Financial Management and Financial Statements of Tesco PLC

This report provides an in-depth analysis of financial management practices at Tesco PLC, a leading British retailer. It covers the definition, objectives, and significance of financial management, along with key elements such as planning, controlling, organizing, and decision-making. The report delves into investment, dividend, and financing decisions, highlighting strategic and tactical financial management approaches. Furthermore, it examines Tesco's financial statements, including the income statement, balance sheet, and cash flow statement, providing a review of the company's profitability, liquidity, and debt-equity structure. The report concludes with recommendations for strengthening Tesco's liquidity position and expanding its digital presence. Desklib offers this report as a valuable resource for students studying finance, alongside a wide range of past papers and solved assignments.

Financial Management

Table of Contents
INTRODUCTION...........................................................................................................................3
REPORT..........................................................................................................................................3
Background of company .............................................................................................................3
Definition of FM .........................................................................................................................3
Objectives or significance of FM ................................................................................................3
Elements of FM ...........................................................................................................................4
FM strategies ...............................................................................................................................5
Different Financial Statements. ..................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................1

INTRODUCTION
The present study is based on Tesco, a leading retailer in the UK operating in grocery and
supermarkets. Furthermore, the report throws deeper insights towards the meaning, importance
and the objective of financial management. Moreover it involves an elements and the strategies
of the financial management.
REPORT
Background of company
Tesco is seen as largest or leading British retailer and is called as the world's third
grocery retailer with an outlet across Asia, USA and Europe. The business has been started in the
year 1919 along with one man named as Jack Cohen, selling the groceries from the stall in an
East End of the London. It has been identified that he earned the profit on the first day valued as
£1 and the revenue of £ 4. Tesco has expanded its business on global level since early 1990s
with an operations in the more than 11 countries across the world. Tesco has diversified its
business into different range like books retailing, furniture, clothing, petrol, financial services,
toys, internet services and electronics.
Definition of FM
Financial management is seen as an integral part of an overall management and is
concerned with duties of the financial manager within the business organization (Ward and
Forker, 2017). Different authors had provided for different definitions of the financial
management that are as follows-
In accordance to solomon, financial management is mainly concerned with effective
and efficient use of an essential economic resources namely as capital funds.
As per S.C. Kushal, financial management deals with acquisition and optimum use of
the funds in the business so that larger profits could be generated.
In view of Howard and Upton, FM refers to an application of the managerial principles
towards the area that involves financial related decision making.
Objectives or significance of FM
The primary or foremost objective of FM is to ensure adequate and routine supply of the
funds to the business with ensuring appropriate and adequate returns to shareholders that will
depend on the earning capacity, expectation of shareholders and market price of shares (Mao and

et.al., 2017). The main objective of financial management is to make an effective utilisation of
the funds in order to ascertain higher level profits and reduced cost.
FM acts as the most crucial function of an enterprise as it helps in proper use and the
allocation of the funds that results in improving an efficiency of an entity. It enables the
managers in taking the sound and most suitable financial decisions within the work environment.
It also assist the firm in financial planning and in maximising its wealth by increasing the market
value of the company's shares (Siekelova and et.al., 2017). FM provides for an economic
stability and encourages an employees of Tesco in saving the money that in turn enables in better
personal financial plan.
Elements of FM
There are mainly four elements of the financial management that includes planning,
controlling, organizing and decision making. Such divisions or the elements are based on
purpose of each of the task. There are 3 major decisions that are taken by the financial managers
that are as follows-
Investment decisions- It referred as the financial decision that is concerned with the ways
in which firm invest its funds in the different assets (Bollerslev, Patton and Quaedvlieg, 2018).
It includes both short and long term decisions. Investment decision that are made for long term
are known as the capital budgeting that includes huge amount of the investment for the longer
period. However, short term decisions are called as the working capital or routine decision of the
business regarding the level of the cash, receivables and an inventory.
Dividend decisions- It means the decision that is mainly concerned with deciding
proportion of profit earned by an enterprise need to be distributed among the shareholders and
the part of the profit is required to be retained for meeting the future uncertainties. This decision
majorly relates with the dividend policy. Under this there are mainly two options are available in
dealing with the profits that is distribution and retention as required by the firm. It is determined
in terms of its effect on the wealth of the shareholders. It is important for the financial manager
to opt for a optimum dividend decision that maximises the market value of share and the firm.
Financing decisions- This decision relates with the financing mix and capital structure
where finance manager determines proportion of the equity and debt in the capital structure
(Talonpoika and et.al., 2016). It is concerned with an amount of the finance that need to be raised
from the several long range sources of the funds such as preference shares, bank loans etc.

