Financial Management: Analysis of Tesco Plc and Benedict Co.

This report provides financial analysis of Tesco Plc and Benedict Co. The report analyses the stakeholders of Tesco and evaluates its performance in terms of social and corporate responsibilities. It also evaluates the financial condition of Benedict Co. using liquidity, gearing, profitability, efficiency, and investor ratios. The report concludes that Tesco has made a smart move by investing in supplier and employee relationships, while Benedict Co. has experienced a significant decline in its financial condition in 20x1 compared to the past year.

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:
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Executive Summary:
The report is prepared with the intent to analyse the business performance of Tesco Plc and
Benedict Co. After analysing the annual report of Tesco Plc in 2016, it has been found that the
organisation has made a smart move by investing in supplier and employee relationships that
lead to sound working environment for skilled labour. In addition, it manages to earn supplier
trust as well that has assisted the organisation in offering products at reasonable prices for raising
the loyal customer base and attracting the shoppers to shop from its stores. In case of Benedict
Co, it has been found that the organisation has experienced a significant decline in its financial
condition in 20x1 compared to the past year. Due to such negative image, it would not be
selected after adjudication of the tender documents, although they have been at the top of the list.
The second organisation would be selected owing to the concern that Benedict Co. has not been
a stable organisation in the long-term and the image of the purchaser might be affected in the
market in near future.

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Table of Contents
Introduction:....................................................................................................................................3
1. Tesco Plc:.....................................................................................................................................3
a. Concept of the term ‘stakeholder’ and three types of stakeholders of Tesco:.........................3
b. Role played by Environmental and Social Review and Corporate Governance Report in
demonstrating its performance to two identified stakeholders:...................................................5
2. Benedict Co.:...............................................................................................................................7
a. Purpose and relevance of the chosen ratios:............................................................................7
b and d. Analysis and application of the chosen ratios in the context of Benedict Co.:..............8
c. Aspect of performance of concern for Benedict Co.:............................................................15
Conclusion:....................................................................................................................................15
References:....................................................................................................................................17
Appendices:...................................................................................................................................20

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Introduction:
The objective of the report is to conduct financial analysis of the two organisations,
which include Tesco Plc and Benedict Co. It would look at the key stakeholders of Tesco along
with utilising the 2016 annual report of the organisation for reviewing its performance in terms
of social and corporate responsibilities against its social and environmental review and corporate
governance report. Tesco Plc runs supermarkets in UK, which intends to earn profits by
investing and selling greater quality products (Tesco plc 2019). Like any other global
organisation, Tesco works with a number of stakeholders like suppliers, customers, investors,
employees, shareholders and others. This paper would analyse the contributions of customers,
suppliers and employees to the financial performance of the organisation. Along with this, the
paper would evaluate the financial condition of Benedict Co., which is one of the organisations
that placed tender for the contract. Therefore, a range of financial ratios would be conducted to
gauge the financial performance of the concerned organisation.
1. Tesco Plc:
a. Concept of the term ‘stakeholder’ and three types of stakeholders of Tesco:
Concept of stakeholder:
As stated by Wood, Wrigley and Coe (2016), stakeholders are individuals, groups or
organisations having concern or interest in an organisation. They could be influenced by or
influence the policies, actions and objectives of the organisation. From the broader perspective,
some stakeholders mainly constitute of creditors, employees, customers, shareholders,
government agencies and others. The stakeholders could be categorised into two major groups,
which include internal stakeholders and external stakeholders. In this context, Jenkins and

