An Analysis of Tesco Plc's Financial and Operational Strategies

The task involves a thorough analysis of Tesco plc's financial management practices and operational strategies within the context of the competitive UK retail market. The focus is on understanding how Tesco has managed to maintain profitability and manage risk through effective corporate governance, productivity improvements, and strategic financial decisions. This includes evaluating the company's financing policies, reverse logistics, and innovations in supply chain management as evidenced by the references provided. Insights from various studies are leveraged to construct a detailed narrative about Tesco's operational challenges and successes, with particular attention to how these have influenced its market position and overall performance.

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Accounting Project
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Table of Contents
Interim Project..........................................................................................................................3
Introduction and Rationale.......................................................................................................3
Introduction and Rationale of Retail Sector..........................................................................3
Justification for selecting the retail sector for this paper.......................................................3
Research Questions, Objectives and Aims..........................................................................5
Research Questions.........................................................................................................5
Research Aims..................................................................................................................5
Research Objectives.........................................................................................................6
Pattern of the Retail Sector in UK.........................................................................................7
Essential Drivers of the Retail sector and the performance of the companies.....................7
Opportunities and challenges that are faced by the retail industry.......................................7
Transition in the pattern of telecommunication industry in the current years.......................7
Essential themes rising from the research analysis and about the industry and company. .8
Critical Internal and External Environment Analysis.............................................................8
Industry Analysis and Overview........................................................................................8
Industry Lifecycle..............................................................................................................8
Industry demand and the drivers of profitability................................................................8
External analysis of Tesco, Sainsbury and Morrison............................................................9
PEST Analysis..................................................................................................................9
Porter’s Five Forces........................................................................................................12
Swot Analysis..................................................................................................................14
Financial ratios.......................................................................................................................16
Activity ratios......................................................................................................................16

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Liquidity ratios.....................................................................................................................17
Solvency ratios...................................................................................................................17
Profitability ratios................................................................................................................18
Non-financial ratio..................................................................................................................18
Retention turnover ratio......................................................................................................18
Customer and clients..........................................................................................................19
Operations..........................................................................................................................19
Environment and citizenship...............................................................................................19
Timetable to complete the project......................................................................................19
Conclusion..........................................................................................................................20
Reference List....................................................................................................................21

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Interim Project
Introduction and Rationale
Introduction and Rationale of Retail Sector
The retail industry in UK have been gaining their presence as they have been gaining
knowledge about the demands that are pertinent in the market as well as regulatory
transformations during the time of explaining the transparency with the help of which they
have been incorporating new and improved services in the market as well as enhancing the
level of customer satisfaction (Vries 2014). The characteristic of retail sector in UK has the
capability to provide various kinds of retail products and services to their consumers and
development of supermarket chains has even enhanced this service as the consumers are
able to attain various kinds of products under one roof thereby easing their life and reducing
their consumption of time.
Justification for selecting the retail sector for this paper
In this paper, retail sector has been chosen as the consumers have been facing
rapid transition in their tastes and preferences with the advent of time. There have been
various new products and services that have evolved and therefore the taste and
preferences of the consumers have been changing (Cette, Fernald and Mojon 2016).
Therefore, it has been significant to select this sector in order to understand the kind of
products that are demand and what is the business model that has been implemented by the
various retail chains in order to retain their customer base and enhance their competitive
edge (Yu, Ramanathan and Nath 2014). The retail firms in UK have been facing tough
competition among each other and therefore have been going through tough challenges with
respect to maintaining their customer base along with innovation in services and pressure
with respect to pricing of the products in order to improve their return with respect to their
investment.

