Financial Analysis of Tesco and Ratio Analysis Report

This report provides a comprehensive financial analysis of Tesco, examining the roles of accounting and finance within the company. It delves into the background of Tesco, exploring its business strategies and the significance of accounting and finance in various aspects, such as creating budgets, evaluating financial performance, developing business strategies, and managing cash flow. The report also analyzes key accounting ratios, including Return on Capital Employed, Net Profit Margin, Current Ratio, Average Receivables Days, and Average Payable Days, providing calculations and interpretations for Alpha Ltd. Furthermore, it covers cash budgeting, forecasted profit and loss, and forecasted balance sheets, offering insights into Tesco's financial planning and performance. The report concludes with a discussion on the importance of financial activities for the company to succeed in the competitive market.

Running Head: FINANCE 0
Finance
(Student Name)
10/30/2019

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Table of Contents
Question 1........................................................................................................................................2
Introduction......................................................................................................................................2
Background of the company............................................................................................................2
Role of Accounting and Finance.....................................................................................................2
Conclusion.......................................................................................................................................4
Question 2........................................................................................................................................5
Introduction......................................................................................................................................5
Return on Capital Employed...........................................................................................................5
Importance................................................................................................................................5
Return on Capital Employed of Alpha Ltd..................................................................................5
Net Profit Margin.............................................................................................................................6
Importance................................................................................................................................6
Net Profit Margin of Alpha Ltd...................................................................................................6
Current Ratio...................................................................................................................................6
Importance................................................................................................................................6
Current Ratio of Alpha Ltd..........................................................................................................7
Average Receivables Days..............................................................................................................7
Importance................................................................................................................................7
Average Receivables Days of Alpha Limited..............................................................................7

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Average Payable Days/ Creditors Payment Period.........................................................................7
Importance................................................................................................................................8
Average Payable Days/ Creditors Payment Period of Alpha Limited Company........................8
Conclusion.......................................................................................................................................8
Question 3........................................................................................................................................9
Cash Budget.................................................................................................................................9
Forecasted Profit and Loss...........................................................................................................9
Forecasted Balance Sheet...........................................................................................................10
References......................................................................................................................................12

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Question 1
Introduction
Accounting as well as Finance is one of the highly practical zones which is one of the vital
functions within the companies. It allow the company to d proper tracking as well as proper
management of the finance with the funds that ensure that the company is efficiently and
effectively operate its business and being legally complaints in term of the tax as well as other
regulations (Cleary and Quinn, 2016). There is wide range of skills that is required for the
company within such area as well as such program will also ensure that the fundamental skills
are demonstrated to grant working knowledge of the principles of the money managing.
Accounting and Finance also play a great part for the leading companies such as Tesco. With the
help of the bookkeeping as well as finance it can able to present its financial info in the
International Financial Reporting Standards to their internal as well as external users (Davies and
Tikoo, 2018).
In the subsequent part there will be thorough examination of the role of accounting as well as
finance in the leading company Tesco and how the company can able to manage its finance in an
effective as well as in an effective manner.
Background of the company
Tesco Plc. is considering as one of the foremost commercial in the industry of UK. It is also
consider as one of the prevalent food retailers in the domain. The company was introduced in the
year 199 when Jack Cohen ongoing vending the added groceries from the shop within the East
End Market of Brixton which is situated in London. In the recent, the company has employed
more than 300000 employees worldwide. The company operates in 12 countries that help them
to cover international market in an effective as well as in an efficient manner (Wood, Wrigley
and Coe, 2016). The company has well established as well as consistent business strategies that
enable the company to strengthen the main UK business as well as also expand into the new
markets in a successful manner. The company majorly focuses over the domestic market of
financial services. The main aim of the business is to make the maintainable long-term

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development as well as rendering to which it could be able to achieve by increasing into the
international market (Alam and Raut-Roy, 2019).
Role of Accounting and Finance
Accounting and Finance play a great role in the company Tesco. To represent the corporate is
consecutively, the company provides secretarial info to the operators which include manager,
dealers, government, relations as well as consumers. Tesco Plc. is not consider as the exclusion,
as a store it is required for the company to deliver the affirmative financial statement to its
secretarial info users (Wood, Wrigley and Coe, 2016). The Accounting and Finance play a great
role for the internal users as well as three peripheral workers of the Tesco that help them to
identify its needs as well as requirements as they are:
Creating Budgets and Financial Records: Tesco would ale to comprehend the flow of coinage
over its business with correct practices related to accounting according to which they can able to
begin the budgeting in an effective manner. In budgeting the company anticipates the income as
well as the use of information to make the choices about who to uphold as well as grow the
business that make the company more competitive in the market (Kukreja and Gupta, 2016).
Evaluating the Financial Performance: The Corporation can able to examine the economic
concert of the Tesco in an effective as well as efficient manner through Accounting as well as
Finance. The corporation can review the pecuniary records of the corporation according to which
they can able to analyze its financial performance to the certain extent. It helps the company to
analyze its flaws and can able to work over it in an effective manner (Wood, Coe and Wrigley,
2016).
Developing Business Strategy: Tesco can able to develop effective business strategy according to
the analysis of financial statement. The company can able to find out how to raise the funds for
other innovative strategy that will help in enhancing the cash flow of the company in an effective
as well as in an efficient manner. The goal of the company is to make profit however; it is
required for them to build a road to achieve that objective. Tesco can able to develop attractive
business strategies such as providing discounts, offer, expansion of business in other countries