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Williamson (2015) advocated that internal stakeholders are those groups that are formally parts
of an organisation, while the external stakeholders are individuals or groups that could affect or
affected by an organisation.
Three types of stakeholders of Tesco Plc:
It is possible to group the stakeholders of an organisation into suppliers, employees,
customers and government. From the annual report of Tesco Plc in 2016, there are three main
types of stakeholders, which include suppliers, customers and its colleagues/staffs. The other
stakeholders are identified as the external stakeholders and for Tesco; these stakeholders include
shareholders along with social and environmental stakeholders. Back to the three major
stakeholders, the organisation clearly indicated about them in its annual report as follows:
The customers are denoted as organisations or individuals purchasing the products or
services or make repeat purchases or recommend the organisation to other shoppers. This group
belongs to the external stakeholders of Tesco Plc and the loyalty of the customers is explained by
the shopping frequency and average weekly spends (Tescoplc.com 2019).
Suppliers are categorised as the second major stakeholders belonging to partnerships and
they fall under connected stakeholders.
` Colleagues are referred to by the organisation as its employees where Tesco invests for
providing better services to the customers. This group falls under the internal stakeholders of the
organisation (Hanson et al. 2016). In addition, Tesco has focused on key performance indicators
of its staffs, in which it referred to the measurements regarding recommendation and great place
for work or shop.

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b. Role played by Environmental and Social Review and Corporate Governance Report in
demonstrating its performance to two identified stakeholders:
From the three identified stakeholders of Tesco, suppliers and employees/colleagues
have been chosen due to two main reasons. Firstly, in order to become a reputed brand in the
retail sector, the employees are the first individuals found to be involved with the customers
(Bamber and Parry 2014). Secondly, the suppliers are the significant components in sustaining
the aim of the organisation to provide promotional products and stable prices. The two
stakeholder groups have not been chosen randomly, the selection has been due to the association
between the changes of the organisation affecting the way the staffs involve with the suppliers.
Tesco has undertaken certain significant changes in 2014 for redeveloping the
relationship with the suppliers. In October 2014, Tesco has drawn a line under the past and it has
started of resetting its working procedure and for this, the support of the managers and
employees are crucial. According to Zentes, Morschett and Schramm-Klein (2017), the changing
environment meeting the resistance of managers has particular thinking pattern in the working
environment exposed in their long-term experience. In case of Tesco, for dealing with the
possible staff resistance, the management has designed new reward schemes along with initiating
training and induction programs. The external factors could influence the staff behaviour as well
that comprise of government or business policies, communities and others. For managing the
effect of the communities, Tesco has realised its unique change for undertaking favourable
environmental change and its communities by enforcing different national and global projects
(Tescoplc.com 2019).
For dealing with economic and social issues in the environment, it is vital for an
organisation to have a wide competent spectrum including its capability for fostering knowledge

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acquisition. In order to increase the knowledge base of its staffs, Tesco has widened its training
opportunities by intending to resolve the social challenges. Moreover, the organisation has
initiated flexible working hours along with forming a working environment promoting
communication between colleagues. Such initiative has assisted the employees of Tesco in
enhancing their performance and concentrating on customer satisfaction (Petljak and Štulec
2015). This is evident from “Page 21 of the Annual Report of Tesco”, in which it has been
mentioned that the colleagues have stayed the beating heart of the organisation and they have
carried on putting the customers first while providing superior services (Tescoplc.com 2019).
Another social challenge that Tesco has monitored has been the difference between men and
women, which is a crucial aspect in maintaining transparency in the working environment.
After staff behaviour is addressed, Imrie and Dolton (2014) commented that the
organisations are utilising staff behaviour change interventions for addressing different issues
that include minimisation of energy use, minimisation of greenhouse gas (GHG) emissions,
recycling, minimisation of water usage and rise in use of public transport. This could be realised
in the manner that Tesco has approached its environmental initiative for minimising the food
waste within its business operations. This program has been observed to have favourable effect
on the suppliers, as the latter has minimised their waste and the benefits are extended further to
the communities, in which the food surplus could be distributed to the needy individuals
(Haddock-Millar and Rigby 2015). After the environmental program has been implemented,
there has been minimisation in carbon footprint by 8% from the past year and in contrast to 10
years back, carbon intensity per square feet has been minimised with 41.7% (Tescoplc.com
2019).

