Finance for Strategic Managers: Financial Statements and Analysis

This report delves into the critical role of financial information for strategic managers, emphasizing its significance in decision-making processes. It explores the importance of financial information for businesses, shareholders, and suppliers, highlighting the necessity of accurate and systematic data. The report identifies various business risks, including competitive, economic, and compliance risks, and discusses the financial information needed to make strategic business decisions. It examines the purpose, structure, and content of published financial statements using Tesco PLC as an example, interpreting financial information from income statements, balance sheets, and cash flow statements. Furthermore, the report covers the calculation of key financial ratios to aid in better decision-making and provides a detailed analysis of financial statements, emphasizing the impact of financial information on business strategy and performance. The report also includes an analysis of a family business, La familial, to assess the practical application of financial information for strategic managers.

FINANCE FOR
STRATEGIC
MANAGERS

Table of Contents
INTRODUCTION...........................................................................................................................3
ACTIVITY 1....................................................................................................................................3
ACTIVITY 2....................................................................................................................................5
ACTIVITY 3..................................................................................................................................11
ACTIVITY 4..................................................................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
The finance is as important as blood in human beings. This is why because in the absence
of blood human body can not alive same as in the businesses finance is crucial for operating
various kind of activities (Belasen and Belasen, 2016). In this aspect it is important that financial
resources should be managed in an effective manner and it is done by financial/ strategic
managers. For this purpose they need entire information regarding to financial activities. In the
absence of proper financial information, this can be difficult for managers to understanding about
effective allocation of funds. The project report covers importance of financial information for
managers in context of decision-making. As well as information included in the financial
statements is also included. Further part of project report includes about sources of fund
including long term and short term sources and importance of cash flow for businesses. The end
part of project report includes about ownership structure and evaluation of techniques of
selecting investment projects. In the report, a family business, La familial is selected for
assessing the role of financial information for strategic managers. This is a small business which
is growing effectively and deals in manufacturing of biscuits and snacks.
ACTIVITY 1.
1. Importance of financial information for businesses.
The financial informations are too crucial for companies because these provide a
framework for better decision-making to the managers. Herein, it is important to know that
financial information are not only beneficial for businesses but also for shareholders, Below, its
importance is mentioned that is follows:
 Importance for management- The financial informations are important for managers
because they need accurate and systematic information for decision-making (Cavazos,
2013). Additionally, by help of complete financial information, the management of
companies get able to formulating various kind of plans and policies in an effective
manner. Such as in the La familial business firm, the managers take crucial decisions on
the basis of availability of financial informations about their transactions.
 Importance for shareholders- Same as the managers, the financial informations are
important for shareholders. This is so because on the basis of it, they make investment in

businesses. In the absence of complete financial information, this can be difficult for
shareholders to know about financial condition of businesses. Like in the aspect of above
family business, their shareholders make contribution in their total of capital on the basis
of financial information.
 Importance for suppliers- The suppliers are very crucial for companies because they offer
material and other things on credit (Lou, 2019). They provide material on the basis of
financial condition which is assessed by financial information. If a company's financial
informations are showing negative result then suppliers will not offer credit facility to
that company. Like in the above family business, La familial their supplier provide
material to them on credit as per the financial information.
So overall, the financial informations are very important for different aspect of businesses
whether it is manager of employee, the role of these financial information is equal for all.
1.2 Identification of the business risks.
The term risk can be defined as possibility of loss or income on the invested amount of
money (Cunningham, 2017). Basically, in the aspect of business risk this is related to a kind of
factor that can minimise the revenues and leads to failure to businesses. Eventually, there are
vital types of risks which are being faced by companies. Under various kind of risks some can be
controlled while rest of others can not be controlled. Though, it is being said by economists that
higher risk leads to higher profitability. This is so because if companies will not take any risk
then they will not be able to sustain in the competitive environment. The business risk depends
on various kind of factors such as sales, cost of production, need of goods & services and many
more. The companies can control their business risks by taking effective decisions about
allocation of financial resources. Such as the above La Familial business firm is facing various
kind of risks and some of them are mentioned below:
 Competitive risk- It can be defined as a kind of risk which occurs due to other
competitive companies of an industry. This risk based on the number of competitors in
the market. If there are more number of similar companies then level of risk will be
higher. Such as the above business firm La Familial is involved in production of biscuits
and they face this competitive risk from other similar firms. They face tough competition
because of higher level of competition.

 Economic risk- This is a kind of risk which arises because of change in economic aspects
such as interest rates, inflation rates, exchange rates and many more (Matemilola, Bany-
Ariffin, 2018). Due to fluctuation in these rates, companies face many challenges which
lead to risk. Such as the above business firm is based on the getting loan from external
sources and if interest rate change then it becomes a risk for them.
 Compliance risk- It can be defined as a kind of risk which occurs to companies because
of variation in government rules, regulation and taxation policies for trading. Like if
government spreads any strict rule for taxation policy then it can be a reason of risk. In
the aspect of above business firm, they may face this risk if government of Malta make
any rule for their trade mechanism.
So these are some business risks which are faced by companies as well as may occur to above
business firm La familial.
1.3 Financial information needed to make strategic business decisions.
The strategic decision-making process is too crucial for companies because in the case of
any error can lead to loss (Tetlock, 2014). As well as these decisions are being taken on the basis
of financial information. Eventually, in the absence of these financial informations this can be
difficult for companies to take effective decisions. The all financial informations are derived
from various kind of financial statements such as income statement, balance sheet, ratio analysis
etc. In the aspect of above family business, La familial their managers take crucial strategic
decisions on the basis of availability of financial information.
Apart from it, these financial informations help to managers of companies in making
competitive plans and policies so that they can beat to their competitors. So overall, this can be
said that these financial informations are not only important for effective decision making but
also leads to effective planning and controlling.
ACTIVITY 2
2.1 Purpose, structure and content of published accounts.
For better understanding of purpose, structure and content of published financial
statements, Tesco company's financial statements are taken as an example which are mentioned
below:

