Tesco Plc: Business and Financial Performance Analysis

This Research and Research Project report concentrated on the 'Business and Financial performance' of Tesco Plc over a three yr period from 2008 to 2010. The examination report throws more signals on the functional and financial performance of Tesco Plc insurance firms respect to its business strategy. Among its major rivals on the market which is J. Sainsbury's Plc has been used as a standard to be able to compare Tesco plc performance.

REASON FOR CHOOSING THIS TOPIC

This subject was chosen because there has been much and extreme competition in the retail supermarket industry recently. With most of these businesses needing to compete because of their share of the market. Most them are thinking and aiming to become a market innovator one. But at the heat of the competition is the problem of survival and going concern which is at the centre of each these retail businesses since failing to consider them could result to total collapse of their entire operations. To the end I decided to research Tesco which is one of the UK's most successful and also one of the world's biggest retail supermarkets to find out how it offers operated up to now and to see the degree of it business and financial success during the last three 12 months period.

REASON FOR CHOOSING THIS ORGANISATION

Tesco plc was chosen since it is becoming one of the world's biggest retail supermarkets in recent times. Taking into consideration the size of its market share compare to most of its major opponents, the company is continuing to grow so rapidly in so doing increasing in profitability. Therefore I needed to learn set up profitability levels attended as a result of its fast and consistent development, since development and success do not necessarily move hand in hand. I also wished to learn about the company's strategy which includes seen it develop so quickly and rapidly than its competitors do.

AIMS AND Targets ON THE PROJECT

The main aims and objectives of the project are to analyse the business enterprise and financial performance of Tesco plc. It ought to be noted that most companies are not managed and directed by their owners (shareholders) but instead appoint Directors and entrust in their hands with stewardship of their investments. Therefore it is appropriate for these Directors to accounts to these owners the stewardship of those investments entrusted in their good care.

Shareholders and stakeholders of every company including Tesco plc should to know whether or not their investments and interest are been supervised properly since this will help them determine whether to sell off their stocks or keep them and even invest more. Stakeholders alike may also wish to know the business's performance, progress and its own success to be able to take an informed decisions.

The project will see out whether Tesco plc's shareholders are properly rewarded for their investments and risks they took or not. And also to ascertain how satisfactory Tesco plc stakeholders are.

To accomplish that, ratio research was used to analyse the company's last three years financial assertions (2008, 2009, 2010) which was compared with the competitors three results to be able to acquire objectivity and fairness.

There was also a consideration regarding the going concern position of the business enterprise as it is central to the company's long term success. As a consequence, tools such as SWOT and 5 Causes analysis were thought to determine its non financial information in order to establish Tesco plc's current competitive position on the market, any strengths and weaknesses they have got as well as opportunities and dangers they are confronted with.

RESEARCH QUESTIONS

As part of this project the following research question were made in order to respond to them in the research
  • Has the shareholders investment managed properly?
  • How well have Tesco plc shareholders are been rewarded for hazards taken?
  • Have stakeholders interest been placed satisfied?
  • Is the company's current business strategy lasting?
  • What is the company's long term success strategy?
  • Will the company have the ability to continue to enjoy immediate increase and expansion?

2. INFORMATION GATHERING

Sources and their reasons

Tesco Plc's 2008, 2009, 2010 Total annual reports

These individual annual records provided me with precise and sufficient information that i used for analysing the business and financial performance of the business. The annual reviews were very useful in calculating and analysing given that they were the most up to date results.

J. Sainsbury's Plc Total annual Accounts for 2008, 2009, 2010

Like the Tesco Plc gross annual records, these ones from J. Sainsbury's Plc also aided me in analysing the business and financial performance of the business and again the most recent financial studies.

The Chairmen and the principle Executives claims from both companies

These were useful for the reason that they provided me with the companies operational highlights which helped my examination to represent those highlights

Quarterly Reports on the trading activates

There were essential information i compiled from these quarterly records as well, which aided my evaluation.

Unaudited interim company financial Reports

Even though these records were unaudited and might not provide much positive signs or symptoms, however they provided me with developments on these companies' functions to determine its performance and to see if there is the need for issuance of profit warning.

News papers

Information gathered from the news headlines paper publications included experts thoughts, comments and suggestions which could have an effect on the talk about price of the company on the marketplace. And therefore was useful to the shareholders and potential shareholders.

