200 2600
Current Ratio (A/B) 1.19 1.25
Quick Ratio {(A-C)/B} 0.70 0.75
Table 3
Particulars 20X1 ($'000) 20X0 ($'000)
Gross Profit (A) 14800 10400
Admin Expenses (B) 1700 400
Distribution Costs (C) 3500 800
EBIT (D) {A-(B+C)} 9600 9200
Interest Expenses (E) 1300 500
Total Liabilities(F) 22800 13100
Total Equity (G) 28000 25900
Interest Coverage Ratio (D/E) 7.38 18.40
Debt to Equity Ratio (F/G) 0.81 0.51

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Table 4
Particulars 20X1 ($'000) 20X0 ($'000)
Cost of Goods Sold (A) 16000 14500
Inventory (B) 5200 2600
Credit Sales (£m) (C) 30800 24900
Accounts Receivable (D) 7600 3800
Total Purchase (E) 16000 14500
Accounts Payable (F) 6800 4300
Days (G) 365 365
Inventory Turnover Days {G/(A/B)} 118.63 65.45
Trade Payable Days {G/(E/F)} 155.13 108.24
Trade Receivable Days {G/(C/D)} 90.06 55.70