Geraint's Assignment (Research Proposal Sample)

Geraint’s Assignment 2013/14
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Table of Contents TOC \o "1-3" \h \z \u 1.0.Introduction PAGEREF _Toc374291924 \h 32.0. Internal and external users of Tesco’s accounting information PAGEREF _Toc374291925 \h 32.1. Internal users PAGEREF _Toc374291926 \h 32.1.1. Management: PAGEREF _Toc374291927 \h 32.1.2. Shareholders PAGEREF _Toc374291928 \h 42.1.3. Employees PAGEREF _Toc374291929 \h 42.2. External users PAGEREF _Toc374291930 \h 52.2.1. Potential investors PAGEREF _Toc374291931 \h 52.2.2. Customers PAGEREF _Toc374291932 \h 52.2.3. Government PAGEREF _Toc374291933 \h 53.0. Primary and secondary objectives of Tesco PLC PAGEREF _Toc374291934 \h 63.1. Primary objective PAGEREF _Toc374291935 \h 63.2. Secondary objectives PAGEREF _Toc374291936 \h 74.0 Tesco PLC’s accounting ratios PAGEREF _Toc374291937 \h 84.1. Tesco’s profitability ratios PAGEREF _Toc374291938 \h 124.2 Tesco’s Efficiency (WC) Ratios PAGEREF _Toc374291939 \h 134.3 Financial Ratios PAGEREF _Toc374291940 \h 134.4. Investor ratios PAGEREF _Toc374291941 \h 145.0 The importance of cash management and Capital budgeting at Tesco Plc PAGEREF _Toc374291942 \h 156.0. Reference List PAGEREF _Toc374291943 \h 17
Geraint’s Assignment 2013/14
1 Introduction
A company’s accounting information is of huge importance to the company’s performance as it facilitates planning and performance comparisons. Most importantly, such information will be a critical indicator of whether a company is meeting its targets or not. In addition, such information is also important for both internal and external users as it enables them gauge the company’s performance. This paper will focus on various aspects of Tesco PLC’s accounting, including the users of such information, the company objectives, financial performance, and the importance of activities such as cash management and capital budgeting.
2.0. Internal and external users of Tesco’s accounting information
2.1. Internal users
Internal users of a company’s accounting information refer to those individuals within a company who organize, plan, and basically run the company’s business affairs. In operating the business, these internal users must answer very many critical questions. In order to answer such questions, these users need well-detailed information on a prompt basis. With regard to Tesco PLC, the three main users of its accounting information are the management, the employees, and the shareholders.
2.1.1. Management: Tesco’s management needs accounting information in order to make various decisions related to both short-terms and long-term operations. Production supervisors, marketing managers, company officers and finance directors need accounting information in order to analyze the performance of the company, its financial position, as well as take appropriate measures to enhance and improve the company’s results (Tunji, 2012; Nnenna, 2012). Tesco’s management turns to its financial statements in assessing the strategies and strengths of competitors such as Wal-Mart stores Inc., J Sainsbury plc, and Carrefour SA (Bateson, 2007; Branigan, 2013). By comparing financial statements with those of other companies, a company is able to assess its strength relative to that of competitors. Additionally, Tesco’s management uses its accounting information as a way of proving the reliability of probable business partners.
2.1.2. Shareholders: Tesco plc has three major shareholders namely, Blackrock Inc., Berkshire Hathaway Inc., and Legal and Norges Bank (Tesco PLC, 2013). The shareholdings of these companies are in excess of 3 per cent. Being business investors in the company they need accounting information in order to know the company’s financial position and performance trends (Tunji, 2012). These users carefully monitor business proceedings as they are the company owners as far as capital is concerned. Financial position trends are important for determining the progress of the business based on profits and losses.