Expert Reports

These were other indie expert views gathered apart from the news documents which throw a lot more lights on the future and customers of the company by showing styles, projections, forecast, medical diagnosis, etc.

Libraries

Continuous trip to libraries including the Woolwich library, Uk catalogue, white chapel, etc. These libraries offered me the opportunity to get access to the data bases of all posted companies' information.

Books and journals

Most of the ACCA text message literature such as Paper F2, F7, P3, ACCA students' periodicals, Financial accounting catalogs, etc were all useful in this exercise in getting a deeper knowledge of the financial examination.

2. 2 Method used in information gathering

The supplementary data were accumulated and used for the do of this record which was accumulated through the next means

Libraries - Libraries attendance was used to collect data from resources such as articles, News papers, Textbooks, publications, magazines, Compact disc ROM, etc.

Search engines (Websites) - Websites that were considered important were frequented to collect data including that of Tesco Plc website, J. Sainsbury's Plc while others. They can be (www. tesco. com), (www. j-sainsbury. co. uk), http://www. emeraldinsight. com, http://www. ssrn. com, http://search. ebscohost. com, etc.

Request Letter - A formal written letter was sent to both secretaries of Tesco Plc and J. Sainsbury's Plc to demand a copy with their 2008, 2009, 2010 twelve-monthly information which helped in the examination.

Marketlineinfo. com/ Datamonitor. com - Specialised information were kind from these resources to help analyse the non- financial information such as SWOT AND 5 Forces analyses techniques.

Financial Research Made Easy (FAME) - This source provided me financial information including Tesco Plc and J. Sainsbury's Plc and covered ratios examination for companies. There is also non- financial information like the employees' numbers, structure of company possession, issues relating to corporate governance.

Accounting techniques used

The under-listed techniques were used for the conduct of the research to be able to arrive at an acceptable and a target conclusions which helped to give recommendations

  • Profitability ratios
  • Liquidity ratios
  • Efficiency and solvency
  • Investor ratios/ Currency markets ratios
As part of the conduct of the research these financial ratios were computed in knowledge of the business performance in responding to the research questions brought up in 1. 5 above were. They included
  • Revenue Growth ratio: this exhibited the movements of progress in earnings for the years 2008, 2009 and 2010 for both Tesco Plc and J. Sainsbury Plc.
  • Profitability and returns ratios: These ratios indicated well Tesco Plc has superiority in terms of Profit era for the three years as oppose to its rival J. Sainsbury Plc.
  • Working capital ratios: these ratios are guidelines of short-term financial standing up of both companies. The theory was to determine these companies capability to remain running a business by been able to fund its short term debts with short-term sources of funding without having to result to the utilization of long-term finance (predetermined assets).
  • Efficiency ratios like the earnings per employee and turnover per staff were all considered. This was in a position to show how efficient Primark has been managed in relation to its workers.
  • Investor ratios: the entrepreneur ratios measured how well have shareholders been properly rewarded for the risk taken. And in addition these ratios could assist potential shareholders to consider any informed decision (s).

3. Examination AND PRESENTATION

3. 1 SUMMARY OF TESCO PLC

Tesco is one of the greatest food retailers on earth, functioning around 2, 318 stores and utilizing over 326, 000 people. As well as operating in the united kingdom, it includes stores in the rest of Europe and Asia. It also provides online services through its subsidiary, Tesco. com. THE UNITED KINGDOM is the company's major market operating under four banners: Extra, Superstore, Metro and Exhibit. Tesco sells about 40, 000 food products in its superstores, as well as clothing and other non-food lines. The business's own-label products are in three levels, value, normal and finest. Tesco Plc own brand accounts for about 50% of sales. As well as convenience produce, many stores have gasoline stations. The company has become one of Britain's most significant petrol independent sellers. Other retailing services offered in the united kingdom include Tesco Personal Money and Tesco. com. Tesco Personal Finance is a jv with the Royal Loan provider of Scotland. It has over 3. 4 million customers, and various financial products and services. The company has functions in the others of Europe, including the Republic of Ireland, Hungary, Poland, Czech Republic and Slovakia. Tesco's Republic of Ireland business operates around 82 stores, and around 60 stores in the Hungarian market. Tesco's Polish operations include former Strike operated stores. It performs around 66 hypermarkets and supermarkets in this country. Inside the Czech Republic and Slovakian market segments, Tesco manages 22 and 23 hypermarkets respectively. Tesco also runs stores in Asia, including Thailand, South Korea, Malaysia and Taiwan. The company runs 64 stores in Thailand and 28 stores in the South Korean Market, within the Taiwanese and Malaysian market segments it has three stores in each country.

