Strategic Financial Management Report: Tesco and Benedict Co. Analysis

This report delves into strategic financial management, beginning with an analysis of Tesco's stakeholders, environmental, and social performance based on its 2016 Annual Report, including key stakeholders such as colleagues, customers, and suppliers. The analysis extends to Tesco's corporate social responsibility initiatives, particularly concerning suppliers and customers, and the company's use of KPIs. The second part of the report evaluates the financial position of Benedict Co., examining profitability, liquidity, and working capital ratios, along with investor ratios. It discusses the purpose and relevance of selected ratios, presents ratio analysis results, identifies areas of concern, and explains the movements in financial metrics. The analysis highlights the company's financial health through ratio analysis and its implications for the company's performance. The report concludes with an overview of the company's financial position and performance, summarizing the key findings from the analysis.

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. Annual Report Analysis...............................................................................................................2
a. Analysis of Stakeholders..........................................................................................................2
b. Analysis of Environmental and Social Performance...............................................................4
2. Financial Position of Benedict Co. Analysis and Evaluation......................................................6
a. Purpose and Relevance of Selected Ratios..............................................................................6
b. Ratio Analysis Results and Reasons for the Movement..........................................................7
c. Areas of Concern.....................................................................................................................9
d. Application of Financial Ratios in Interpreting and Measuring Company’s Performance...10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
Appendix........................................................................................................................................15

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Introduction
Strategic financial management refers to process of strategic planning and this
demonstrates the utilization of financial resources when the management attempts to achieve
objectives and goals of the business (Morden 2016). Strategic financial management plays a
crucial role to maximize the value of the company’s stakeholders on the basis of long run. It puts
the obligation on the management of a company to undertake the necessary financial as well as
strategic aspects of the business (Theriou 2015). There are two major objectives of this report.
Analyzing as well as evaluating Tesco’s stakeholders and its sustainability and environmental
initiatives is the aim of the first part of the report. Analysis and evaluation of the financial
performance of Benedict Co. is the aim of the second part of this report. Financial analysis is
considered as a crucial part for analyzing the financial performance and position of the
companies; and therefore, certain ratios are chosen to analyze the financial performance of
Benedict Co. Based on the whole discussion, a conclusion is provided at the last part of the
report.
1. Annual Report Analysis
a. Analysis of Stakeholders
Stakeholder – Managements of the companies put major emphasis on the stakeholders for the
purpose of business success. A stakeholder refers to a person or group possessing certain interest
in a company’s business operations. Proper support of the stakeholders lead the businesses
towards success; and therefore, the interest of the stakeholders create major impact on the
policies, actions and objective of the companies (Miles 2017). The presence of both internal and

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external stakeholders can be seen in a business. The term called ‘stake’ in stakeholder holds a
major significance in stakeholder management; and stake refers to an important interest of a
stakeholder in a company’s operations; and this interest of the stakeholders can be in the
company’s ownership, properties, business oblations, legal matters, moral rights and others. A
business has different stakeholders such as management, employees, lenders, creditors,
customers, communities, government and others. It is crucial to consider the fact that companies
do not put equal importance to all the stakeholder and this varies based on different aspects. For
instance, employees of a company are entitled to salary where customers are entitles to fair
trading. It is the priority as well as responsibility of the managements to consider the interests of
all stakeholder groups (Eskerod, Huemann and Ringhofer 2015).
Three Types of Stakeholders in Tesco – As per the 2016 Annual Report of Tesco, three groups
of stakeholders have received utmost importance from Tesco’s management and they are being
considered as the key stakeholders. They are described below.
Colleagues – Colleagues are considered as a key stakeholder group by Tesco (tescoplc.com
2019). The company takes into consideration the interest of this stakeholder group because
management believes that their skills, dedication and expertise play crucial role in achieving
their organizational goals and objectives (tescoplc.com 2019).
Customers – Customers are considered as another key stakeholder group by the management of
Tesco; and customers refer to the people as well as organizations to whom the company sells
their products and services. The company has undertaken certain steps to ensure the interests of
these stakeholders (tescoplc.com 2019).