TESCO PLC INCOME STATEMENT
Particulars 2018-02 2019-02
Revenue 57491 63911
Cost of revenue 54141 59767
Gross profit 3350 4144
Operating expenses
Sales, General and administrative 1786 1989
Other operating expenses 78
Total operating expenses 1786 2067
Operating income 1564 2077
Interest Expense 431 294
Other income (expense) 165 -109
Income before income taxes 1298 1674
Provision for income taxes 306 354
Minority interest 2 -2
Other income 2 -2
Net income from continuing operations 992 1320
Net income from discontinuing ops 216
Other -2 2
Net income 1206 1322
Net income available to common shareholders 1206 1322
Earnings per share
Basic 0.44 0.41
Diluted 0.44 0.41
Weighted average shares outstanding
Basic 2722 3229
Diluted 2731 3253
EBITDA 3024 3343

TESCO PLC ADR BALANCE SHEET
Fiscal year ends in February. GBP in millions except per share data. 2018-02 2019-02
Assets
Current assets
Cash
Cash and cash equivalents 3282 2916
Short-term investments 1097 457
Total cash 4379 3373
Inventories 2263 2617
Prepaid expenses
Other current assets 7084 6678
Total current assets 13726 12668
Non-current assets
Property, plant and equipment
Fixtures and equipment 10909 7063
Other properties 23453 24949
Property and equipment, at cost 34362 32012
Accumulated Depreciation -15841 -12989
Property, plant and equipment, net 18521 19023
Goodwill 1796 4909
Intangible assets 865 1355
Deferred income taxes 117 132
Other long-term assets 9837 10960
Total non-current assets 31136 36379
Total assets 44862 49047
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt 1467 1563
Capital leases 12 36
Accounts payable 8996 9354
Taxes payable 335 325
Other current liabilities 8428 9402
Total current liabilities 19238 20680
Non-current liabilities
Long-term debt 7032 5580
Capital leases 110 93
Deferred taxes liabilities 91 236
Pensions and other benefits 3282 2808
Minority interest -22 -24
Other long-term liabilities 4651 4816
Total non-current liabilities 15144 13509
Total liabilities 34382 34189
Stockholders' equity
Common stock 410 490
Additional paid-in capital 5107 5165
Retained earnings 4228 5405
Accumulated other comprehensive income 735 3798
Total stockholders' equity 10480 14858
Total liabilities and stockholders' equity 44862 49047

TESCO PLC CASH FLOW

Fiscal year ends in February. GBP in millions except per share
data. 2018-02 2019-02
Cash Flows From Operating Activities
Investments losses (gains) 156 127
Stock based compensation 113 77
Inventory 76 9
Other working capital 516 -705
Other non-cash items 1921 2458
Net cash provided by operating activities 2782 1966
Cash Flows From Investing Activities
Investments in property, plant, and equipment -1440 -1101
Property, plant, and equipment reductions 253 286
Acquisitions, net 41 -718
Purchases of intangibles -197 -191
Other investing charges 2009 581
Net cash used for investing activities 666 -1143
Cash Flows From Financing Activities
Long-term debt issued 313 975
Long-term debt repayment -3721 -2471
Common stock issued 11 60
Repurchases of treasury stock -206
Cash dividends paid -82 -357
Other financing activities 243 18
Net cash provided by (used for) financing activities -3236 -1981
Effect of exchange rate changes 15 15
Net change in cash 227 -1143
Cash at beginning of period 3832 4059
Cash at end of period 4059 2916
Free Cash Flow
Operating cash flow 2782 1966
Capital expenditure -1637 -1292

Free cash flow 1145 674

Purpose of financial statements- The most of companies prepare the financial statement as per
the financial transactions of various kind of business activities (Burgess, 2012). Basically, the
main purpose of preparation of these financial statements is to evaluate the actual financial
position of company. The financial statements contain statement of change in equity, profit &
loss account, cash flow statement and ratio analysis. The managers of companies gather crucial
informations from all these above statements in the aspect of better decision-making. Such as in
above business firm, La familial their managers assess the financial statements' information for
strategy preparation.
Structure of financial statements- The above mentioned financial statements' structures is
fixed as per the international accounting standards. Like in the income statement, there are three
columns in which first contains detailed information about financial transaction. While in the rest
of two columns include the year in which transaction done. Same as in the balance sheet and
cash flow of above company the structure is similar as the income statement.
Content of financial statements- Under financial statements such as in income statement,
various kind of content is included such as gross profit, cost of sales, net profit etc. While in the
balance sheet, majorly total amount of assets containing fixed assets, current assets as well as
total amount of liabilities like current and non current liabilities are included (Ornstein and
Andrade, 2012). Apart from it, in the cash flow statement, majorly three activities are included
which are operating, financing and investing. So these are the main content which are included in
the financial statements.
2.2 Interpretation of financial information included in financial statement.
Income statement- In the income statement of company, the gross profit is of £3350 GBP
million in year 2018 which raised in next year and became of £4144 GBP million. While the
operating profit is of £1564 GBP million in year 2018 and £2077 GBP million in 2019. As well
as the net profit is of £1206 GBP million in 2018 and £1322 GBP million in 2019.
Balance sheet- The balance sheet of above company contains detailed information about
assets and liabilities. Their total assets are of £45853 GBP million in year 2018 and in year 2019
it is of £49047 GBP million.
Cash flow statement- The cash flow statement of above company stats that their cash
flow from operating activities is of £2762 GBP million in year 2018 and in year 2019, it is of