www. datamonitor. com

3. 2 OVERVIEW OF J. SAINSBURYS PLC

J. Sainsbury plc performs a total of 890 stores composed of 547 supermarkets and 343 convenience stores. It jointly owns Sainsbury's Bank or investment company with Lloyds Banking Group and has two property joint projects with Land Securities Group PLC along with the Uk Land Company PLC. The Group also holds 294 freehold and long leasehold stores. It uses approximately 150, 000 personnel. The business's stores provide a selection of food, and complementary non-food products and services primarily under the Sainsbury's brand. In addition, it has an Internet-based home delivery shopping service. In addition, it offers insurance, bank cards, savings products, and loans. The Sainsbury's brand is built upon a history of providing customers with healthy, safe, fresh and yummy food. Quality and reasonable prices go hand-in-hand with a accountable method of business. Sainsbury's stores have a particular emphasis on fresh food and strive to innovate constantly and improve products in line with their customer needs (http://www. j-sainsbury. co. uk). Its businesses are structured into three operating segments: Retailing (Supermarkets and Convenience); Financial services (Sainsbury's Bank joint venture), and Property investment (English Land joint venture and Land Securities jv) (http://uk. reuters. com).

Companies Strategy

3. 2. 1 Tesco Plc business strategy

Tesco Plc has a well-established and constant strategy for growth that has assisted in conditioning its core activities in the united kingdom and its own further expansion directly into new marketplaces (overseas). The basis for the strategy is to widen the scale of computer operations to enable it deliver well-built lasting long-term growth via pursuing the customer into large growing markets at home. By that it offers customers with products including financial services, telecoms and non-food and new marketplaces abroad, originally in Central European countries and Asia, and more lately in the US. The company's 1997 diversification strategy lunched has successful become its groundwork recently. The company is becoming market leader in the majority of the markets that observed the creation and development of their new businesses out the UK for the last twelve years since these businesses are highly competitive and profitable. Tesco plc strategy shows a massive improvement consistently. The strategy has five essential rudiments which reflect on the company's four conventional areas of awareness and the business' long-term commitments regarding the population as well as the surroundings. The goals of the Tesco Plc strategy focus on
  • To become a successful global retailer
  • To develop its primary business in the UK
  • To become as strong in non-food just as food.
  • To build up retailing services - such as Tesco Personal Finance, Telecoms and Tesco. com
  • To put the city at the heart of what it does (http://www. tescoplc. com)

3. 2. 2 J. Sainsbury's Plc business strategy

J. Sainsbury's Plc strategy focuses on five main areas that are underpinned by the company's strong heritage and brand which consistently sets it apart from its main rivals. Among such strategies is fantastic quality products at reasonable prices - the business with its constant technology provides its customers with healthy, safe, fresh and delicious food that are also sourced with integrity. With over 19 million customers been served every week and upsurge in market reveal how successful the strategy has been. The business's second strategy is on the acceleration of the expansion of its complementary non-food and services through its school of thought of quality and value, and also to provide a broader shopping experience for consumers. The business opened 51 convenient stores during 2009/10 within its strategy of achieving as many customers as you can with it brand. I also extended its groceries web business to reach almost 90% homes with non food products lunched in July 2009 making 8, 000 products available these days countrywide. J. Sainsbury Plc plan to start 75 to 100 more in convenient stores in 2010/11. Since functional overall flexibility can be increased by property/ assets ownership and even more exploitation of potential development opportunities, J. Sainsbury Plc increased the worthiness of it freehold property collection to 9. 8 billion (http://www. j-sainsbury. co. uk)

In a highly competitive marketplace where all UK vendors are fighting to maintain their sales against a slowdown in consumer spending, Primark does incredibly well.

The UK high avenues and department stores are filled with no-frills fashion stores. Which means that Primark has a great deal of opponents all aiming at the same type of customers. It is not easy to sell cheap fashion. Well-established rivals such as BHS and Matalan are battling, while results at Primark are flourishing.