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Suppliers – The management of Tesco considers the suppliers as another major stakeholder
group who is majorly responsible for the business success of the company. Tesco has taken many
initiatives to ensure the maintenance of a friendly relationship with their suppliers for ensuring
business success (tescoplc.com 2019).
b. Analysis of Environmental and Social Performance
It is needed for the business organizations to take into consideration many aspects in their
business operations and corporate and social responsibility is considered as one of them as the
key stakeholders of the companies have major interests in this aspect (Bennett, James and
Klinkers 2017). The same is applicable for Tesco as the company has taken into consideration
the initiatives in corporate and social responsibility. The responsibility of Tesco is to ensure the
disclosure of necessary information on their performance in corporate and social responsibilities.
The presence of two methods can be seen in this process. The first method puts the obligation on
the companies to publish the information on corporate and social responsibility in separate report
based on every year so that the stakeholders of them can obtain them from a separate report. The
second method puts the obligation on the companies to publish the corporate and social
responsibility related information through an integrated annual report where they are responsible
for publishing both financial and non-financial information in a same report (Qiu, Shaukat and
Tharyan 2016). Tesco has adopted the second method where they have disclosed the corporate
and social responsibility related information in the same report that is 2016 Annual Report.
It can be seen from the 2016 Annual Report of Tesco that the company has disclosed the
corporate and social responsibility related information through two sections in the 2016 Annual
Report; they are Environmental and Social Review and Corporate Governance. As per the earlier
discussion, three key stakeholders of the business of Tesco are colleagues, customers and

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suppliers (tescoplc.com 2019). The following discussion shows the corporate and social
responsibility related performance of Tesco towards two among the above three stakeholders
which are suppliers and customers.
Suppliers – For the betterment of the suppliers, Tesco has taken the initiative of working
collaboratively for ensuring responsible sourcing as this is needed for the development of
sustainable supply chain (Hsu and Zomer 2014). In Tesco, certain processes are going on for the
development of a variety of forecasting and ordering techniques so that the amount of waste can
be reduced. Moreover, a new Performance Share Plan (PSP) has been introduced by the
company so that more cordial and effective relationship can be built with the suppliers. As per
the new Code of Conduct that Tesco launched in 2015, Tesco has now increased obligation of
more lawfully as well as fairly deal with their suppliers (Gualandris and Kalchschmidt 2016).
The presence of certain provision regarding the payment to the suppliers can be seen in this new
code which puts the obligation on Tesco to make the necessary payment to the supplier without
any delay (tescoplc.com 2019).
Customers – Tesco has undertaken the strategy of making big difference with small steps for
making their customers beneficial. The strategy of Tesco is to assist their customers in selecting
the healthier products when reducing the wastes (Schaltegger and Wagner 2017). Apart from
this, Tesco always shows respect towards human rights of their customers while complying with
UN Universal Declaration of Human Rights. Tesco has developed an effective Risk Management
Framework with the aim to take into consideration and address different customer related issues
(Epstein 2018). For instance, there has been a major issue of losing the market share in Tesco
because of their inability in consolidating loyalty while building trust among the employees. In
order to address this issue, the Brand guidelines of Tesco have been updated in order to provide

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group-wide steadiness to the customers. Moreover, plans like PSP has been introduced by the
company to provide benefit to the customers (tescoplc.com 2019).
The above discussion indicates towards the disclosure of all the required and necessary
information on Tesco’s performance on corporate and social responsibility related issues for the
key stakeholders. Additionally, it is s significant matter for the corporate and social performance
reporting of Tesco that six simple metrics for measuring key business performance have been
developed by the company for measuring both the financial and non-financial performance of
their business (Cooper 2017). Customers and Partnership are two of these metrics. These Key
Performance Indicators (KPIs) indicates towards a growth of 1.2% in customer loyalty while
there is an increase in supplier’s satisfaction by 70% with a 12% boost. All these aspects are
crucial indicator of the efficient of Tesco in the disclosure of information on their performance in
corporate and social responsibility. Based on the above whole discussion, it can be seen that
Tesco has been successful in fulfilling its corporate and social responsibilities (tescoplc.com
2019).
2. Financial Position of Benedict Co. Analysis and Evaluation
a. Purpose and Relevance of Selected Ratios
Profitability Ratios – Two crucial ratios under this are Gross Profit Ratio and Net Profit Ratio.
Gross profit ratio refers to a profitability metric that weighs a firm’s financial health through the
assessment of the revenue left over after the deduction of costs of goods sold. Net profit ratio is
another crucial profitability ratio that assesses a company’s profitability after the payments of all
costs (Muda, Shaharuddin and Embaya 2013).