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Tesco Plc
Tesco Plc trading as Tesco is a British multinational general and grocery
merchandise retailer which has their headquarters situated in Welwyn Garden City,
Hertfordshire in United Kingdom. Tesco is the third largest retailer with respect to their profits
and is the ninth largest retail firm with respect to their revenue globally. It has their shops in
over 12 countries in Europe and Asia and has been found to be the leader of the grocery
market in UK.
Wm Morrison Supermarket Plc
Wm Morrison Supermarkets Plc trades as Morrisons is seen to be the fourth largest
supermarket chain and is right behind Tesco, Sainsbury’s and Asda within UK. The company
has their headquarters in Bradford, West Yorkshire in UK. The organization was established
in the year 1899 and till now has been functioning effectively and has their stores mostly in
UK, Scotland and Wales.
J Sainsbury Plc
J Sainsbury Plc trading as Sainsbury’s is the second largest supermarket chain in
UK. It has a market share of 16.9% in the sector of supermarket in UK. The firm was
established in the year 1869 and is currently headquartered in London UK.
Explanation of the economic importance
The retail industry in UK had an extensive level of curiosity for the financial process
and hence the government of Britain mainly looks to manage the market scenarios for the
delivery of innovative information and retail expertise.

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Research Questions, Objectives and Aims
Research Questions
Q1. How is the retail sector structured in UK?
Q2. What are the main retail sector drivers and the degree of performance of the retail sector
in UK?
Q3. What are the challenges and the opportunities that are faced by the retail industry?
Q4. How has the retail industry transformed in the past few years?
Q5. What are the current news that are disclosed in the news with respect to the three
companies that is under consideration?
Research Aims
By making use of both the economic and financial frameworks, the current study tries
to bring out the worst or the best company with respect to their performance so that there is
a transparent understanding of what actions must be taken by the ineffective organizations
in order to transform themselves into an effective one in order to retain their competitive
edge in the long run. The financial component is segmented into four classifications that are
inclusive of solvency, profitability, liquidity and efficiency. Each of these sectors has various
worst and best performing organizations and thereby the conclusion section will define the
overall financial status of the selected organizations.
The first objective of the paper is to highlight the external environmental factors
associated with the retail industry in UL by exploiting frameworks like PESTLE as it aids in
bringing out the information from the four aspects i.e political factors, social factors,
economic factors and the technological factors.

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The second objective of the paper is to answer the internal environmental factors
associated with the retail sector in UK by employing the SWOT analysis model as is assists
in discovering the information from the components.
The third objective of the paper is to construct the financial ratio of the selected three
organizations for two years. With the help of this, it will be easy to collect the information with
respect to which the firm that is performing effectively and ineffectively (Jamasb and Pollitt
2015). The financial ratios have been segmented into four aspects that would make the
paper simpler to assess. The vast category of the ratios comprise of the Liquidity, Solvency
Ratio, Efficiency ratio and Profitability Ratio.
The fourth and the last objective of the paper has been to construct the non-financial
ratio of the three organizations individually. With the help of this, it will be simpler to collect
the facts with respect to understanding the company that has been performing effectively
and the one which is unable to do so. The non-financial ratio has been segmented into three
aspects namely Customer Retention Ratio, Staff Turnover Ratio and Absenteeism Ratio
which would be easier to assess.
Research Objectives
The objectives of the research are as follows:
 To ascertain how the retail sector in UK is structured
 To focus the significant drivers of the retail industry and the performance of the
companies
 To explain the challenges and the opportunities that retail sector has been facing
currently
 To determine on how the retail industry has transformed in the current years
 To explain the current news that had been reported about the retail sector and the
organizations that have been taken into consideration

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Pattern of the Retail Sector in UK
The retail sector in UK was de-regularised and was followed by the privatisation as it
opened up the market to the rival firms with the help of incorporation of new technologies,
entry barriers in this sector was constructed with respect to that (Cox et al. 2016). The
market share of the retail industry is controlled by the three key firms namely Tesco,
Sainsbury and Morrison.
Essential Drivers of the Retail sector and the performance of the companies
The industry performance has been explained in a poor manner and they are unable
to gain the value from the assets. It is significant for the retail sector to gain knowledge about
the wants, needs and choices of the consumers in order to achieve success in the future
(Triantafyllou, Cherrett and Browne 2014).
Opportunities and challenges that are faced by the retail industry
There are several challenges and opportunities that are faced by the retail sector in
UK. The challenges have been unable to understand the new role in the current ecosystem
of the industry (Cheshire, Hilber and Kaplanis 2014). There exists an absence of regulatory
indecision especially in the new market frameworks (Maican and Orth 2015). The
opportunities of this segment has been retail industry has been evolving rapidly and
therefore has been able to strive for growth and effectives in the coming years (Lloyd and
Payne 2014).
Transition in the pattern of telecommunication industry in the current years
The retail sector has gone through a vital transition and this sector has the ability to
reduce the level of risk that has been recognised and function effectively in the current
competitive environment (Wood and McCarthy 2014).

