The analysis of business and financial performance of an organization involves assessing the financial performance through the means of financial ratios i.e. profitability, liquidity. Financial ratios are useless until there isn't sufficient data available for the comparison. This data may relate to competitors, industry or the organization itself. The business performance of the organization can be assessed through business models such as SWOT analysis, PESTEL analysis. Analyzing the financial and business performance helps organizations in the making of strategic decisions.
The main purpose for choosing this topic is mainly is due to my interest in the financial analysis, I believe that this topic will help me to demonstrate my skills in the financial analysis. Even though, I don't have any relevant practical experience of financial analysis but I strongly believe the skills and knowledge gained through my academic qualification ACCA will surely be very helpful. The analysis of business and financial performance is a key statement for all the investors nowadays. There are dedicated websites where research papers are available for the leading organizations of a particular industry. This particularly shows the growing importance of the business and financial analysis.
Selection of the organization was one the most challenging task, to ensure that sufficient information was available to carry out the analysis and to make the report more interesting. Supermarkets have grown a lot all over the world in the last few decades including prominent supermarkets such as Wal-Mart, Tesco and Sainsbury's. There has been an increase in the line of goods that are sold at the supermarkets ranging from food items to house furniture.
The organization that I have chosen is one of the leading supermarket of the UK, Tesco Plc. Tesco was founded by Jack Cohen in 1919, but initially it started as a grocery stall in East End of London. The first Tesco supermarket was opened in cinema in Maldon in 1956. By 1965, Tesco has more than 350 stores allover the UK. The growth of stores continued with 4332 Tesco stores globally including 2282 stores in UK alone at present.
There were a number of reasons for selecting Tesco for the research report. Considering the economic recession which started in 2008, the global economic output has significantly shrunk. The unemployment rose and the countries face a negative growth. In 2009, the global economic output is expected to shrink by 2.2% and UK GDP is expected to fall by 4.3% [BBC, 2009]. Despite the economic recession, Tesco maintained its consistent financial performance and delivered good results to the shareholders.
Growth has been an important factor in the success of the Tesco. An estimate of 20262 million square feet of new space has been acquired during the last two years." Despite the challenging conditions around the globe we have remained resilient and are growing as fast as any major international traders" ( Chairman's statement, 2009). The board is planning further expansion by entering into the emerging global market India with the introduction of Star bazaar hypermarkets. During the last five years, Tesco has targeted Asian consumers by entering into Japan, China and South Korea, leading to sales revenue of 7068m from the Asian market.
Tesco always believe on the welfare of the customers. That's why, Tesco clubcard was re-launched in UK with an investment of 150m in order to provide more benefits to the consumers in the form of higher savings. Presently, when the world is facing the worst economic recession, the problem of Global Warming also exists. In order to minimize the hazardous effects of the global warming, Tesco has opened green stores and encourages the customers to recycle their carrier bags.
With most supermarkets restricted to grocery retailing services, Tesco has diversified its services during the last few years. Tesco is consistently entering new markets and targeting different customers. The formation of Tesco Personal Finance which provides financial services from insurance to mortgages was a milestone achieved by the company. Above all, Tesco no doubt remains the market leader.
The reasons stated above constituted to my choice of organization. The purpose of the research report isn't to gather information but to use that information to form reasoning for the results obtained. While carrying out the research work I hope to find answers for my research questions which are listed below.
How did the business perform consistently during the recession?
What are the reasons for the rapid growth of the company?
Reasons for being a successful international retailer?
How does price war with the competitors affects company's profitability?
The aims and objectives of my report are to present a detailed analysis on Tesco based on its history as well as on the data currently available. My report will depict the various internal and external factors that had an impact on the company's performance and results.
PART 2.INFORMATION GATHERING AND ACCOUNTING/BUSINESS TECHNIQUES
2.1
Information Gathering
Information is a key to a good quality research report. The content of research report are based on the information gathered, which makes it very important.
2.1.1
Primary Sources
2.1.2
Secondary Sources
Financial Statements:
This is the foremast thing in starting the research report. It is almost impossible to perform a financial analysis without the financial statements. Statements such as Income statement and Balance Sheet were used to calculate the ratios. Tesco's financial statements were obtained from the investment centre on the company's website. The collection of financial statements was an effortless task.
Chairman's Statement:
It was one of the most important statements collected for information purpose. The chairman's statement provided an overview of the company activities and highlighted all the major strategic decisions taken during the years. It provided useful information regarding the company's achievements and performance. The statement also focused on the social and environmental welfare. Chairman's statement was apart of the company's annual report and was obtained from the investment centre on the company's website.
Chief Executive Review:
This statement gives a performance review by the company's chief executive Sir Terry Leahy. The statement focuses on the performance from the perspective of the company's corporate objectives. It reports performance in different business segments such as international, non-food, retailing services etc. It is also a part of the company's annual report.
E-News:
The usefulness of the E-News can't be denied. With all the major news channels and newspapers on internet, this medium provided me vast and limitless data. Hundreds of articles were obtained on the company's strategy, performance, competition through internet. These articles were an immense help while interpreting the ratios and investigating the reasons. The most accessed newspapers and new channels website were BBC, Financial Times and Times Online. Other includes Guardian, Daily Mail etc. Online articles on various topics were also found using the Google search engine. This proved to be a very time-consuming process but was worth it.
Directors Report:
It is one of key statements in the annual report of the company. The report focused on the group performance from financial and non-financial perspective. The report was very detailed and included information about risks and uncertainties, financial review, key performance indicators etc. It provided a reasonable amount of support in assessing the business performance. Directors Report was also obtained from the company's website.
Forex.pk:
Since Tesco is an international retailer it was very important to understand the exchange rate movements and its effects on the company's performance. The website proved to very helpful and provided the past exchange rates. This enabled me to further investigate the reasons and analyze the performance.
Tesco plc.com:
This website is a hub of information about Tesco. It didn't only provide the company's financial statement but the history of the company. It helped a lot in understanding what the company is trying to achieve for years and its journey from a small stall to the third largest world retailer. Moreover, it provided vast information for the introductory section of the research report.
Competitors Financial Statements:
Competitor's financial statements were used to calculate ratios for the comparison purposes. Furthermore, it improves the quality of financial analysis. The financial statements were obtained from the websites of the relevant companies.
Newspapers/Journals/Magazines:
Such sources are only helpful if the relevant information is extracted. They helped a lot in understanding the economic conditions and applying it to the scenario. Especially Financial Times provided the information regarding the economic downturn and interest rates. Such sources are readily available at the libraries. I visited the library at my college to collect the relevant information.
2.2
Accounting & Business Techniques
The main accounting technique that will be used is the accounting ratios. Accounting Ratios will be formed of profitability, liquidity and investment ratios. It will be the basis of my report along with the reasons that caused such results. This will helpful in evaluating how successful Tesco has been in its operations. As far as the comparison with the competitors is concerned, I have compared it with J Sainsbury which is a major competitor.
The key business techniques used is SWOT analysis which identifies the strengths, weaknesses, opportunities and threats faced by the organization.
