Tesco AND Benedict PDF

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Tesco and Benedict...

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NAME:

ADAORA UZOMA

COURSE:

STRATEGIC FINANCIAL MANAGEMENT

COURSE CODE:

AF4S31-V2-18940

LECTURER:

MARY NANYONDO BYARUHANGA

SUBMITTED:

AUGUST 30, 2020

TABLE OF CONTENT 1.0

ABSTRACT

2.0

TESCO STRATEGIC FINANCIAL ANALYSIS

3.0

2.1

Stakeholder definition and types

2.2

Tesco Stakeholders

2.3

Analysis of Environmental and Social Review and Cooperate Governance

2.4

Cooperate Governance and Monitoring

BENEDICT CO (COOPERATE FINANCIAL STRATEGY) 3.1

Company’s Background

3.2

Analysis of Company’s Financial Ration 3.2.1 Profitability Ratio 3.2.2 Liquidity Ratio 3.2.3 Use of Resource Ratio 3.2.4 Gearing Ratio 3.2.5 Investors Ratio

4.0

CONCLUSION AND RECOMMENDATIONS

5.0

REFERENCES

6.0

APPENDICES 6.1

Industrial Financial Data

6.2

Benedict Co.’s Income Statement- In $’000

6.3

Balance Sheet

6.4

Calculated Capital Employed

6.5

Calculation of Benedict Co Financial Ratio

1.0

ABSTRACT:

This report consists of two main parts whose objectives are to first analyze the key stakeholders of Tesco. By using the company’s 2016 annual report, we will be detailing a strategic analysis on how the Environmental and Social Review and the Corporate Governance Report help Tesco demonstrate its performance in terms of its corporate and social responsibilities. Although there are several other stakeholders who are impacted by its corporate decisions, the paper concluded that the two stakeholders used in the analysis play a very crucial role and add significant value in measuring the organization’s financial and non-financial performance. Secondly, the report will also be focusing on analyzing and evaluating the financial position of Benedict Co. using a range of financial ratios that would help meet the requirements of customers, lenders, investors and suppliers.

2.

TESCO STRATEGIC FINANCIAL ANALYSIS: 2.1

Stakeholder Definitions and Types:

A stakeholder is a person or a group of people who have any kind of interest in the activities of a company. They can impact or be impacted by a company’s decisions, policies and objectives. For every organization, there are 2 types of stakeholders – (Internal and External). Internal Stakeholders: - Managers: They are directly involved in the daily strategy and operations of the company. The are accountable for all decision making and they are also a major point of contact between shareholders, board of directors and the organization itself. - Employees: They have a very significant time and financial investment in the company as well as play a crucial role in the tactics, strategy and operation that the company carries out. Well defined organizations like Tesco take into consideration employee opinions, concerns, values in shaping the organization’s mission, vision and strategy. - Owners: They hold a significant share of the company and are also liable for any impact (positive or negative) the company experiences. The often make significant decisions in regards to internal and external stakeholders as well as play a crucial role in strategy. External Stakeholders: - Customers: They are the primary purpose of providing quality goods and services. It is very important to interact with customers and understand their needs in order to remain competitive and relevant in the market. Interacting with customers via social platforms, storefronts, emails, user testing groups and service delivery is very important in order to

maintain a strong community and a strong sense of what customers want from the organization. - Suppliers: These important group of people are closely related to the organization to ensure there is timely payments, timely shipments, effective communication and all operational processes are maintained. - The General Public/ Local Community: A lot of companies have been a great benefit to the general community by providing access to unique products and services, jobs as well as community development programs. - Government: They have a high stake in the company’s success by strictly ensuring that all accounting procedures, ethical practices, legal concerns are being adhered to and handled appropriately by business representatives 2.2 Tesco Stakeholders: Tesco takes pride in stakeholder engagement and collaboration across the world as they help them understand their evolving priorities and resolve the most relevant sustainability issues. This collaboration also provides the company with opportunities to share learnings with each other as they are committed to listening and paying attention to all stakeholder groups in a variety of ways. Tesco stakeholders include: -

Customers: Tesco annually commissions independent customer research which enables them to understand where customers think they should focus on and how well they feel their issues are being addressed. Across their markets, Tesco customers want the same thing which is great quality, fresh and affordable food with respect for suppliers and farmers and also to ensure that their colleagues are fairly and equally treated well.