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For offering products at reasonable prices and gaining popularity, Tesco has to redevelop
its trust with the suppliers by maintaining transparency in relationship with them mainly when
the customers provide feedbacks on particular products (Mollah 2014). Such changes between
Tesco and its suppliers are witnessed to have positive impact leading to increase in number of
suppliers. As a result, it has assisted the organisation in experiencing a sharp growth each year.
In case, Tesco is assumed to exercise power over the suppliers, the impact would have been rise
in price and minimisation in product ranges, which would chase away the customers (Rodrigue
2014).
Considering all the above-discussed aspects, the systems and programs that Tesco Plc has
formulated in managing the significant changes enforced within the organisation assisted them in
having favourable effect and reaction on its suppliers and employees. Currently, Tesco is a
highly popular business and it is highly proud of the way its colleagues and suppliers provided
responses to the undertaken changes, as evident from “Page 8 of its Annual Report”
(Tescoplc.com 2019).
2. Benedict Co.:
a. Purpose and relevance of the chosen ratios:
For analysing the financial condition of Benedict Co, a number of financial ratios have
been chosen to meet the needs of the stakeholders. The provided financial statements of the
organisation for the years 20x0 and 20x1 and other materials have been utilised for computing
the relevant ratios. Moreover, the use of literature review has been made for assuring relevance
of the selected ratios, which has assisted in computing and interpreting the ratios for gauging the
financial performance and position of Benedict Co. The ratios mainly used for this report include
the following:

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 Liquidity ratios like current ratio and quick ratio, since they are associated with suppliers
and customers
 Gearing ratios like interest cover and debt/equity ratio, since they are pertinent to lenders
 Profitability ratios that are applicable to lenders, suppliers and customers
 Efficiency ratios for analysing the use of resources in order to gauge the performance of
the suppliers
 Investor ratios for gauging the performance of the investors like return on equity,
earnings yield, dividend yield, earnings per share and others
b and d. Analysis and application of the chosen ratios in the context of Benedict Co.:
The following ratios have been chosen for evaluating the financial condition of Benedict
Co.:
Profitability ratios:
The profitability ratios are computed to determine the efficiency of Benedict Co. in using
its assets along with managing daily business operations.
Gross margin:
By observing this ratio, gross margin is observed to increase by 6.28% in 20x1from 20x0.
The parallel rise in sales and gross profit has been the main reason behind the outcome. With the
increase in gross profit from $10.4 million to $14.8 million (42.31% increase), the sales have

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risen by 23.69% in 20x1 as well. However, the interpretation of this ratio contradicts the past
assumption that the ability of the organisation in generating profits from sales has been
minimised, which could be observed in net margin analysis below. Therefore, it could be stated
that the rise in gross margin is due to rise in sales in comparison to very low cost of sales.
Net margin:
According to the above table, a decline in operating profit has negative impact on net
margin. At the same time, there has been simultaneous rise in sales revenue (23.69% increase)
lowering this ratio from 28.11% in 20x0 to 21.43% in 20x1. A fall in net margin signifies
downfall in the ability of an organisation to utilise revenue effectively for profit generation
(Robinson et al. 2015).
Return on capital employed (ROCE):
The decline in ROCE from 24.19% in 20x0 to 17.50% in 20x1 has been due to a
combination of two factors. The first factor is the decrease in operating profit of the organisation
from $8.7 million in 20x0 to $8.3 million in 20x1 and rise in capital employed from $33 million
in 20x0 to $40 million in 20x1. In this regard, Vogel (2014) indicated that such status reflects the
fall in efficiency of the organisation in utilising capital for profit generation.
Net asset turnover:
For the concerned period, this ratio is observed to increase from 0.73 times to 0.77 times,
which denotes an increase of 4.83% in the ratio due to higher increase in sales compared to
employed capital. As advocated by Williams and Dobelman (2017), such movement signifies

