Financial Analysis of Tesco: Case Study on Strategies

This case study provides a comprehensive financial analysis of Tesco, examining its sources of finance, including equity, bonds, and bank loans. It delves into the types of financial documents used by the company, such as the balance sheet and income statement, highlighting their significance in assessing the financial position and performance. The study further explores the budgeting strategies employed by Tesco, focusing on traditional budgeting methods and their role in resource allocation and performance measurement. Finally, it investigates Tesco's pricing strategies, including cost-plus pricing, skimming pricing, and penetration pricing, providing insights into how these strategies align with the company's goals and market dynamics. The case study also includes a list of references used in the analysis.

PROJECT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
CASE STUDY.................................................................................................................................1
1. Sources of finance of Tesco.....................................................................................................1
2. Examples of financial documents............................................................................................1
3. Budget employed by the company..........................................................................................3
4. Pricing strategy of the company..............................................................................................4
REFERENCES................................................................................................................................6

CASE STUDY
1. Sources of finance of Tesco
Every business requires finance for establishing as well as running the operations of
business successfully. it is the duty of financial managers to procure funds for the organisation.
They have to analyse different sources from which funds could be raised. it has to choose the
financial source that is most beneficial for the company. There are various sources of finance
available to company but, it is essential that most favourable source has been chosen by the
managers. Sources of funds used by the Tesco are
Equity
It is the most commonly used source for raising finance by the companies. Company can
raise funds from public by offering shares of the company which is holding in ownership in
proportion to the shares held. There are different classes of shares issued by Tesco (Bellavitis
and et.al., 2017). Company is not required to pay any fixed amount but only share in profits if
earned.
Bonds
Company can issue bonds for raising funds at fixed coupon rate. in this company is
required to pay interest every year. Tesco has also raised funds by issuing bonds of different
maturity period at different coupon rates.
Bank Loans
It is also highly used by the businesses for raising capital. Bank loans are granted on a
specified security or by creating charge against assets. Loans are provided after analysing the
financial performance and position and also the strength of the proposed project. Tesco raises
bank loans for meeting the working capital requirement of company
2. Examples of financial documents
Assets
Asset could be described as anything containing value or resource of the value which
could be converted in cash. Assets generate cash flows for the business. assets of every company
are listed over balance sheet and are netted against the equity and liabilities of company. Assets
of firm are divided in current as well as noncurrent assets. Current assets are those which could
be converted into cash quickly such as inventory, accounts receivables and cash equivalents. On
1

the other noncurrent could not be converted easily into cash it includes fixed assets like plant and
machinery, equipments, property and intangible assets.
Balance sheet
Balance sheet is one of the financial statements which reflects the financial position of
company. Balance sheet is used by investors and management to assess the wealth of
organisation. Balance consists of all the assets and liabilities of the company. On the basis of
items listed in balance sheet investors analyse the liquidity position, capital structure followed,
working capital cycle of the company (Kausar and Lennox, 2017). On the basis of balance sheet
effective steps are taken by the management to improve the financial position of company.
Example
2

Financial document
Income statement could be termed as the financial document of the enterprise. it is to be prepared
by the company for reflecting financial performance of the company. Income statement is a
public document which is required to be published by company for reporting the profitability of
company during the year. A income statement contains all the information regarding the incomes
and expenses of the company incurred during the year and whether carrying out business was
profitable or not.
Example
3

3. Budget employed by the company
Every company employs budget for giving the organisation direction to follow. it is
essential for making the organisations to move towards right path to achieve the goals and
objectives of the business. budgets are the spending plans of organisation. Budgets help the
management in effective utilisation of resource among different departments and operations
where the optimum utilisation of the resources could be made. budgets of the company are
prepared taking budgets of previous year as base. Items of previous budgets are analysed for
preparing the budgets for current year and all the necessary adjustments in the budget of current
year. Adjustments are made by the management related to inflation, demand, supply, economic
conditions and such other that could influence the budget of company.
Tesco has employed traditional budget in the company for allocation of resources. The
budget is used by most of the company as it is easy to prepare to traditional budgets. It has to
consider only the factors that could influence the budget for current year (Perkins, 2019). It saves
considerable time of the company that could be utilised for improving the performance. It also
enables Tesco to compare the actual and budgeted figures to measure the variances and to take
corrective steps for the business improving its efficiency and productivity.
4. Pricing strategy of the company
Pricing is a major strategy that enables the company to achieve the desired goals and
success in the organisation. Management has to decide pricing strategy after analysing the
market and customers and demand for product or services. It is also required to analyse the target
customer group the company wish to focus for the pricing strategy. There are different types of
pricing policies available.
Cost plus pricing - It only focuses over cost of producing the products and services. in this
approach company identifies the cost of manufacturing product and then adds a profit percentage
in the product to earn. It is also called mark up pricing. Tesco is using this pricing strategy for
the products and services sold in the market.
Skimming pricing – In this pricing policy prices of the product are kept high for the new
products and are lowered over the time with the new entrants in the market. prices are reduced as
the products become less popular in the market (Chen, Zeno and Zhou, 2018). The pricing
strategy is generally used when the product brought by company is new and unique.
4

Penetration pricing – The pricing strategy is reverse of skimming price. In this approach
company keeps the prices of its products extremely low in initial stage for drawing the customers
from competitors. It is not suitable in the long run and only used for short period of time
5

REFERENCES
Books and Journals
Bellavitis, and et.al., 2017. Entrepreneurial finance: new frontiers of research and practice:
Editorial for the special issue Embracing entrepreneurial funding innovations.
Kausar, A. and Lennox, C., 2017. Balance sheet conservatism and audit reporting
conservatism. Journal of Business Finance & Accounting. 44(7-8). pp.897-924.
Perkins, T.C.N., 2019. Budgeting, target setting and variance analysis: the case of two logistic
companies (Doctoral dissertation).
Chen, Y.J., Zenou, Y. and Zhou, J., 2018. Competitive pricing strategies in social networks. The
RAND Journal of Economics. 49(3). pp.672-705.
6