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Essential themes rising from the research analysis and about the industry and
company
The essential themes from the current research assessments are with respect to the
three firms that function in UK and have been listed in the London Stock Exchange. The
research paper clearly explains about the organizations as to which the most effective firm
and which has been the most ineffective organization with respect to the financial and the
non-financial components.
Critical Internal and External Environment Analysis
Industry Analysis and Overview
The retail industry in UK has been one of the largest retail markets globally with
respect to their customers and the variety of products that have been offered for purchase
(Cullen et al. 2013). By looking at the three selected organizations that functions in the retail
sector and these firms have been listed in the London Stock Exchange. The companies that
have been chosen are Sainsbury, Tesco and Morrison.
Industry Lifecycle
The retail sector had a hard time to compete with the other services and therefore
there has been decline in the demand (Goodridge, Haskel and Wallis 2013). The report of
the market research aids in providing the latest industrial statistics and even the industrial
patterns that permits in recognising the customers and the products as it is helpful for the
rise in the revenue development along with profitability (Aguzzoni et al. 2016). On the other
hand, the industry report defines the leading firms and even offers strategic industrial
assessment of the significant factors that have an influence in the marketplace.
Industry demand and the drivers of profitability
The standards of living as well as the economic development in the developed
countries have been connected with the usage and availability of the retail services.
Furthermore, the efficient decisions in relation to the policies requires to be the effective

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projections of the drivers in getting entry to these services (Shin and Eksioglu 2015). The
financial aspect can be effectively judged by making use of the financial records of the three
retail companies and their financial statements are inclusive of the balance sheet, income
statement and the analysis of the cash flow. The financial data would be helpful in assessing
the financial position of the chosen companies and thereby selecting the best out of them.
External analysis of Tesco, Sainsbury and Morrison
PEST Analysis
Tesco
Political Factors
 The recent adoption of the tax measure by the government of UK has affected
Tesco.
 The increase in VAT has lowered the spending of the customers
Economic Factors
 Development in the economy is a positive sign as it leads to the development of the
supermarket industry, which has been the main aim of Tesco
 Economic recession has a negative impact on Tesco as unemployment increases
and the spending of the customers reduce
Social Factors
 The rise in the life-expectancy of the individuals and decline in the birth rate has
changed the tastes and preferences of the consumers and in that manner having an
impact on Tesco
Technology Factors

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 The implementation of new and improved technologies has led to the development
of an effective supply chain management of the firm and in that manner has
improved the operational activity of the firm
 The incorporation of the e-marketing has increased the level of sales for the firm
Environmental Factors
 Global warming is having an impact on the environment and in that manner Tesco
has taken significant measures with the help of which they can make the consumers
aware of the situation.
Legal Factors
 There are various laws with respect to the products and services that have an
impact on the operations of the firm
Sainsbury
Political Factors
 The rise in the level of consumer rights within Europe and the decisions made by
various regulatory bodies especially in the retail sector is having an impact on them.
 Rise in the government intervention as they have implemented legislations in the
retail sector
Economic Factors
 Growth rate of the GDP
 Inflation rate
 Global Financial issues
Social Factors
 Transitions in the working trends

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 Depending on the technologies that can uplift the retail industry
 The transition in the age of the individuals can have an impact on the social factors
Technological Factors
 Characteristics of the technological industry
 The firm spends a certain amount of money on the research and development
operations with the help of incorporating the innovative products
Morrison
Political Factors
 Vast level of government intervention where the government has put limitations on
various products and tariffs
 The innovative technologies requires to stick to the rules stated by the government
Economic Factors
 Interest rates
 Recession globally
 Economic development
 Inflation
Social Factors
 Safety
 Career of the employees
Technological Factors
 Development of new technologies with the help of which the products can be
ordered online and can be delivered effectively