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slight improvement in the ability of the organisation in generating revenue effectively from
capital.
Efficiency ratios:
After witnessing several issues in the profitability aspect of Benedict Co, further research
has been conducted to find out the efficiency of the organisation in using its resources. For
conducting the same, efficiency ratios have been calculated in the following table, in which the
performance of the two years has been revealed:
Inventory days:
After the ascertainment of inventory days, it could be said that the same has increased by
53.18 days in 20x1, which is quite higher than the industry average of 60 days. A higher figure is
not desirable, as it denotes the inefficiency of the organisation in managing its inventory
effectively (Omar et al. 2014). This is mainly due to the imbalance between the cost of sales and
available inventory. This implies that Benedict Co. has to wait for 118.63 days to release its
inventory, which is 53.18 days more than the previous year and 58.63 days more than the
industrial average.
Receivable days:

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This ratio generally denotes the number of days taken by the debtors to settle their
payments towards an organisation (Wahlen, Baginski and Bradshaw 2014). This number is seen
to rise from 55.70 days in 20x0 to 90.06 days in 20x1, which is 34.36 days more than the
previous year and 35 days more than the industrial average. Thus, the ability of Benedict Co. in
collecting revenue from invoiced or sold stock has declined.
Payable days:
From 20x0 to 20x1, the organisation has raised its time for paying the creditors’ by 43.31
days and 65.31 days more than the industrial average. Despite the fact that Benedict Co. enjoys
trade credits, the rise in payable days is more than that of receivable days. This situation is
deemed to be critical, since the suppliers might not be willing to supply owing to the long credit
period. This denotes the complex financial condition of the organisation as well.
Cash conversion cycle:
According to the above table, an increase in this ratio could be observed from 12.91 days
in 20x0 to 53.56 days in 20x1. This implies that Benedict Co. has to wait for 40.66 days more in
20x1 for converting its stock into cash, which is again another issue for the organisation.
Liquidity ratios:
The reason behind the selection of liquidity ratios is to assure the investors that Benedict
Co. could honour its debts easily in a shorter timeframe. The reason that the financial managers
need to gain an understanding of the short-term ratios is linked with the creditors providing
short-term loans, as they are involved to be working with banks as well as other short-term
lenders.

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Current ratio:
From the above table, it is evident that there is slight decrease in current ratio from 1.25
in 20x0 to 1.19 in 20x1, which is down by -0.07 and by -0.41 compared to the industrial average.
This is because of the lower rise in the current assets of the organisation by 100% in 20x1 in
contrast to rise in current liabilities by 111.76% in the same year.
Quick ratio:
This ratio has declined by -0.04 times in 20x1 and by -0.30 times compared to the
industrial average for Benedict Co due to the same reason explained in the current ratio.
The fall in above ratios implies a rise in the risk of the organisation (Islam 2014). This
implies that the organisation might not be able to hedge current liabilities from current assets
placing strain on business liquidity.
Gearing ratios:
After the ascertainment of the short-term ability of Benedict Co in paying its liabilities,
the gearing ratios have been challenged below to find out if the organisation could honour its
commitments during a longer timeframe.

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Gearing ratio:
From the above table, it could be seen that gearing ratio has increased by 0.06 in 20x1.
This could be explained by higher rise in long-term debt from $8 million to $12 million, which is
up by 50% than its rise in capital employed by 17.9% from $33.9 million to $40 million. This
implies the increase in risk of the organisation for covering long-term debts with the help of
capital employed (Ehiedu 2014).
Debt/equity ratio:
A considerable increase in this ratio could be observed from 0.51 in 20x0 to 0.81 in 20x1
by 74.05% owing to the higher increase in total liabilities in contrast to share capital and reserves
by 8.11%. This makes it obvious that rise in capital and reserves have not been able to offset the
respective rise in total liabilities (Rani, Yadav and Jain 2015).
Interest cover ratio:
According to the above table, there has been decline in the ratio from 16.40 times in 20x0
to 5.38 times in 20x1 signifying the decline in operating profit of Benedict Co along with rise in
finance cost by 160%. As commented by Greco, Figueira and Ehrgott (2016), such trend
highlights a downfall in the ability of an organisation in hedging its interest expense from
earnings.