The market segment targeted by Primark is the style conscious under-35s with the slogan "Look good pay less". It offers trendy clothes at very competitive prices (for example, jeans for 4) and realistic quality: in other words, a affordability strategy. In competitive strategy terms, Primark is a seeking a vintage 'emphasis cost command' strategy.

The North american management professor Michael Porter of Harvard College or university developed a well-known method of the competitive strategy of organizations. He argued that companies could achieve an increased rate of earnings (or at least potential profit) in one of two ways: they could either provide a product or service that is similar to that provided by rival companies, but at a lower cost than rival organizations, or they could provide a service or product that is differentiated from that of rival firms such that customers would be prepared to pay more for their product than for a rival firm's product. (R. M Give (2005)).

The first methodology means that the organization has a cost advantage over rival firms, and can go after a 'Cost Command' strategy; the second approach would mean that they had a differentiation benefit, and can follow a 'Differentiation' strategy. Businesses providing a 'no-frills' product are usually attempting a cost control strategy, such as Easyjet (UK) or SouthWest (USA) airlines. The 'concentration' part of Primark's strategy is the specific customer segment it focuses on i. e. that of the under-35s. It isn't attempting to sell to everybody. It includes selected a particular customer segment, just as the '18-30' trip company has determined a definite market segment predicated on age group within the leisure industry.

In the previous 3 years Primark offers a lot of things right. A few of its best successful rivals are BHS, TK Maxx and George at ASDA. However, although all three are in the 'value' segment and for that reason have similar market placement, the other three have different ways of that of Primark. TK Maxx sells heavily-discounted prestige brands and George at Asda has created its private-label brand generally at out-of town stores. Primark is a high street retailer that includes a family of brands and focuses a lot more on buying, logistics and supply chain management alternatively than branding.

In its pursuit of ever-lower costs, teams of buyers in UK and Ireland travel internationally both to recognize fashion trends also to seek out the best suppliers. The business uses computerised customs clearance (rate to advertise) and dedicated warehousing and syndication facilities, including the giant warehouse held and run by the logistics company TNT but dedicated only to Primark stock syndication. That one warehouse is centrally located for your UK market, near a junction of the M1 motorway and it houses 50% of Primark's UK stock, receiving 30 lorry loads each day. (This warehouse was ruined by hearth in November 2005). Computerised warehousing and syndication systems are associated with computerised daily sales and stock information (swift restocking of fast-selling items) by size and colour for each and every item atlanta divorce attorneys store to optimise turnover. (www. open2. net)

THE Infestation ANALYSIS

James and Akharaserani (1988) suggested that exterior phenomena have effect on interior ones. By PEST, attention is paid to Politics, Economic, Sociable and Technological (PEST) factors that could influence positively or adversely on the growth or otherwise of the organisation. The conversation below throws more light on these exterior issues of the organisation.

(P)olitical

According to Lancaster et al (2002 p. 55) 'The politics environment is the starting place from which many other macro-environment pushes originate. ' Tesco manages in a variety of political environments; the head office being in the UK. The UK has an operating democracy with elections and multi-party political system. The USA has a similar democratic set up. The political factors in both countries are stable and promote the progress of private business. A lot of the European marketplaces are located in Eastern part and the markets are Czech Republic, Poland, Hungary and Slovakia and Turkey. The political factors here aren't as secure as UK or USA. Asia is the largest market outside of the UK. It includes presence in Malaysia, Thailand, South Korea, China, and Japan. Of these Japan is quite steady. The most political problems are from Thailand where there is opposition from local businesses and so Tesco faces the largest problems here.

(E)conomic

The UK and the US are both wealthy countries even though faced with a recession at the moment. The East Western european markets are much poorer compared, but Lancaster et al (2002) reveal that there is an enormous improvement in the economic environment of the Far East with famous brands Singapore, Thailand, Malaysia and China. To prevail in the monetary condition of china and taiwan, Tesco has reduced its prices which can be welcomed by the neighborhood inhabitants there.

(S)ocial

The social structure in USA and UK are very akin where shopping in supermarkets has been around for a long time. But also for the Asian countries, the concept is relatively new. Turkey and Malaysia are both Muslim countries; hence their spiritual laws have to be taken into consideration by Tesco.