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and so on through analyzing the accounts and finance of the company (Haddock-Millar and Rigby,
2015).
Cash Management and Budgeting: Tesco is one of the retail corporation is required to
accomplish the cash due to the reason the company receive an enormous extent of cash from its
trade consumers on regular basis in its more than 5000 supplies. In such state the managing team
of the company draws an image of in what way to usage such amount. As a portion of
commercial Tesco, the company bank provision is more appropriate that is adopted by them
using such amount to sort further money for the set (Fatricia, 2017).
Furthermore, accounting is also an essential as the management of cash. The budget is
considered as the future guidelines for the company Tesco. It showcases how to track the
corporate in Tesco for the usual retro of time that includes the objective actions which is used for
the available resources as well as goal of the strategy. It is the dimension of the development of
the upcoming planning to the certain extent (Haddock-Millar and Rigby, 2015).
Used by Internal management: internal management include employee, trade union, shareholders
as well as internal auditors. The financial informational of the company is the foundation for the
organization team in Tesco. The manager of Tesco used the bookkeeping info to inspect the
procedure of its preceding choice in the company which include how the location of the choice it
enhances the income in the company. In the case if the administration team of Tesco get certain
indication from the monetary evidence that show any undesirable impacts of the preceding result
the organization team of the company will increase other plan to fix it. Along with the
organization team get the general as well as detailed financial info from the global retailers of
Tesco that help them to analyze the branch commercial events all over the creation (Vilas et al.,
2019).
Meet the need of Compliances: Finance department of Tesco is responsible to keep the accurate
records and also prepare financial statements of the end of the year for paying tax. In the event of
the audit by the internal revenue service the finance team of the company provides as well as
verify the number as well as answering the questions the auditors has. The accounting and
finance also help in meeting the state as well as federal filling responsibilities for payroll, worker
compensation as well as income tax reporting. Furthermore, the company can also able to decide

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its organizational structure need to be change such as in the form of centralized and decentralized
according to the growth of the corporation. Such growth can be evaluated through accounting
statement of the company (Jack, Florez-Lopez and Ramon-Jeronimo, 2018).
Analysis by Government: the accounting and finance also help the investment to fetch the
essential information related to the company. The government requires the accounting info of
Tesco Plc. As a policymaker, the administration ate absorbed in analyzing the profit; sales as
well as work of Tesco Plc. according to which the management can also regulate the tax rate as
well as other monetary rates that is depend on an enormous amount of business yearly financial
statements that is comprising the Tesco Plc. as well. For example in the year 2016 the company
has enhanced the employment that supports the government to minimize the burden of the
administration. Therefore, the government would able to enhance to their other service to the
public (Bhaskar and Flower, 2019).
Conclusion
From the overhead analysis it can be conclude that every company has adopted effective
accounting and financing tool to analyze the growth of the company. It helps in analyzing the
financial stability of the company as well as cash inflow of the company in an effective as well
as efficient manner. Accounting and Finance also play an essential role in the leading company
Tesco. It helps in creating budget for the company as well as help in analyzing the monetary
performance of the business to the certain extent. The company can also able to develop
innovative strategy while analyzing the accounting and financial information. The cash
management as well as budgeting of Tesco is done through the effective accounting and
financing strategy that make them possible to prepare a future plan for Tesco. Furthermore, it is
used by the internal management of Tesco in the manner of taking decision in the operations to
the certain extent. The government can also determine the tax rate of Tesco through analyzing its
profit, sales as well as other financial activities. Therefore, it is required for the company to be
more focused in the financial activities to grow in the competitive market in an effective as well
as in an efficient manner.

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Question 2
Introduction
Accounting ratios represent the relationship in between the figure of balance sheet as well as
profit and loss account. It is one of the effective tools that are used to analyze the actual financial
concert of the business that is used by the administration of the business, its shareholders, and
creditor’s as well as other such stakeholders of the organization to the certain extent (Maynard,
2017).
Accounting ratio play an essential role in the following manner as they are explained in the
below points:
 It is used to measure the profitability of the company through gross profit and net profit
ratio.
 The operational efficiency can also be analyzed through accounting ration that help the
organization to cover the flaws if occur.
 It helps in streamlining intricate accounting declarations as well as fiscal data into modest
ratios of the operative efficiency, creditworthiness as well as long-standing position
(Pratt, 2016).