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Colleagues: The company has a program called “Every Voice Matters”. This is a colleague listening programme which creates insights on how workers feel and also the actions the company is taking as a business. There are also a Global Colleague Contribution Panels hosted by an independent Non-executive Director which also provides feedback on areas of specific interest. It is important to Tesco that colleagues across the globe tell them that one thing that makes them feel proud to be a part of the company.

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Suppliers: At Tesco, an open dialogue with suppliers are maintained and the company is committed to keep building and establishing trust partnerships that will deliver quality and value to their customers, and help their suppliers to grow and advance. Tesco invite suppliers to provide their feedback on their experiences

at Tesco through supplier surveys and supplier conferences are being held to share best practices as well as learn across their supply chain. -

Shareholders: A regular dialogue with investors are being made throughout the year by attending meetings and providing response to questions or concerns on specific areas of interest. During Annual General Meetings, there is room to ask questions and in 2019, the company hosted ESG and Capital Markets days which provided a great opportunity for analysts, lenders and investors to hear more about the Little Helps Plan and ask questions.

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Wider Society: This includes a broad category of stakeholder which includes NGOs, trade bodies, Government and regulators, the media and community groups. There are tons of stakeholder engagement which range from hosting meetings and visits, participating in working groups, responding to surveys, multi-stakeholder projects and other information requests. Tesco also maintains an open-door contact mechanism for all stakeholders via [email protected]

2.3 ANALYSIS OF TESCO’S ENVIRONMENTAL AND SOCIAL REVIEW AND CORPORATE GOVERNANCE: This section attempts to analyze how environmental and social review and corporate governance report help Tesco demonstrate its performance in terms of corporate and social responsibilities to its key stakeholders which are colleagues, customers and suppliers. The Approach: Tesco’s main goal is to serve customers a little better everyday and a crucial part of achieving this goal is to ensure that they tackle the social and environmental challenges affecting the communities they live in and source from. In order to capture the bigger impact of these challenges, Tesco discovered that the solution is through the cumulative impact of small thoughtful actions. Further in measuring Tesco’s performance, colleagues have remained the heartbeat of the company and have continued to put customers first when delivering outstanding customer service. Colleagues are always the first to be aware of any changes that will affect them within the company and this brings about openness and transformation Respecting Human Rights: The human rights of customers, colleagues and workers within the supply chain remains the top priority of the Tesco. As the founding member of the Ethical Trading Initiative and the industry-leading team of labour-standards experts, Tesco strongly supports the UN Universal Declaration of Human Rights, the International Labour Organization Core Conventions and the UN Guiding Principles on Business and Human Rights. The goal is

to ensure that customers, colleagues and suppliers have their human rights upheld accordingly. For Customers: Customers expectation is to purchase great products which are responsibly and safely produced. By protecting customer’s human rights, they give customer’s the confidence to gain trust in their products as well as ensuring there are good neighbours wherever they find themselves. For Colleagues: The company also upholds a consistent and strong people policy to ensure that the work environment is a great, conducive and safe place to work and everyone is treated equally, feels welcome and confident in themselves. For Suppliers: Tesco strives to continue building strong, trusted partnerships with suppliers in order to deliver safe products that are produced responsibly.

2.4

Corporate Governance and Monitoring:

Tesco’s company-wide code of business conduct reinforced by a training program, helps and ensures that colleagues follow the necessary due diligence and key polices within the organization. “We aim to serve shoppers a little better every day and have six simple, key business performance measures. On every KPI, we have made good progress. As a team, we are doing a better job for our customers and improving our relationships with our suppliers, whilst creating long-term sustainable value for shareholders” – Tesco 2016 Annual Report – page 12.

