Financial Performance Management

Name of the Student:

Student Id:

Course Name:

Table of Contents

1. Introduction

This is a measure of how successfully a company is able to use its core way of operation and create income. It is also employed as a broad indicator of a company’s long-term financial health. In order to make comparisons across companies in the same industry, analysts and investors need financial data. Among the many stakeholders of a company are customers and suppliers as well as bondholders, investors, and employees. One’s company’s financial well-being affects a variety of groups for a variety of reasons. When it comes to making money, managing assets, and protecting the financial interests of shareholders and investors, a firm is judged on its financial performance (Jayakrishnan et al., 2018). Form 10-K is a critical financial reporting document that is often relied upon by financial experts. Annual reports are required by the “Securities and Exchange Commission” (SEC) for all publicly traded corporations. Stakeholders may use it to get a clear picture of the financial statement.

Figure 1: Annual Revenue of Tesco Group in the United Kingdom from 2015 – 2021

(Source: Bedford, 2022)

Approximately 53 billion British pounds was Tesco’s annual revenue in the United Kingdom and Ireland in 2020/2021. This is an increase of more than one billion pounds over the previous fiscal year. Profits in the United Kingdom and Republic of Ireland fell to 1,866 million pounds in 2020/21. Tesco PLC was the leading UK grocery chain till the turn of the century. With a global workforce of more than 367, 000, it was established in Hertfordshire. The company plans to exit the 1919 joint venture with Jack Cohen in Asia through 2020 and refocus its efforts on the UK market (Bedford, 2022). “The company’s market share dropped from 27% in January 2017 to 27% in May 2021, a 0.9% decline”. Asda, Sainsbury’s, and Morrisons, three of the so-called “big four” supermarkets, have also suffered a fall in market share. The German discounters Lidl and Aldi, as well as the Cooperative, dominated the market.

2. Financial Performance Using Ratio Analysis

2.1 Identification of Organisational Closest Competitor

When it comes to keeping their current market share, Tesco is doing all they can to build consumer loyalty and brand recognition. Brand loyalty is consequently a primary goal of their marketing approach. In order to do this, the company uses a variety of loyalty cards to keep track of its customers’ buying behaviour. They may use this data to undertake enormous direct marketing campaigns, in which they contact clients with offers for things they are inclined to require at some time in the future. This has been the case for Sainsbury since the 1990s, when it lost its market leadership position and fell to third place. Marketing efforts are geared on expanding the company’s market share while also working to keep its existing consumers happy (O’Dwyer and Gilmore, 2019). Thus, the business has combined advertising efforts with numerous loyalty card programmes to assist them acquire vital data on its customers’ buying patterns.

The firm has lately launched a campaign to inspire consumers to try new goods after realising that most people prefer to purchase the same things over and over again. Customers in the United Kingdom tend to be price conscious. As a result of the low amount of product diversity on the market, customers have an easier time hopping from one shop to the next, with price often serving as the deciding factor. Both Sainsbury’s and Tesco utilise a pricing strategy known as competitive pricing to keep consumers from switching to the competition (Brankovic, 2018). According to Tesco’s mission statement, they take the lead in determining product pricing, with Sainsbury’s and other supermarkets seemingly trailing close after.

Targeting specific market groups is the goal of each of Tesco’s loyalty card divisions, which are named after popular products such as “Tesco Kids Club,” “Tesco Baby Club,” and “Tesco Toddler Club.” With Tesco’s customer loyalty levels maintaining strong, the direct marketing has been considered as a success. Sainsbury has recently relaunched its television, radio, and field marketing campaigns with the goal of encouraging consumers to experiment with new products and services (Ferdousi et al., 2018). In this way, they’re letting their clients know that they have a vast range of things to choose from, and that they encourage them to do so in order to try something new and interesting.