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Calculation of Ratios
Description Formula
Financial year 2017 2018
Net Profit Margin Net income/ sales 12.5% 8.75%
Return On Capital
Employed
Operating
Profit/capital
employed
21% 16%
Current ratio
Current
assets/current
liabilities
2.35 0.93
Debtor Collection Period
Trade
Receivable/Credit
Sales*365
68 73
Creditors Coolection
Period
Trade
Payable/Credit
Purchase*365
60 170
Return on Capital Employed
This ratio is rummage-sale to analyze the effectiveness and other definite competence of the
organization according to which the capital is used and distributed. Ii is considering as one of the
essential profitability ratio that is used by the investor while screening for the suitability of the
investment candidate (Oulton and Sebastiá‐Barriel, 2017).
Formula
ROCE = EBIT/ CAPITAL Employed
Where:
EBIT = Earnings before interest and Tax
Capital Employed = Total Assets

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Importance
 Judging the efficiency of the corporation
 Help in evaluating the financial statement
 Help in formulating the plan for the company
Return on Capital Employed of Alpha Ltd
In the year 2017, the company has a return on capital employed f 21% that was decreased or
diminish to 14.1% in the year 2018. It showcase that the capital employed of the company is
going down by 6.5% that can be occur due to the reason in the year 2017 the company did able
to better deploying its capital as comparison to the year 2018. The company did able to use the
capital in more effective manner in the year 2017 rather than in the year 2018. It can be occur
due to the reason the cost of the production is increases in the year 2048 that directly affected
over the return on capital employed f the company to the certain extent. Therefore, it enhances
the risk for the investors who have already invested in the company. Their income can be highly
affected due to the return on capital is going low in the year 2018.
Net Profit Margin
It is the proportion of the income that is occurs after abstracting the total expenses from the sales
that is occur on the similar year. It helps in revealing the actual quantity of revenue that the
corporation can extract from its overall sales. It is intend to be measure the total success of the
corporation. The high profit indicates that the corporation is pricing their product in a correct
manner (Yasa and Wirawati, 2016).
Formula
Net profit margin: Net Profit / Sales *100
Importance
 It help in evaluating the lending decision of the company
 It represents the potential net worth of the company that is based on the earnings.
 It has a great impact over the capital revenue.

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Net Profit Margin of Alpha Ltd
The corporation in the year 2017 has earned the net profit of 12.5% that was diminished by
8.75% in the year 2018. It represent that the net profit of the business declined by 3.25% in the
year 2018 that can be occur due to the reason the overheads of the company increases in the year
2018 as well as the cost of goods sold was also increased by 525 that is high in the percentage
than the increase in sales which affected over the revenue margin of the corporation to the certain
extent. Therefore, the interest of the investors highly affected from the fluctuation in the net
profit. In the year 2017, they were earning good profit sharing as comparison to the year 2018.
Current Ratio
It is the efficiency as well as liquidity ratio that is used to amount the ability of the business to
cover its short term liabilities with its current assets. It play an essential role in determining the
liquidity of the corporation and the competence of the company in paying short term debits that
is essential for the company to analyze (Uechi et al., 2015).
Formula
Current Ratio = Current Assets / Current Liabilities
Importance
 It help in analyzing the debt capacity of the company
 It gives an idea for the operating cycle of the company to the certain extent (Myšková and
Hájek, 2017).
Current Ratio of Alpha Ltd
In the year 2017 the current ratio of the Alpha Limited in the year 2017 was 2.3 that were
decreased to 0.9 in the year 2018. This showcase that the current ratio of the declined by 1.37. It
is occurred due to the reason, it has been analyzed that the trade payable as well as Accruals of
the company is increased by 765 and 22.5 that enhance the level of current liability at greater
level. Therefore, investors can easily understand that the liability paying capacity of the company
is high as comparison to the year 2018.

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Average Receivables Days
It is the average amount of days or the period that will take for the corporate to receive or collect
the payment that is owed by its clients in term of account receivable. It show that average time
that will be taken to collect the trade debts (Gorondutse, Ali and Ali, 2016).
Formula:
Debtor Collection Period = Debtor (Amount of the Money Owed)/ Sales Turnover * 365
Importance
 It is one of the useful comparison tools that can help the organization to getting paid more
quickly than its competitors.
 It is consider as one of the strategic financial tool that can give as a financial gain or
profit if it is getting paid more quickly as it is measured by the time that is against the
accounts receivables (Sunjoko and Arilyn, 2016).
Average Receivables Days of Alpha Limited
In order to analyze the debtor collection period of Alpha Ltd Company it has been analyzed that
in the year 2017 the company collect its funds in 68 days that was increased to 73 days in the
year 2018. It showcase that the collection period of the corporation delayed by 5 days that can
affect the cash inflow of the company to the certain extent. The delay in the collection period
may cause the issue of late payment that can be done by the company for the inventory
purchased that can affect its performance to the certain extent. It can be affected due to the
reason the receivable in the year 2017 was low that was increased in the year 2018. Therefore,
due to such reason it can take time for the company to collect the amount from the debtors that
make the other things delayed to the certain extent that created impact over the profit sharing of
the company at greater level.
Average Payable Days/ Creditors Payment Period
It is one of the terms that represent that the time during which remain current liabilities
outstanding. It is the average time that is takes a commercial to resolve its obligations with the