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Liquidity Ratios – Current Ratio and Quick Ratio are selected under the liquidity ratios as both
these ratios help in measuring the liquidity position of a firm. The ability of a firm to pay off its
current liabilities with current assets is measured by the current ratio; and this ratio is crucial for
exposing the liquidity risks of a firm. On the other hand, the ability of a firm to pay off its current
liabilities with quick or liquid assets is measured by quick ratio. Quick assets are the assets that
can be converted into cash quickly (Ehiedu 2014).
Working Capital Ratios – The selected ratios under this section are Inventory Turnover Days,
Trade Receivable Days and Trade Payable Days. The average number of days a company is
holding its inventories before selling can be obtained from the inventory turnover days; and this
ratio is crucial for knowing the amount of money a company is carrying with its inventories.
Accounts receivable days assesses the average number of days a company take for collecting the
dues from the debtors. This ratio has great significance in knowing a firm’s capability of issuing
credit as well as timely collection of funds from debtors. Trade payable days help to assess the
average time a company takes to pay off the dues of creditors (Arunkumar and Ramanan 2013).
Investors Ratios – There are two ratios under this that are Interest Coverage Ratio and Debt to
Equity Ratio. Interest coverage ratios assesses the ability of a company to pay off the interest
related expenses on outstanding term debts. Debt to equity ratio is crucial to weigh the leverage
position of a firm which is total debt financing in relation to total equity financing. This ratio
measures a company’s ability for repaying the term-loans (Hoffmann and Shefrin 2014).
b. Ratio Analysis Results and Reasons for the Movement
Profitability Ratios – Table 1 in Appendix shows that the gross profit ratio of Benedict Co. has
increased from 41.77% in 20X0 to 48.05% in 20X1; and this increase has been possible because

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of the growth in sales and gross profit. However, in case of net profit ratio, Benedict Co. has
registered decrease from 28.11% in 20X0 to 21.43% in 20X1; and the decrease in the net profit
of the firm is the main reason behind the fall of this ratio in 20X1 (Delen, Kuzey and Uyar
2013).
Liquidity Ratios – Table 2 in Appendix demonstrates that the current ratio of Benedict Co. has
decreased from 1.25 in 20X0 to 1.19 in 20X1. There is a major increase in the current liabilities
of Benedict Co. in 20X1 from 20X0; and increase in current assets is less than the increase in
current liabilities. These aspects contribute towards the decrease in this ratio. It can be seen from
the same table that the quick ratio of Benedict Co. has also decreased from 0.75 in 20X0 to 0.70
in 20X1; and the main reason for this decrease in the increase in inventory in 20X1 (Babalola
and Abiola 2013).
Working Capital Ratios – Table 3 in Appendix shows the increase in inventory turnover days
from 65.45 days in 20X0 to 118.63 days in 20X1; and the main reason contributing to this
increase in the increase in the company’s inventories. After that, trade payable days of Benedict
Co. has also increased from 108.24 days in 20X0 to 155.13 days in 20X1. The main reasons
responsible for this increase are the increase in total purchase and increase in total accounts
payable in the current year. Lastly, it can be seen that trade receivable days of Benedict Co. has
increased from 55.70 days in 20X0 to 90.06 days in 20X1. The main reason behind the increase
in this ratio in the current year are the increase in credit sales and increase in accounts receivable
(Arunkumar and Ramanan 2013).
Investors Ratios – Table 4 in Appendix shows that the interest coverage ratio of Benedict Co.
has significantly decreased in 20X1 that is 1.38 times from 18.40 times in 20X0. It can be seen