2.2 Utilisation of Ratio Analysis Technique

Current Liabilities

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £18,656 of current liabilities and in 2021 Tesco had £15,721 of current liabilities. Moreover, on the other hand, in 2020, Sainsbury has £12,047 of current liabilities and in 2021, Sainsbury had £11,815. In this aspect, it becomes evaluated that during the organisational business operation of Tesco, the organisation has been able to successfully enhance its liabilities than Sainsbury’s due to its implementation of most effective strategic approaches within the workplace environment.

Gross Profit

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £2,304 of gross profit and in 2021, Tesco had £1,798 of gross profit. Moreover, on the other hand, in 2020, Sainsbury had £1,168 of gross profit and in 2021, Sainsbury had £887 of gross profit. In this aspect, it becomes evaluated that during the organisational business operation of Tesco, the organisation has been able to successfully enhance its gross profit margin than Sainsbury’s due to its implementation of most effective and resilient pricing strategy and increasing the quality of products in the market.

Total Equity

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £13,391 of total equity and in 2021, Tesco had £12,343 of total equity. Moreover, on the other hand, in 2020, Sainsbury had £7,773 of total equity and in 2021, Sainsbury had £6,604 of total equity. Generally, Tesco has been able to enhance its equity more than Sainsbury’s due to having some most resilient and prominently relationships with its organisational stakeholders.

Total Assets

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £53,147 of total assets and in 2021, Tesco had £45,778 of total assets. Moreover, on the other hand, in 2020, Sainsbury had £27,937 of total assets and in 2021, Sainsbury had £25,260 of total assets. In this way, it is considered that Tesco has been able to hold more amount of assets than Sainsbury due to its proficiency and implementation of encouraging CSR activities in the market.

Net Income

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £647 of net income and in 2021, Tesco had £5,683 of net income. Moreover, on the other hand, in 2020, Sainsbury had £190 of net income and in 2021, Sainsbury had -£101 of net income. Thus, it is considered that due to using effective consumer engagement system and high quality products and services, Tesco has been able to enhance its net income successfully, where on the other hand, Sainsbury’s has not become so much effective as Tesco to enhance its net income.

Total Debt

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £39,756 of total debt and in 2021, Tesco had £33,435 of total debt. Moreover, on the other hand, in 2020, Sainsbury had £6,512 of total debt and in 2021, Sainsbury had £6,058 of total debt. Thus, due to the enhancement in the organisational brand awareness of Tesco, the organisation has been able to hold an increasing amount of debt. However, on the other hand, Sainsbury’s becomes little failure to increase its debt due to having some lacking within its organisational business operation.

Account Receivables

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £1,396 of account receivables and in 2021, Tesco had £1,263 of account receivables. Moreover, on the other hand, in 2020, Sainsbury had £811 of account receivables and in 2021, Sainsbury had £725 of account receivables.

Dividends Per Share

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had 0.08 of dividends per share and in 2021 Tesco had 0.06 of dividends per share. Moreover, on the other hand, in 2020, Sainsbury had no dividends per share and in 2021, Sainsbury had 0.07 dividends per share.

Current Market Price

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £295.4 of current market price and in 2021, Tesco had £295.4 of current market price. Moreover, on the other hand, in 2020, Sainsbury had £277.3 of current market price and in 2021, Sainsbury had £277.3 of current market price. Due to having most advance procedure for managing organisational brand awareness, Tesco has been able to enhance its market price successfully. Nevertheless, on the other hand, during the organisational business operation of Sainsbury, the organisation becomes little slower to enhance its market price due to having some little brand awareness in the market.

Total Share Outstanding

Throughout the calculation of the ratio analysis of Tesco and its closest competitor Sainsbury, it is evaluated that in 2020, Tesco had £2,575 of total share outstanding and in 2021, Tesco had £3,279 of total share outstanding. Moreover, on the other hand, in 2020, Sainsbury had £494 of total share outstanding and in 2021, Sainsbury had £580 of total share outstanding.