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Investor ratios:
The final step to gauge the financial statements of Benedict Co. is to ascertain the market
price per share in both years and it needs to be compared with earnings per share to infer the
fluctuating trend of the shares in two years. Since market share is vulnerable to the rate of
exchange, below values are valid only for the period the exercise has been performed (Brigham
et al. 2016).
Return on equity:
This ratio is observed to decrease by 3.46% in 20x1 for Benedict Co. due to the same
reason as that of return on capital employed.
Earnings per share:
This ratio is seen to fall by ($0.02) in 20x1, as the net income of the organisation has
declined by 5.71% with no change in the number of issued shares.
Payout ratio:
An increase of 16.75% is observed in this ratio for Benedict Co. due to the fall in net
income by 5.71% and increase in dividend payments by 25% in 20x1.
Price/earnings ratio:

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Despite the fall in earnings per share in 20x1, there has been increase in this ratio by 6.2
in the year, which might motivate the shareholders to invest in Benedict Co., since it has scope
for improvement in future (Samonas 2015).
c. Aspect of performance of concern for Benedict Co.:
In line with the above analysis, the significant causes of concern for Benedict Co. include
lack of competitiveness and increase in business and financial risks. This has been evident in the
deterioration of profitability, increase in payable days, receivable days and cash cycle along with
rise in liquidity strain. Hence, these issues are of significant concern for the lenders, suppliers
and investors looking for stable and long-term investment opportunities. However, it is necessary
to conduct additional analysis for finding out whether the identified ineffective use of resources
is the problem of the organisation or not. There is requirement for more distinction of industry
information of various years for clearing assumptions (Faello 2015).
Conclusion:
It has been found that Tesco has made a smart move by investing in supplier and
employee relationships that lead to sound working environment for skilled labour. In addition, it
manages to earn supplier trust as well that has assisted the organisation in offering products at
reasonable prices for raising the loyal customer base and attracting the shoppers to shop from its
stores.
In case of Benedict Co, it has been found that the organisation has experienced a
significant decline in its financial condition in 20x1 compared to the past year. Due to such
negative image, it would not be selected after adjudication of the tender documents, although
they have been at the top of the list. The second organisation would be selected owing to the

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concern that Benedict Co. has not been a stable organisation in the long-term and the image of
the purchaser might be affected in the market in near future.

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Approach. Kogan Page Publishers.
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Theory And Practice, Canadian Edition. Nelson Education.
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financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5),
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Faello, J., 2015. Understanding the limitations of financial ratios. Academy of Accounting &
Financial Studies Journal, 19(3), pp.269-284.
Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York:
Springer.
Haddock-Millar, J. and Rigby, C., 2015. Business Strategy and the Environment: Tesco PLC’s
Declining Financial Performance and Underlying Issues. Review of Business & Finance
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Hanson, D., Hitt, M.A., Ireland, R.D. and Hoskisson, R.E., 2016. Strategic management:
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Imrie, R. and Dolton, M., 2014. From supermarkets to community building: Tesco plc,
sustainable place making and urban regeneration. Sustainable London, pp.173-194.

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Islam, M.A., 2014. An analysis of the financial performance of national bank limited using
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UK. European Journal of Business and Management, 6(3), pp.21-55.
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Samonas, M., 2015. Financial forecasting, analysis, and modelling: a framework for long-term
forecasting. John Wiley & Sons.

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Tesco plc., 2019. About us. [online] Available at: https://www.tescoplc.com/about-us/ [Accessed
12 Mar. 2019].
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In Strategic retail management(pp. 207-226). Springer Gabler, Wiesbaden.

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Appendices:
Appendix 1: Industrial financial data in relation to Benedict Co.

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Appendix 2: Income statement of Benedict Co.

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Appendix 3: Balance sheet statement of Benedict Co.

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Appendix 4: Calculation of profitability ratios for Benedict Co.

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Appendix 5: Calculation of efficiency ratios for Benedict Co.

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Appendix 6: Calculation of liquidity ratios for Benedict Co.

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Appendix 7: Calculation of gearing ratios for Benedict Co.

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Appendix 8: Calculation of investor ratios for Benedict Co.