Answer Plan Part 1

This document gives you a suggested structure for your answer, however you can adjust it, change it, or ignore it completely, it’s up to you. It is only for guidance. Please do not copy this exactly. Put it into your own words.

Part 1 (50%) suggested 2,250 words max

Produce a critical analysis of the financial performance of the organisation that you work (or Tesco Plc) for the year 2020. This analysis should consider the roll that budgeting and performance appraisal might play in improving this performance in future years.

Introduction (about 200 words max)

Explain what you will do. 1 or 2 paragraphs. (Do not describe Tesco, this will not attract any marks).

Critical analysis of the financial performance of Tesco (about 900 words max)

The 2020 performance reflects the Tesco 5 Year turnaround strategy

Competition, poor performance reduced profit.

Read the Tesco Annual Reports for explanation of how Tesco has turned around it’s financial performance.

Operating Profit Margin

Definition and explanation of turnover, operating profit, and operating profit margin from the text books.

Dyson (2020)

Tesco operating profit margin

Tesco Annual Report 2020.

Income Statement Explanation of content Dyson 2020

See Atrill (2020) Financial Management for Decision Makers Chapter 3.

FY 2020 £2,959m/£56,500m =5.2%

FY 2019 £2,607m/£56,900m=4.6%

Explain that sales declined by 0.7% for Tesco (see Tesco 2020 annual report)

Explain that operating profit grew 13.5% for Tesco (see Tesco 2020 annual report)

Reasons for 60bps improvement in operating profit margin

• Cost savings (£207m over last 5 years)
• Stock control (less wastage)
• In store self-service tills (reduced staff costs)
• Product mix improvement (selling higher margin products)

ROCE 2020 9.1%, 2019 7.9% (page 170 Tesco 2020 annual report)

This is driven by higher operating profit and lower net debt. Operating profit has already been discussed.

Net debt is lower because profit has been retain, and used to pay down debt.

Your overall financial analysis of Tesco should include a comparison to one other company of your choice, eg Sainsbury or Amazon.

The roll that budgeting and performance appraisal might play in improving this performance in future years (Max about 900 words)

A short definition: what a budget is (Dyson 2020) (Atrill & McLaney 2018)

A short definition: Define what performance appraisal is & balanced score card (Atrill & McLaney 2018)

Discuss how budgeting might improve the performance of Tesco plc. Use the following sub-headings to write underneath.

• Planning
• Co-ordinating
• Controlling
• Motivating

Discuss some of the behavioural drawbacks of budgets (Atrill & McLaney 2018)

Discuss how budgets are still used by many large organisations despite the drawbacks (here are some suggested journal articles in week 4 Canvas folder that might support your ideas)

• Ekholm, B, and Wallin J. (2000). Is the annual budget really dead? The European Accounting Review 9 (4), pp519-539 This is a survey of 168 Finnish Companies.
• Dugdale, D. and Lyne, S, (2006) Are budgets still needed? Financial Management, November 32-5. This is a survey of 40 UK Companies.

Variance analysis could be used to improve performance. Particularly in the areas of

Price inflation (supplier price increases, and price based competition)

Wages and salaries (most significant cost for Tesco and increasingly rapidly, offset this with automation and efficiency gains)

Foreign exchange (US dollar strength, hedging forward 12 months)

Revenue variances could be investigated in a timely manner so that Tesco can respond to either volume or price drivers of this variance.

Price matching competitors

Stocking appropriate items

80% of large businesses use variance analysis (text book)

Use of the balanced score card at Tesco (give examples from 2020 annual report page 12)

• Improve performance by Links long term strategy directly to performance measurement. (discuss examples)
• Can be used to both measure performance of divisions and drive strategic change through KPIs linked to bonus/compensation page 52 Tesco 2020

Possible KPIs that Tesco could use customer satisfaction (different measure). Treatment of employees, political impact (general public’s attitude to Tesco), Environmental, Social and Governance (ESG) target.

Conclusion (200 words max)

This is where you give your own balanced conclusion on Tesco’s financial performance and on how it might be improved using budgeting and financial performance appraisal.

Suggested Bibliography (this is excluded from your word count, please try to have at least 10-15 references for part 1 and cite them frequently in your answer to support your work)

Main Textbooks (you will cite these frequently in your work, maybe 5-10x each) these are the core text books for the module, and you’ve been guided which chapters to read each week. You can use any edition you like, get them by clicking on “reading list” in Canvas)

• J.Dyson 2020 Accounting for non-accounting students. 10^th Edition Pearson.

• P Atrill, E McLaney 2018 Management Accounting for Decision Makers. 9^th Edition Pearson

• P Atrill  2020 Financial Management for Decision makers9^th Edition Pearson

Suggested journal articles (you will probably only cite these 1x each)

• Kaplan RS and Norton DP (1992) The Balanced Score Card-Measures that drive performance, Harvard Business Review (Jan/Feb).
• Jensen M.C (2001) Corporate budgeting is broken let’s fix it. Harvard Business Review November pp94-101
• Kilhn L.A (2007) Financial Consequences in foreign subsidiary manger performance evaluation. European Accounting Review 16 (3) pp 531-54
• Libby T and Lindsey RM (2010) Beyond budgeting or budgeting reconsidered: a survey of North American budgeting practice. Management Accounting Research 12(1) pp56-75
• Ekholm, B, and Wallin J. (2000). Is the annual budget really dead? The European Accounting Review 9 (4), pp519-539 This is a survey of 168 Finnish Companies.
• Dugdale, D. and Lyne, S, (2006) Are budgets still needed? Financial Management, November 32-5. This is a survey of 40 UK Companies.