2.3 Financial Statement of the Organisation for Last Two Years

Financial Statement of Tesco Plc.

	February – 2020	February – 2021
“Revenue”	58,091.00	57,887.00
“Total Revenue”	58,091.00	57,887.00
“Cost of Revenue, Total”	53,601.00	53,921.00
“Gross Profit”	4,490.00	3,966.00
“Selling/General/Admin. Expenses, Total”	1,736.00	1,767.00
Depreciation/Amortization	79.00	76.00
“Unusual Expense (Income)”	477.00	387.00
“Total Operating Expense”	55,893.00	56,151.00
“Operating Income”	2,198.00	1,736.00
“Interest Inc.(Exp.), Net-Non-Op., Total”	(1,075.00)	(837.00)
“Other, Net”	(95.00)	(74.00)
“Net Income Before Taxes”	1,028.00	825.00
“Provision for Income Taxes”	290.00	104.00
“Net Income After Taxes”	738.00	721.00
“Minority Interest”	(2.00)	(4.00)
“Net Income Before Extra. Items”	736.00	717.00
“Total Extraordinary Items”	235.00	5,426.00
“Net Income”	971.00	6,143.00
“Income Available to Com Excl ExtraOrd”	736.00	717.00
“Income Available to Com Incl ExtraOrd”	971.00	6,143.00
“Diluted Net Income”	971.00	6,143.00
“Diluted Weighted Average Shares”	7,723.40	7,623.14
“Diluted EPS Excluding ExtraOrd Items”	0.10	0.09
“DPS – Common Stock Primary Issue”	0.12	0.10
“Diluted Normalized EPS”	0.16	0.27
“Interest Exp.(Inc.), Net-Operating, Total”	(17.00)	0.00
“Dilution Adjustment”	0.00	0.00
“Other Operating Expenses, Total”	4.00	(31.00)

Table 1: Financial Statement of Tesco Plc. for Last Two Years (2020-2021)

(Source: Utami, 2018)

3. Balance Scorecard

3.1 Critical Evaluation of Kaplan and Norton’s Balance Scorecard as a Strategic Management System

One of the most recent management tools is the Balanced Scorecard. Tesco was able to utilise their intellectual resources more effectively because of this. The balanced scorecard should be used in conjunction with more traditional financial metrics. In addition to the needs of customers, companies must also consider internal processes and employee growth and development. The scorecard may be used by management to link short-term actions to long-term objectives. Instead of only looking at the Tesco’s short-term financial performance, managers who use a balanced scorecard may look at a variety of metrics to gauge its overall health. The procedure of communicating and connecting aids in the dissemination of approaches across the organisational workplace environment of Tesco as a whole (Shibani and Gherbal, 2018). The plan should be utilised to align departmental and individual objectives with evaluation systems and incentives. By interacting and educating, defining goals and connecting rewards to performance metrics that are then linked to the overall plan, scorecard users may accomplish goal congruence in three ways.

Maintaining rules that guarantee all workers are informed of the Tesco’s strategies is one way to promote effective communication and education. Lower-level personnel should be able to convey to their superiors whether or not the Tesco’s plans are feasible, both in terms of competition and operational feasibility. In order to influence the mindset of the organisational workers, Tesco needs more than just setting objectives. Tesco may ensure that the goals are reached by using a personal scorecard. There are simply the organisational objectives of Tesco, measurements, and targets printed on a sheet of paper (Ndevu and Muller, 2018). Workers might keep it in their desks or backpacks. Workers are better able to turn these goals into actionable activities as a result. Rewarding good work is an effective way to encourage the firm to accomplish its goals. The balanced scorecard gives a broader view of the business than previous methods of tying awards to financial success.