Tesco published its first ‘Tesco and Society Report’ setting out three new social ambitions for the business. The report lays out the businesses new strategy, ambitions and plans in three key areas that matter to Tesco’s colleagues, customers and to society as a whole: 1. Providing opportunities for young people 2. Helping our customers and colleagues to live healthier lives 3. Reducing food waste globally. These ambitions build on the essential work already underway in reducing the impact on the environment, being a great employer, supporting local communities and trading responsibly.

3.0

BENEDICT CO – CORPORATE FINANCIAL STRATEGY 3.1

Company’s Background:

Benedict Company, established in 1983 as a professional, experienced buyer and reseller of salvage goods are conveniently located in the Midwest. They are a trusted partner for securing rapidly unwanted and damaged cargo, abandoned freight, casualty looses and more and quickly resell them for better improvement. The company’s central location enables them to easily and quickly reach claims nationwide, as needed, secure cargos and find an end buyer. Their services include: -

Salvage assessment Recouping damaged cargo and looses Bidding/purchase of damaged cargo Bidding/Purchase of casualty looses Sorting and segregation Transloading of trailers and containers Distribution Warehousing And lots more

In this section of the report, a range of financial ratios will be used to measure requirements of potential customers, investors, lenders and suppliers. We are also going to be reviewing the importance of the ratios chosen which would include the results of each chosen ratio and reasons for the movement between the two years. More so, available statements from the years 20X0 and 20X1 have been utilized and other resources that provide relevant information on the company’s ratios. 3.2: Analysis of the Company’s Financial Ratio: 3.2.1 Profitability Ratio Ratios

20X1

20X0

Observations

Return on Capital Employed (ROCE)

17.50%

24.19%

Decreased

Net Profit Margin

22.73%

32.93%

Decreased

Gross Profit %

48.05%

41.77%

Increased

Net Asset Turnover

0.77%

0.73%

Increased

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Return on Capital Employed: As shown in the table above, the decrease in ROCE may be a combination of two factors which could mean the company already lost profits before taxes (loss from $8.7m to 8.3m). Second reason could be due to an increase in capital employed (rise from 33.9m to 40m). This status therefore indicates how the company’s efficiency to use capital to generate profit has reduced – (Nissim and Penman, 2001) Net Profit Margin: As shown in the above table, a decline in profit before interest and taxes have impacted negatively the net profit margin ratio. Also, we can also see that there is a sales increase by 23.69%, thereby lowering the ratio from 32.93% to 22.73%. This decrease simply implies a reduction in the company’s efficiency to use revenues to generate profits. Gross Profit %: From observation, it is seen that there is an increase of 6.28% in the gross profit percentage from 20X0 to 20X1. The gross profits and parallel increase in sales are the clarifications for this result. While gross profit increased from 10.4m to 14.8m, giving us an increase of 42.31%, sales also went up by 23.69% which reflects the growth of the Gross Profit Percentage. Although this ratio contradicts the previous assumption of the company’s decrease to generate profit from revenue, I personally believe that the increase in gross profit percentage went up by an increase in sales. Net Asset Turnover: There is an increase in ratio from 0.73times to 0.77times. This increase is attributed to the company rise in sales than capital employed.

3.2.2 Liquidity Ratios:

Liquidity Ratios

20X1

20X0

Observations

Current Ratio

1.19

1.25

Decreased

Quick Ratio

0.70

0.75

Decreased

From the table analysis, it is seen that both current and quick ratios slightly decreased. For every $1.19 of current assets in 20X1, the company $1.0 liabilities which translates that Benedict Co. can marginally cover its liabilities. This slight decrease in current ratio could be as a result of increased sales. When increasing current ration, Benedict co could re-invest its dividends by the acquisition of more assets, acquiring a long-term loan or even paying off their debts. When a current ratio is very high, it means that cash is not adequately utilized in an optimal way. The current ratios of 1.0 to 1.5 may imply that a business may be struggling to pay up its liabilities – Jim (2011).

