Financial Decision Making in Tesco Plc: Roles and Importance Analysis

This report provides an analysis of financial decision-making within Tesco Plc, a UK-based retail organization. It defines the roles and importance of both the accounting and finance departments, emphasizing their critical functions in preparing financial statements, managing funds, and supporting business expansion. The report examines specific roles such as financial accounting, management accounting, tax functions, auditing, investment decisions, financing strategies, dividend policies, and working capital management. It concludes that the accounting and finance departments are vital to Tesco Plc's vision of expanding its business within the UK, offering insights into how these departments contribute to the company's financial health and strategic objectives.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
Introduction of Tesco Plc.............................................................................................................3
Definition of Accounting and Finance Department.....................................................................4
Importance of Accounting and Finance Department...................................................................4
Role of Accounts Department.....................................................................................................5
Role of Finance department.........................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................1

INTRODUCTION
Financial Decision Making (FDM) is a process with the use of which managers of the
organization take decision regarding the finance of a company. The report will be based on
Tesco Plc. The report will also cover the definition of accounting and finance department. Lastly,
the report will critically evaluate the role of accounting and finance that Tesco Plc accountant
and manager need to follow in order to expand the business in the other part of the UK.
Introduction of Tesco Plc.
Tesco Plc is a UK based retail organization that was founded in the year 1919. The
company offer various products to its customer and currently operates in around 13 countries all
over the world. Tesco plc has achieved strong brand image in the local as well as international
market with the help its accounting and finance department or team.
Definition of Accounting and Finance Department
Definition of Accounting department: Accounting department is the part of organization
administration that is responsible for the preparation of financial statement, cost accounting,
maintaining general ledger and financial analysis in order to improve the financial results of the
business (Akimova and et.al., 2019).
Definition of Finance department: Finance department is also part of the organization that
is responsible for acquiring funds from market and utilizing the same in such a way that the
return on investment will improve (Battiston and et.al., 2021). Organizing, planning and
managing the funds of the organization are most significant task of finance department.

Importance of Accounting and Finance Department
Importance of Accounting department:
 The accounting department is important for preparing the financial statement of Tesco
Plc such as income statement, balance sheet and cash flow statement in standardized
format.
 They are also important for the recording the business transaction of Tesco Plc in
systematic manner.
 Another importance of financial department is that they determine the gross profit, net
profit earned by Tesco Plc during a specific period of time.
 The finance department is also important for adopting the ways of reducing the tax
expenses of the business (Cirillo, Ossorio and Pennacchio, 2018).
 They are also important for ensuring the control of assets of Tesco Plc and comply with
all the rules and regulation that Tesco need to follow.
Importance of Finance department:
 The finance department is important to ensure that Tesco Plc have viable saving plan
despite of short-term finance in order to meet day to day operational requirement as well
as future expansion of business.
 The finance department of Tesco Plc also important for generating money, organizing
operations and manage the cash flow within the business.
 The finance department is also important for outline the long-term goals of Tesco Plc.
For example, the long-term goal of Tesco is to expand business to other part of UK in the
next 10 years so planning the finance for achieving this goal the finance department is
important (Smith, 2018).
 Another importance of finance department of Tesco Plc is that they with there skills and
expertise allocate the funds within the other department of business operation can take
place on regular basis within Tesco Plc.
Role of Accounts Department
The various roles of accounts department of Tesco Plc are as follows:

 Financial accounting: The role of accounts department of Tesco Plc includes
preparation of financial statement such as income statement, balance sheet, cash flow
statement and statement of change in equity. For example, with the preparation of this
statement, the users of financial statement can make decision as per there interest. Thus,
it is important for the accounts department of Tesco Plc that they should prepare the
statement using all principles and concepts as per UK GAAPs. However, on the other
hand, the chance of manipulation in financial statement of Tesco Plc company is high
because of the involvement of accounts team in this (Ainsworth and Deines, 2019). Thus,
is important for the company that they should hire trustworthy accounts team within the
business.
Figure 1Tesco Income Statement 2021