(T)echnological

Assessing today's technology, Headrick (2009) says, it has brought the globe to a sensational advancement. It is in the light of this that Lancaster et al (2002) set up that technology is a very important tool that includes a huge effect on the marketing organization. By technology, Japan, US, UK and Malaysia have similar facilities. South Korea is also strong in this respect. Thailand might be minimal technologically advanced of the markets. That is also the situation with the East Western european markets. China has complex capability, but is mainly limited by its cities. Nonetheless it can be said that the level of technology needed by Tesco in all these markets are available and hence not much obstacles in this area are predicted.

THE VALUE CHAIN

The idea of value chain has been extensively and intensively discussed by astute authors. The concept was propounded by Michael Porter. Describing the value chain idea, Porter (1985) represents it as, 'A basic framework for thinking strategically about the actions involved in any business and assessing their comparative cost and role in differentiation. ' Writing on the same notion, Longbottom (2006) intimated that information dissemination across the value chain has progressively become vital to organisations which want in which to stay competition. To aid Longbottom's assertion, Dekker (2003) portrayed that the importance of the value chain can't be over-emphasised as it grants the organisation an opportunity to achieve the utmost.

According to Porter (1985) the worthiness chain has two major parts, particularly; Main and Support activities. He says the Primary activities are those directly linked with development. These are: Inbound logistics, Operations, Outbound logistics, Marketing and Sales and Service. The Support or the Secondary activities he determined as: Procurement, RECRUITING Management, Technology Development and the Firm's Infrastructure.

Below is a demonstration of how Tesco applies the value chain in its activities.

4. 1 Primary Activities:

Inbound logistics

Tesco gets its materials from the suppliers who are generally the makers and stores them in its depot.

Operations

Those that need to be converted into finished products are processed as such

Outbound logistics

Tesco has trucks of different types which supply the various stores.

Marketing and Sales

Tesco has various method of marketing its products which include the application of the promotional combine producing to meet up with the needs of the customer

Service

Tesco has a track record of providing an outstanding service to customers, especially after sales. That is to learn the impression of the customer after the utilization of the merchandise.

4. 2 Support Activities:

Procurement

Tesco has been getting in touch with its suppliers without middlemen, hence minimising procurement cost in its purchases.

Human Resources Management

Tesco employs individuals who have the experience and the dedication to serve the business with all the loyalty. Point out could be produced of Terry who devoted his business acumen to Tesco for fourteen years as CEO.

Technology Development

This is an area Tesco can't be beaten to it, as it has created a formidable e-commerce because of its activities through Tesco. com

The Firm's Infrastructure

In conditions of infrastructure, Tesco has top quality modern facilities because of its stores and spacious auto parking places in most of its stores.

INFORMATION SYSTEM/IT AS THE COMPETITIVE ADVANTAGE TOOL FOR TESCO

Speaking on the advancement of technology, Goessi (2008) indicated that 'Technology has considered the business enterprise environment by surprise. ' Throwing more light on that, Headrick (2009) intimated that scheduled to technology, there's been an excessive risk to the business enterprise environement. Gone will be the days when every single activity that was done in organisations was manual. Lately, automation has used business to some other level and the ones organisations wishing to stay and aspire ought to follow suit. The tips reviewed below would find the money for Tesco, the chance to gain competitive benefit.

Strategic Differentiation

According to Hitt et al (2009) a good IS would afford the organisation to strategically differentiate itself to be competitively forward. Consistent with this, Tesco differentiates itself and gain competitive advantage by offering special services like club cards to the client.

Integration of Source and Distribution

Tesco could apply IS as an instrument to assess and track inventory. By that the supply string could be watched with modest problems detected before they become major ones.

Communication

The Information System being practised in the organisation would regulate how expeditious information would be disseminated. A communication system which is computerized in mother nature would minimise cost and increase the image of Tesco as an company.

Quick Decision Making

Information System paves method for important information to be shipped at the right time. Any administrator who wants to make an instant decision in the current business dispensation should find IS as an essential tool. This will provide the manager to execute a quick assessment on the bordering issue and discover a remedy.

CONCLUSION

Tesco as an company has made a significant impact on the business landscape. Even though it had gone through hard times and still faces some competition which is unavoidable in contemporary business circles, Tesco has become a household name. Using its performance in both the local and the international views, couple with the great technical incorporation, the sky could still be its limit as Goessi (2008) expressed, 'Many businesses today remain realizing the power their technology possesses, but once proper knowledge is realised, the actual is never-ending. '

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