It guarantees that the right criteria are utilised to evaluate performance prior to awarding incentives. To put it another way, rewarding bad conduct is a bad idea if Tesco is not using the right metrics to measure it. The third step in the balanced scorecard approach is business planning. It is possible to link long-term planning and budgeting by using the scorecard. Budgets are aligned with plans when this happens. Measures that represent each of the four views are chosen, and then goals are defined for each. In the next phase, the organisation will figure out exactly how Tesco will get there (Ali, 2019). As a consequence of using the balanced scorecard, short-term milestones are utilised to gauge progress toward the strategic goal. It’s all about getting feedback and using what Tesco has learned in the end. Managers can keep track of input and see how it relates to their plan thanks to the balanced scorecard.

As crucial as the first three steps are, Tesco needs a consistent goal. It is deemed a flaw if the plan is deviated from. For strategic learning, a balanced scorecard provides real-time information through including assessment and learning processes. Using a balanced scorecard helps companies connect their management practises with their long-term strategy. It would be almost hard to maintain vision and action coherence while trying to implement new strategies and procedures without the scorecard in place. As the organisational competitive, market, and technology situations of Tesco change over time, the balanced scorecard serves as a framework for implementing a strategy while also enabling the plan to develop in accordance. Strategy evaluation is made easier by the use of the balanced scorecard (Hristov, Chirico and Appolloni, 2019). By employing scorecards, instead of holding typical financial review meetings to assess previous performance, managers may better determine if their strategies are working, how Tesco is working, and whether the organisation needs to be tweaked in light of new information. Tesco now has a more forward-looking perspective as a result of this.

3.2 Development of Balance Scorecard to Include “Critical Success Factors” (CSFs)

The criteria that determine the effectiveness of a Balanced Scorecard are dependent on the viewpoint of the investigators. The five critical success factors for a balanced scorecard are:

“Translate the strategy into operational terms”;

“Align the organisation with the strategy”;

“Make strategy everyone’s job”;

“Make strategy a continuous process”;

“Mobilize Change through Executive Leadership”.

These are the five critical success factors for a balanced scorecard. Self-awareness of organisations Recognize the BSC Cycle of Learning, make sure that Tesco has a resilient plan in place before the organisation starts implementing it. Treat BSC like a project, make good use of technology, and pass the scorecard down the line (Darmawan et al., 2020). The following are the most important success factors for implementing a balanced scorecard:

Support for a strategy-focused organisation comes from “top management support,” which is a critical component of BSC implementation. Every firm has a CEO who is accountable to the BSC.

In order to effectively implement the BSC, Tesco is wishing to do so should have clearly defined goal and vision statements, which Tesco sees as key resources for the creation of a strategy map and implementing the BSC methodology.

Strategic choices may be made based on the information on the scorecard. “The BSC strategic management system works best when used to convey vision and strategy, rather than to regulate the behaviour of subordinates.”

Internal Efficiency +

Customer Satisfaction =

Financial Success

(Source: As created by author)

4. Provision of Critical Analysis of the Benefits and Drawbacks of Adopting Integrated Reporting for the Organisation

Benefits of Adopting Integrated Reporting for Tesco

Relevance and Materiality: Annual reports may grow in length as the number of disclosures needed by corporations rises. To get a clear view of Tesco’s overall performance and future, investors look for management to pay attention to the important details, such as these: Excessive intricacy and the inclusion of non-essential information might make this difficult to discern. It’s common to see this instead of explicitly outlining the organisational model or strategy of Tesco (Briem and Wald, 2018). There are a lot of specifics that Tesco like to focus on, but occasionally they neglect to show the full picture. Tesco must concentrate on the most critical environmental, social, and governance (ESG) challenges in their industry and the nations in which they do business. Investors will benefit from this rather than reporting on a slew of topics that Tesco has no interest in.

Consistency over Time: Data that may be compared and displayed over a period of time is also considered valuable (Camilleri, 2018). Tesco would certainly take a look at everything that is standardised and equivalent and presented over time. For instance, a simple data point on tonnes of CO2 produced is not always beneficial on its own.