 Management accounting: Another role of accounts department of Tesco Plc is
management accounting. It means the accounts department of company should use the
tools and techniques of management accounting within there business in order to manage
the operation of business. For example, in order to analyse the gap with the actual and
standard the accounts department of Tesco Plc can use standard costing tool of
management accounting. However, this is quite time-consuming process and implication
of this tools within the business is expensive for Tesco Plc company for which they need
to arrange funds.
 Tax function: The role of accounts department of Tesco Plc company also involves
determination of corporate tax that company need to pay to the government of UK. Not
only that they are also plays vital role in adopting the different ways through which the
company can reduce its taxable income and tax expenses. For example, accounts
department of Tesco Plc can reduce the total taxable income in order to avoid higher tax
pay via donating some percentage of net income in charity or royalty. However, on the
other hand, tax avoidance is a legal measure but tax evasion is illegal measure. So, it is
important that accounts department of Tesco Plc do not mix the both.
 Auditing function: One of the most significant role of accounts department of Tesco Plc
is conducting internal audit within the business in order to enhance the internal control
system (Okere and et.al., 2019). For example, accounts department of Tesco Plc have to
conduct the internal audit within the organization in order to identify the internal control
system of business. Not only that the accounts team also need to support the external or
independent auditor of business in order to ensure that the financial statement are
reflecting true and fair view. However, this a time-consuming and expensive process
which affects the day to day operation of business.
Role of Finance department
The various roles of finance department of Tesco Plc are as follows:
 Investment function: The first role of finance department of Tesco Plc is that the need to
make the decision related to investment. For example, if Tesco Plc company wants to
invest money but they need to select the best investment project that provide them with
higher return. In that case, finance department of Tesco Plc need to make decision

regarding which project to select using the net present value method. This will help the
finance manager to select project with higher rate of return (Faccia and et.al., 2019).
However, due to uncertainty such as change in inflation the decision of finance
department may goes wrong which result into heavy loss. Thus, it is important for them
to consider all factors that affect their investment decisions.
 Financing function: Another role of finance department of Tesco Plc is that they need to
make the decision regarding the finance of business. For example, the finance department
of Tesco Plc need to identify the best sources of finance whose cost of capital is lowest of
all alternatives such as debt, equity, bank loan etc. It is because funds are required for the
smooth functioning of business as well as the future planning. However, the financing
decision is quite complex and time consuming so the finance department may forget its
ultimate goal.
 Dividend function: The dividend decision is also one of the significant roles of the
finance department of Tesco Plc. For example, the finance department of Tesco Plc need
to make the decision regarding whether to distribute the net earning available to
shareholder among the equity shareholder or retain it for the future growth of the
business. However, the finance department of Tesco Plc should make the decision after
taking permission of its shareholder because if shareholder will not get dividend than
they might sell its share. That’s why finance department of Tesco Plc should keep their
shareholders satisfied with high dividend and returns.
 Working capital function: The last role of finance department of Tesco Plc is working
capital management. It means the finance department of company is responsible for the
proper management of working capital of business for the smooth functioning of
business. For example, the finance department of the company need to analyse and
identify that how much funds are required to manage the day-to-day operation of
business (Crouzet and Eberly, 2019). Further, they analyse whether the company have
enough cash balance or not and if not than the finance team need to raise the funds from
bank loan. However, the finance department of Tesco Plc should consider that the
amount of loan they are acquiring from bank is not that much high that their interest cost
will increase drastically. Beside this, the finance team of company should manage a
heavy cash saving internally for the day-to-day operation of business.

CONCLUSION
After summing up the above information, it has been concluded that the accounts and
finance department of Tesco Plc plays a vital role towards its vision of expanding the business to
other part of UK. The report has concluded the definition of accounts and finance department.
Further, the report has also concluded the importance of account and finance department to
Tesco Plc. Lastly, the report has critically concluded the role of accounts department within
Tesco Plc organization as well as the role of finance department within Tesco Plc expansion
planning.

REFERENCES
Books and journals
Akimova, L. M. and et.al., 2019. The role of accounting in providing sustainable development
and national safety of Ukraine. Financial and credit activity: problems of theory and
practice. 3(30). pp.54-61.
Battiston, S. and et.al., 2021. Accounting for finance is key for climate mitigation
pathways. Science. 372(6545). pp.918-920.
Cirillo, A., Ossorio, M. and Pennacchio, L., 2018. Family ownership and R&D investment: the
moderating role of banks and private equity. Management Decision.
Smith, M., 2018. Luca Pacioli: The father of accounting. Available at SSRN 2320658.
Ainsworth, P. and Deines, D., 2019. Introduction to accounting: An integrated approach. John
Wiley & Sons.
Okere, W. and et.al., 2019. Foreign expatriates on board and financial performance: A study of
listed deposit money banks in Nigeria. The Journal of Social Sciences Research. 5(2).
pp.418-423.
Faccia, A. and et.al., 2019, August. Accounting information systems and ERP in the UAE: an
assessment of the current and future challenges to handle big data. In Proceedings of the
2019 3rd International Conference on Cloud and Big Data Computing (pp. 90-94).
Crouzet, N. and Eberly, J. C., 2019. Understanding weak capital investment: The role of market
concentration and intangibles (No. w25869). National Bureau of Economic Research.
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