Quick ratio, also known as “Acid Ratio” looks at the most liquid assets and compares it with current liabilities. As observed from the table, even though quick ratio went low from 0.75 to 0.70, it remained highly satisfactory to recommend figures of between 0.5 to 0.1 – (Corporate Financial Institute – undated). This reduction may have been caused due to the reported increase in sales in 20X1.

3.2.3 Benedict Co. Use of Resource Ratios:

Ratios

20X1

20X0

Observations

Stock days Debtor days Creditor days Cash Conversion Cycle

118.63 90.06 115.13 53.56

65.45 55.70 108.24 12.91

Increased Increased Increased Increased Scicluna, C. (2018)

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Stock days: From the table, we can see that there is a considerable increase in the average number of days that Benedict Co. keeps its stock before selling. This displays that the company have been unable to accelerate stock trading and have gradually backed out from the inventory days of its industry (Edwards, 2003) Debtor days: This indicates how many days in average that debtors pay the company (trade receivable). This number is seen to have increased from 55.70 to 90.06 (62.66%) in comparison to the previous year. That being said, there is a notable decline in the company’s ability to collect trades receivables which reflects in the poor performance in 20X1. From this analysis, it can be observed that in comparison to other industry players, Benedict is performing poorly with the average of 55 trade receivable. On the other hand, it could also be seen as a deliberate act to attract more trade as well as compete with other industry players – (Kaplan Financial, 2012). Creditor days: Creditors days are seen to have increased from 108.24 to 115.13, a difference of 43.31 days. This is way more than average compared to other industry players and can also be perceived as a poor financial situation of the company which may perhaps cause suppliers to opt out of supplying goods to the company due to its long-standing creditor period. Cash Conversion Cycle: The table reflects an underperforming situation as there is seen to be a rise from 12.91 to 53.56. This increase is attributed to a rise in stock, an increase in debtor days and also an increase in creditor days. This

analysis concludes the Benedict Co. has been underperforming and lack efficiency in the utilization of its resources to generate cash from its capital assets.

3.2.4 Gearing Ratios:

Ratios

20X1

20X0

Observations

Gearing Ratios

30.00%

23.60%

Increased

Debt and Equity Ratios

42.86%

30.89%

Increased

Interest Cover

5.38

16.40

Decreased



Gearing Ratios: The gearing ratios from the above table indicates that the company has increased risk to cover its long-term debts by capital employed.

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Debt/Equity Ratio: This has also increased remarkably by 50% from (30.89% to 42.86%) as a result of the long-term debt the company has incurred than that of its reserves and stock capital (8.11%). It is apparent that an increase of reserve and capital by 8.11% was not able to balance a respective increase in debts of up to 50%. – (Rushinek, 1987, pages 93-100).

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Interest Cover Ratio: This enables an organization pay interest out of the dividends/gains made. As seen in the table, this ratio has decreased from 16.40 times to 5.38 times, reflecting a decrease in the company’s profit by 4.6% which led to an increased financial cost spanning from $500,000 to $1.3M (up to 160%). Irrespective of this decline, I’d highly recommend that this ratio should be monitored closely in the subsequent financial year and for it to endeavour to invest in trade receivable recovery. If mismanaged, this may lead to shareholders dividends being lost.

3.2.5 Investor Ratios:

Ratios Return on Equity

20X1 23.57%

20X0 27.03%

Observations Decreased

Dividend per share Earning per share Dividend cover Ratio Payout Price/earnings ratio Dividend yield Earnings yield

0.03 0.00004 0.001 68181.82% 152727.27 0.45% 0.0007%

0.02 0.00004 0.002 51428.57% 92571.43 0.56% 0.0011%

Increased Unchanged Decreased Increased Increased Decreased Decreased

Scicluna, C. (2018)

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