Reliability and Comparability: Non-financial data that investors rely on expects to be accurate. Nevertheless, there is a lot of subjective data out there. It’s tough to compare or standardise anything; that’s a highly subjective perspective. That’s why non-financial data is so important to shareholders of Tesco, which is why they look to accountants to verify it and provide some level of comfort (Briem and Wald, 2018). Non-financial information should be subject to a reasonable assurance need, along with a qualitative examination of the reporting tools used to produce non-financial data, according to one respondent.

Connectivity: When discussing the importance of connection in the workplace, one-person points to Tesco, where the staff has a significant influence on performance (Camilleri, 2018). It is possible to reduce sick leave and absenteeism by investing in healthcare for workers of Tesco. As a result, healthcare spending and outcomes are intertwined.

Authenticity: Non-financial information should be conveyed with “authenticity,” according to one senior analyst. Shareholders need to understand what non-financial data management considers essential. Tesco in the retail industry have improved their management presentations in this area (Briem and Wald, 2018). In this way, investors can better comprehend Tesco’s financial performance and competitive position. There is a possibility that the lack of genuineness in communication is connected to the fact that firms are not seen to be thinking and behaving in an integrated manner.

Drawbacks of Adopting Integrated Reporting for Tesco

In order to determine the difficulties in deploying IR in Tesco, there are minimal obstacles to applying <IR> in the workplace. First and foremost, while compiling the annual report, the greatest importance should be placed on determining the appropriate degree of responsibility. In order for the management to take the report created for stakeholders more seriously, it should be responsible. Managers are more worried with whether or not IR will make their report more or less accountable for them than they are with whether or not they embrace and utilise IR in their report (Cortesi and Vena, 2019). Consequently, management will take this into account when deciding whether or not to adopt and use <IR>. In addition, the data show that the materiality and succinctness of the data are also taken into account. When embracing and executing data, the administration will also take the usefulness and succinctness of such data into account.

To maximise Tesco’s worth while simultaneously satisfying stakeholder needs, they must determine what data must be shared. This will be a problem for management since they must assure that the data supplied is relevant to stakeholders in order for them to make a choice. However, management also considers the concision of the data while using the IR>. The management of Tesco is responsible for making sure that stakeholders can understand the material in the annual report. This will ensure that the data is not misunderstood by the stakeholders (Pistoni, Songini and Bavagnoli, 2018). For the administration, the difficulty is how to put all of this information together into a single report that is easy to interpret. There are several obstacles that the respondents experience if they adopt and apply IR>, according to the results. Following a lack of awareness of IR and the dissemination of data, most people believe they will be confronted with the problem of acceptance and implementation’s expense.

The management will need to make a significant investment in order to ensure their thoughts on responsibility, relevance, and succinctness of data. As a result, the price will go up if they begin implementing the IR. As a second obstacle, the lack of understanding about <IR> as well as the access to data would further hinder acceptance and adoption of <IR> (Kılıç and Kuzey, 2018). The lack of <IR> understanding will have a negative influence on the management’s ability to properly apply <IR>. Management will also have to decide whether all the data necessary for an integrated report is accessible, and if the information that is aligned is of sufficient importance.

Conclusion

In this way, by analysing the above discussion, it is concluded that during the organisational business operation of Tesco, the organisation has significantly utilised different kinds of strategies and approaches in order to extensively develop and make stable the organisational financial performance. In this way, the ratio analysis method prominently demonstrated the knowledge about the comparison and competitiveness between Tesco and Sainsbury. The financial statement of Tesco also provides the most significant knowledge and information regarding its financial performance stability.

References

Ali, M.R.M., 2019. Balanced scorecard development over the last 26 years. IOSR Journal of Business and Management, 21(1), pp.13-16.