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that the increase in EBIT in Benedict Co. is less than the increase in interest expenses; and this is
the main reason for the decrease. After that, Benedict Co. has witnessed increase in debt to
equity ratio from 0.51 in 20X0 to 0.81 in 20X1. The main reason contributing towards the
increase in this ratio is the increase in non-current liabilities in the current year (Campbell,
Galpin and Johnson 2016).
c. Areas of Concern
There are certain aspects of concern in the financial performance of Benedict Co.
 Fall in the net profit margin in the current year is one area of concern for Benedict Co.
Every company is needed to ensure adequate profitability for ensuring business
sustainability and decrease in net profit margin can endanger this survival. Therefore, it is
an area of concern for Benedict Co (Delen, Kuzey and Uyar 2013).
 Fall in the current ratio of Benedict Co. is another area of concern which is mainly
because of the growth in current liabilities. 1.6 is the industry standard of current ratio in
which Benedict Co. operates and the company has less current ratio than the industry
standard. The same aspect can be seen for quick ratio as this ratio of Benedict Co.is also
smaller than the industry standard of 1.0. These are the indications of weak liquidity
position of Benedict Co. This is a major barrier for Benedict Co. to compete with the
other competitors and a matter of concern (Babalola and Abiola 2013).
 Inventory turnover days have increased by major number of days which is a concern for
Benedict Co. because of the fact that this ratio is greater than the industry standards of 60
days. This implies the tendency of Benedict Co. to hold inventories for longer days
before they sell them. Increase in trade payable days is another area of concern since this
ratio is also above the industry standard of 90 days which demonstrates the tendency of

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the firm to make late payments to the creditors by holding the money for longer time. The
ratio of trade receivable days is also a matter of concern for Benedict Co. because of the
fact that the firm is taking more time to collect the dues from debtors than the industry
standard of 55 days. This indicates towards the inefficiency of Benedict Co. in speedy
recovery of due from debtors (Arunkumar and Ramanan 2013).
 There is a fall in the interest coverage ratio of Benedict Co. in the current year which is a
matter of concern for the firm as this shows the decrease in the firm’s ability to pay the
interests on term loans. The burden of paying interest will be increased on Benedict Co.
die to this. Another major concern is the presence of more than 80% debt capital in the
capital structure of Benedict Co. that makes the business highly leveraged and this is not
beneficial for the investors. This lead to the decreased profitability because of the
increase in interest payments out of the profit (Campbell, Galpin and Johnson 2016).
d. Application of Financial Ratios in Interpreting and Measuring Company’s Performance
Financial ratio analysis is a key tool to interpret and measure a company’s financial
performance and financial standings because it takes into consideration the required financial
aspects having importance in financial performance analysis. For instance, the main areas of
focus of liquidity ratios such as current ratio and quick ratio is the current assets and current
liabilities in the financial reports; and the analysis of these ratios shows whether a firm has
adequate amount of current and quick assets to meet the short-term business obligations (Gitman,
Juchau and Flanagan 2015). Since financial ratio analysis provide insight on the management’s
efficiency to run the business, most of the investors undertake the analysis of financial ratios
while making investment decisions. They can know to what extent the companies are able to use
their assets efficiently for profit making purposes. Financial ratio analysis helps in demonstrating

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the loopholes in a company’s financial performance while providing the management with the
scope to work on these weaknesses with proper financial strategies. Future trends of the financial
performance can be established with the assistance of ratio analysis. Financial ratio analysis
provides the users with the scope to analyze a company’s performance segment wise such as
profitability analysis, liquidity analysis, working capital analysis and investment analysis. These
aspects prove that a company’s financial performance can be measured as well as interpreted
with the assistance of ratio analysis (Ehrhardt and Brigham 2016).
Conclusion
It can be seen from the above discussion that taking into consideration the key
stakeholders’ interest is a necessity for the companies to achieve the business goals and
objectives; and the same can be seen in Tesco since the company has taken adequate steps for
ensuring the overall betterment of its key stakeholders. At the same time, the above discussion
also shows the efficiency of Tesco in the disclosure of information on their initiatives in the areas
of corporate and social responsibilities through the section in 2016 Annual report. The latter part
of the report demonstrates the essentiality of ratio analysis as a tool to interpret as well as
analyze the financial performance and position of the companies. It can be seen from the ratio
analysis part of Benedict Co that the company has certain areas of concern in financial
performance which requires the attention of its management such as decrease profitability, weak
liquidity position, increase in debt capital and others. The management of Benedict Co is needed
to develop effective financial strategies to overcome these financial concerns.