2.1.3. Employees: a company’s employees take keen interest in the performance of the company as it reflects the extent to which their basic work interests are safeguarded (Porter & Norton, 2012). Tesco’s employees use the company’s accounting information to assess its profitability and its significance on their job security and future remuneration (Riley, 2012). Employees need a high level of job security and want to be part of a company that is able to grow and meet their job needs. Accounting information is one of the key ways through which employees can obtain the information they need.
2.2. External users
2.2.1. Potential investors: investors who are considering investing in Tesco plc need its accounting information in order to determine whether the company is profitable and whether such profitability is sustainable (Riley, 2012). They use financial reports to analyze the feasibility of committing their funds to the company’s share capital. They want to make sure that Tesco’s return on their investment is reasonable prior to investing.
2.2.2. Customers: Tesco serves millions of customers weekly both online and in its stores (Tesco PLC, 2013). These customers use the company’s accounting information to assess the financial strength of its suppliers as this determines its capacity to maintain a robust long term source of supply. The company’s customers are the core of its business and require the business to not only survive but also prosper (Riley, 2012). The accounting information is a good indicator of this capacity. From accounting information customers may also make judgment on the company’s ability to offer products of the desired quality.
2.2.3. Government: there are many government departments and agencies that are interested in Tesco’s accounting information. Taxes authorities in the UK for example need the company’s accounting information relating to the profitability of business in order to compute both VAT and corporation tax (Porter & Norton, 2012). Various government regulatory agencies and authorities also need accounting information in order to support various decisions such as grants, takeovers, amalgamations, and so forth (Riley, 2012). In addition to taxation purposes, government agencies in countries where Tesco operates look at its accounting information in order to ensure that the business is being operated legally and in accordance with the applicable ethics.
3.0. Primary and secondary objectives of Tesco PLC
The objectives of a company refer to the goals that such company intends to attain within a given duration. Primary objectives refer to the major long-term goals of a business. The secondary objectives directly contribute to the realization of the primary objectives. Tesco plc has set out the aims and objectives that it wishes to achieve both in the long term and in the long term.
3.1. Primary objective
The primary objective of Tesco PLC is to improve and sustain its profitability in order to be in a position to realize its long list of aims and objectives. The company needs to make sufficient profits to increase returns on shareholders investments, stay competitive, and offer customers products of the desired quality (Witcher & Chau, 2010). Profitability has historically been the biggest issue of concern at Tesco. For the first time in two decades the company profits went down in the accounting period ending 2012. This prompted its chief executive to announce a 6-point strategy to revive its business (Butler, 2013). Though the company remains profitable, improving its productivity is seemingly becoming the biggest challenge at Tesco.
In fact in recent years, the Tesco has been experiencing falls in profitability; for example, the company profits sharply decreased from 2,814 £m in 2012 to 120 £m in the financial year ending 2013 (Annual report, 2013). The company’s performance in the UK remains poor and analysts are predicting that the company’s sales will remain flat or slightly decrease. This means that the basic objective of enhancing and sustaining profitability will be of higher significance in the coming years.
3.2. Secondary objectives
In order to realize the primary objective, Tesco has various important secondary objectives: one of the major secondary objectives of the company is to meet its customers’ needs by regularly seeking as well as acting on their ideas and opinions on issues such as product quality, innovation, service, choice, and store facilities (Witcher & Chau, 2010). The company knows that improved profitability can only be realized through establishing customer loyalty, and to get such loyalty, customer satisfaction is a key factor. Tesco aims to offer its customer competitive prices as well as the best value for their money (Butler, 2013). Tesco is the biggest supermarket chain in the U.K. and among the biggest globally. The fact that it has attained this success amidst stiff competition from other retailers such as Wal-Mart and Carrefour SA means that the company has so far succeeded in attaining this objective.
Another secondary objective of Tesco is to develop the talents, knowledge, and abilities of its people through good training practices and sound management, while also rewarding them appropriately by providing an environment of equal opportunity (Corporate objectives, 2013). Tesco’s philosophy with regard to this objective is that exceptional people are the key to delivering exceptional value to customers. Tesco has a reputation for developing such people within the company. Most of...