Bedford, E., 2022, January. Tesco group revenue in the United Kingdom (UK) 2015-2021. Statista. [Online]. Available at: https://www.statista.com/statistics/490931/tesco-group-finance-revenue-united-kingdom-uk/#:~:text=In%20its%202020%2F2021%20financial,and%20the%20Republic%20of%20Ireland.&text=The%20company’s%20profit%20in%20the,1%2C866%20million%20in%202020%2F2021. [Accessed on: 15^th February, 2022].

Brankovic, J., 2018. The status games they play: unpacking the dynamics of organisational status competition in higher education. Higher Education, 75(4), pp.695-709.

Briem, C.R. and Wald, A., 2018. Implementing third-party assurance in integrated reporting: Companies’ motivation and auditors’ role. Accounting, Auditing & Accountability Journal.

Camilleri, M.A., 2018. Theoretical insights on integrated reporting: The inclusion of non-financial capitals in corporate disclosures. Corporate Communications: An International Journal.

Cortesi, A. and Vena, L., 2019. Disclosure quality under Integrated Reporting: A value relevance approach. Journal of cleaner production, 220, pp.745-755.

Darmawan, A.K., Siahaan, D.O., Susanto, T.D., Umam, B.A., Yulianto, T., Walid, M., Puspasari, B.D. and Hidayanto, A.N., 2020, November. A hybrid approach with balanced score card and fuzzy topsis method for identifying critical factors affecting smart regency development. In 2020 Fifth International Conference on Informatics and Computing (ICIC) (pp. 1-8). IEEE.

Ferdousi, F., Baird, K., Munir, R. and Su, S., 2018. Associations between organisational factors, TQM and competitive advantage: Evidence from an emerging economy. Benchmarking: An International Journal.

Hristov, I., Chirico, A. and Appolloni, A., 2019. Sustainability value creation, survival, and growth of the company: A critical perspective in the Sustainability Balanced Scorecard (SBSC). Sustainability, 11(7), p.2119.

Jayakrishnan, M., Mohamad, A., Azmi, F. and Abdullah, A., 2018. Implementation of business intelligence framework for Malaysian halal food manufacturing industry towards initiate strategic financial performance management. Management Science Letters, 8(10), pp.1059-1076.

Kılıç, M. and Kuzey, C., 2018. Determinants of forward-looking disclosures in integrated reporting. Managerial Auditing Journal.

Ndevu, Z.J. and Muller, K., 2018. Operationalising performance management in local government: The use of the balanced scorecard. SA Journal of Human Resource Management, 16(1), pp.1-11.

O’Dwyer, M. and Gilmore, A., 2019. Competitor orientation in successful SMEs: An exploration of the impact on innovation. Journal of Strategic Marketing, 27(1), pp.21-37.

Pistoni, A., Songini, L. and Bavagnoli, F., 2018. Integrated reporting quality: An empirical analysis. Corporate Social Responsibility and Environmental Management, 25(4), pp.489-507.

Shibani, A. and Gherbal, N., 2018. Using the balanced scorecard as a strategic management system in the Libyan construction industry. Management studies, 6(1), pp.1-19.

Utami, M.W., 2018. THE ROLE OF NATIONAL CULTURE IN THE EMERGENCE OF FINANCIAL STATEMENT FRAUD: COMPARISON OF JAPANESE AND BRITISH CULTURE IN THE CASES OF OLYMPUS AND TESCO.

Appendices

Appendix 1: Current Liabilities

Appendix 2: Gross Profit

Appendix 3: Total Equity

Appendix 4: Total Assets

Appendix 5: Net Income

Appendix 6: Total Debt

Appendix 7: Account Receivables

Appendix 8: Dividends Per Share

Appendix 9: Current Market Price

Appendix 10: Total Share Outstanding

Tags: alwaysopen, assignmenthelpaustralia, assignmenthelpmelbourne, assignmenthelpsydney, assignmenthelpwebsites, london, londonstudent, melbourne, myassignmenthelp, plagiarismfreework, studentassignmenthelp