FM strategies
Strategic FM- It is an identification of possible strategies that is capable of increasing or
maximising market value of Tesco and an allocation of the scarce resources among the
competing opportunities. It includes an implementation or execution and reviewing of selected
strategy for the purpose of achieving the stated objective. It means managing the financial
resources of the firm for achieving the goals and in maximising the value (Siekelova and et.al.,
2017). It involves defined series of the steps which encompasses a full range of the company's
finances from setting the objectives to tracing or identifying variance in between the budgeted
and the actual results.
Tactical Strategy- Under this approach, there is an intent for taking an advantage of the
market conditions in the range of the acceptable percentages within each of the asset class. It
provides for flexibility in moving towards the higher end and there is also a probability that
several factors and the class of asset might lead or decline behind the certain stages of the typical
cycle of economy and in playing odds that could lead to better returns over the time (Mao and
et.al., 2017). Tactical FM strategies comprises of the procedures and the steps in achieving the
objectives as per the standards set and plan developed.
Different Financial Statements.
As per the reporting frameworks of respective accounting and legislative authorities
companies are required to report their transactions and performance in a structured format. The
companies are required to present reports in financial statements complying with the reporting
frameworks given by the authorities. There are three main financial statements prepared by the
companies that are income statement, balance sheet and cash flow statements. All the items of
financial statements are guided by the accounting standards.
Income Statements
Income is an important financial statement that is prepared for reporting the financial
performance of company during a given accounting period. It is prepared whether the business
was profitable or not for the period. In includes all the items of income and expneses of company
(Arya and Nagar, 2018). It records revenues by sales and all the costs of production and the
expenditure are deducted for measuring the profit or loss from business.

Balance Sheet
It is an another financial statements of the company that is used for reporting the assets ,
liabilities and the shareholder's equity at specific point of time. The balance sheet of company
provides the base for computing the returns and for evaluation of the capital structure. The
owning and owing of the company are assessed by the balance sheet (Datta and Fuad, 2017).
Investors and experts use this statements for measuring the returns over equity using income
statements.
Cash Flow Statement
It is a financial statement summarizing the cash & cash equivalents transactions. These
statements are prepared for reporting the inflow and outflow of cash in business. It is used for
measuring the ability of company in managing its cash operations. It is essential for companies to
effectively manage its cash flows. The debt obligations & funds for operating expenses should be
met by company (Miao, Teoh and Zhu, 2016). There are situations where the profitable
companies are also showing negative cash flows which can also have the liquidation
consequences.
Review of profit & loss
The operating profit of company for 2019 were 2153 millions against the revenues of
63911 millions. The revenues and profits of company are showing an increasing trend since last
five years. Earning per share of the company is also raising at constant phase .
Review of balance sheet
The current ratio for 2019 was 0.61.This shows that company is weak in liquidity
position. The shareholder's equity in the company have raised and the borrowings of the
company have reduced (Financial Review, 2019). The debt equity structure of company is
strong.
Recommendation
Company is performing efficiently and also the financial position is strong. The liquidity
position has to be strengthened as the further reduction may lead to negative cash flows.

Company should go for long term borrowings instead of short term. It should also expand its
business at digital platform at increase level.
CONCLUSION
The above study shows that the financial management is very important in business. The
company cannot achieve its desired goals and objectives with financial management. Resiurces
are required to be used at the best. It helps in effective decision making and in formulating
strategies. There are different financial statements that are to be prepared for reporting the
activities of business.

REFERENCES
Books and journals
Bollerslev, T., Patton, A. J. and Quaedvlieg, R., 2018. Modeling and forecasting (un) reliable
realized covariances for more reliable financial decisions. Journal of econometrics, 207(1),
pp.71-91.
Mao, D.M. and et.al., 2017. Financial influences impacting young adults' relationship
satisfaction: Personal management quality, perceived partner behavior, and perceived
financial mutuality. Journal of Financial Therapy, 8(2), pp.23-41.
Siekelova, A. and et.al., 2017. Receivables management: the importance of financial indicators in
assessing the creditworthiness. Polish Journal of Management Studies, 15.
Talonpoika, A. M. and et.al., 2016. Defined strategies for financial working capital
management. International Journal of Managerial Finance.
Ward, A. M. and Forker, J., 2017. Financial management effectiveness and board gender
diversity in member-governed, community financial institutions. Journal of business
ethics, 141(2), pp.351-366.
Arya, A. and Nagar, N., 2018. Stewardship Value of Income Statement Classifications: An
Empirical Examination. Journal of Accounting, Auditing & Finance, p.0148558X18793067.
Datta, S. and Fuad, S.M., 2017. Valuing intangible assets: A balance sheet approach for DS30
listed companies. Australian Academy of Accounting and Finance Review, 2(2), pp.119-
135.
Miao, B., Teoh, S.H. and Zhu, Z., 2016. Limited attention, statement of cash flow disclosure, and
the valuation of accruals. Review of Accounting Studies, 21(2), pp.473-515.
Online
Financial Review. 2019. [Online]. Available through: <https://www.hl.co.uk/shares/shares-
search-results/t/tesco-plc-ordinary-5p/financial-statements-and-reports>
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