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References
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sensitivity analysis. International Journal of Research and Development, 2(1), pp.52-58.
Babalola, Y.A. and Abiola, F.R., 2013. Financial ratio analysis of firms: A tool for decision
making. International journal of management sciences, 1(4), pp.132-137.
Bennett, M., James, P. and Klinkers, L. eds., 2017. Sustainable measures: Evaluation and
reporting of environmental and social performance. Routledge.
Campbell, T.C., Galpin, N. and Johnson, S.A., 2016. Optimal inside debt compensation and the
value of equity and debt. Journal of Financial Economics, 119(2), pp.336-352.
Cooper, S., 2017. Corporate social performance: A stakeholder approach. Routledge.
Delen, D., Kuzey, C. and Uyar, A., 2013. Measuring firm performance using financial ratios: A
decision tree approach. Expert Systems with Applications, 40(10), pp.3970-3983.
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),
pp.81-90.
Ehrhardt, M.C. and Brigham, E.F., 2016. Corporate finance: A focused approach. Cengage
learning.
Epstein, M.J., 2018. Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.

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Eskerod, P., Huemann, M. and Ringhofer, C., 2015. Stakeholder Inclusiveness: Enriching Project
Management with General Stakeholder Theory1. Project Management Journal, 46(6), pp.42-53.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Gualandris, J. and Kalchschmidt, M., 2016. Developing environmental and social performance:
the role of suppliers’ sustainability and buyer–supplier trust. International Journal of Production
Research, 54(8), pp.2470-2486.
Hoffmann, A.O. and Shefrin, H., 2014. Technical analysis and individual investors. Journal of
Economic Behavior & Organization, 107, pp.487-511.
Hsu, A. and Zomer, A., 2014. Environmental performance index. Wiley StatsRef: Statistics
Reference Online, pp.1-5.
Miles, S., 2017. Stakeholder theory classification: A theoretical and empirical evaluation of
definitions. Journal of Business Ethics, 142(3), pp.437-459.
Morden, T., 2016. Principles of strategic management. Routledge.
Muda, M., Shaharuddin, A. and Embaya, A., 2013. Comparative analysis of profitability
determinants of domestic and foreign Islamic banks in Malaysia. International Journal of
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Qiu, Y., Shaukat, A. and Tharyan, R., 2016. Environmental and social disclosures: Link with
corporate financial performance. The British Accounting Review, 48(1), pp.102-116.

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Schaltegger, S. and Wagner, M., 2017. Managing the business case for sustainability: The
integration of social, environmental and economic performance. Routledge.
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Appendix
Table 1: Profitability Ratios
Particulars 20X1 ($'000) 20X0 ($'000)
Sales 30800 24900
Gross Profit 14800 10400
Net profit 6600 7000
Gross Profit Ratio (Gross Profit/Sales) 48.05% 41.77%
Net Profit Ratio (Net Profit/Sales) 21.43% 28.11%
Table 2: Liquidity Ratios
Particulars
20X1
($'000)
20X0
($'000)
Current Assets 12800 6400
Current Liabilities 10800 5100
Inventories 5200 2600
Current Ratio (Current Assets/Current Liabilities) 1.19 1.25
Quick Ratio {(Current Assets-Inventories)/Current Liabilities} 0.70 0.75
Table 3: Working Capital Ratios
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 {Days/(Cost of Goods
Sold/Inventory)} 118.63 65.45
Trade Payable Days {Days/(Total Purchase/Accounts 155.13 108.24

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Receivable)}
Trade Receivable Days {Days/(Credit Sales/Accounts
Receivable)} 90.06 55.70
Table 4: Investors Ratios
Particulars
20X1
($'000)
20X0
($'000)
Gross Profit 14800 10400
Admin Expenses 1700 400
Distribution Costs 3500 800
EBIT (D) {Gross Profit - (Admin Expenses + Distribution Cost)} 9600 9200
Interest Expenses 1300 500
Total Liabilities 22800 13100
Total Equity 28000 25900
Interest Coverage Ratio (EBIT/Interest Expenses) 7.38 18.40
Debt to Equity Ratio (Total Liabilities/Total Equity) 0.81 0.51