Escolar Documentos
Profissional Documentos
Cultura Documentos
Assessment Point 1
Page 1 of 18
Abstract
This business report constitutes of two main parts; the first part is aimed to
analyzing all the major stakeholders for Tesco, while specifying the major three most
important ones, then we will be reviewing and analyzing how the Environmental and
Social Review and the Corporate Governance Report might affect how Tesco
demonstrates its performance in terms of its corporate and social responsibilities to two
of the three major stakeholders identified, this is through a deep dive into the company’s
The second part will be to Analyze and evaluate the financial position of Benedict
Co. using a range of financial ratios, in attempt to discover if the company is able to
meet the requirements of the company’s potential customers, investors, lenders and
suppliers. Detailing the reason behind the chosen ratios while highlighting the aspects
Page 2 of 18
1- Introduction
Each company has a set of various stakeholders that vary from internal to
external, these stakeholders are defined as individuals or organizations that are directly
managed in a manner that leads to a successful and prosperous business. One way to
analyze stakeholders is by their power and interest. High power, high interest
stakeholders are Key Players, while Low power and low interest stakeholders are least
stakeholders in order to prioritize, manage and engage with them effectively and in a
successful way. Stakeholder identification and analysis is the first step in the long
process of managing those stakeholders, engaging with them and to maintain a good
The second part of this report is focused on Analyzing and evaluating the
financial position of Benedict Co. We will be using financial ratios; such ratios generally
help to provide an economic overview for the company. The main categories of
Profitability ratios: used to measure the profitability and the company’s ability
company uses its short-term assets and liabilities. It can also be used to
and usage of equity, and the general use of inventory and machinery.
Page 3 of 18
Liquidity ratios: it is an important class of financial metrics used to determine
a debtor's ability to pay off current debt obligations without raising external
capital.
share price.
2- Tesco
Tesco [Tesco PLC] is a British multinational groceries and other merchandise
gross revenues, Tesco is the third-largest retailer in the world and the ninth-largest
Asia and Europe, and it is considered the market leader of groceries in the UK.
Tesco was founded in 1919 by Jack Cohen, the business expanded rapidly, and
by 1939 the company had over 100 Tesco shops across the country. Tesco has
expanded globally since the early 1990s, with operations in 11 other countries in the
world. Mid last century, Tesco has diversified into other retailing avenues such as
books, clothing, toys, furniture and electronics, also petrol / gas, software and financial
Page 4 of 18
2.1 Stakeholders Analysis
Clarke and Clegg (1998) have classified stakeholders into four categories;
will be to categorize stakeholders into two main groups, internal and external; where
internal stakeholders are the entities within the business, while the external ones will be
not within the business but are affected or dearly care about its performance. With these
classifications in mind, the main internal stakeholders for Tesco will be the Employees
[called colleagues on the company’s website and in its external reports] and
Shareholders or investors, while the external ones will be Customers and Suppliers,
following Clarke and Clegg (1998) model, the following are the main types of
stakeholders:
Page 5 of 18
2.1.1 Customers
Customers are at the heart of the company’s stakeholders’ analysis and focus,
as they are the recipients of the company’s goods, services and products. The company
success; also customers have been stated clearly in the company’s 2015 updated
mission statement “Serving Shoppers a little better every day” also there is one of the
core values detailing on how to deal with people, “We treat people how they want to be
treated”. With all of this in mind, it is clear that Tesco considers its customers as one of
the primary stakeholders, hence the company thrives to deliver one of the best
the customers busy schedules and their sudden emergency needs. Also the company
offers one of the best customer loyalty scheme in the industry, and it is considered a
pioneer in this area by developing such scheme that started in the 1960’s
Tesco has reported in its 2016 annual report that it currently employing 476
thousand employees globally, the company offers a great environment for employment,
discounts on merchandises, staff housing options as well as a lot more benefits, that
make Tesco as an employer or choice attracting employees and talents in the countries
Page 6 of 18
2.1.3 Suppliers
this specific stakeholder as part of the annual reports, in some cases they were referred
to as partners, according to the company’s website, Tesco works only with top
manufacturers, who enjoy superior reputations and offer the highest quality wares.
Suppliers were mentioned in Porter’s model of five forces in which “supplier power”
refers to the pressure suppliers can exert on businesses by raising prices, lowering
quality, or reducing availability of their products. Hence partnering with the right supplier
suppliers, is one of the forces that shape the competitive structure of the industry.
2.1.4 Environment
As part of the Corporate and Social Responsibility, Tesco has been running a
sustainability program that has been detailed on the corporate website, as one of their
missions is to have a shared responsibility to reduce waste from “farm to fork”. Mainly to
reduce food waste while working in partnership with their suppliers and partners. Key
more of their suppliers’ crop, to maximize the amount of produce they sell
Page 7 of 18
benefited from the bumper crop and the company took more from the
growers.
and frozen foods, this can provide a stable demand and supply of
produces, which increases the amount of crop used and saves edible
Fesco has also partnered with a charity called FareShare, which has a program
aimed at relieving food poverty and reducing food waste, the company has helped its
As part of the 2016 Corporate Governance report which is part of the annual
report, the company has identified in section 4 the relations with its social and
trust and transparency with a wide spectrum of the stakeholders mainly the customers.
In the report, the committee recognizes that the company has made a big
difference on national and international fronts and how simple actions can have a
significant impact to customers and to the environment. There were several projects
that the committee has been driving and following, during the report year the company
has showed progress on some vital projects impacting key stakeholders as follow:
Page 8 of 18
2.2.1 Customers and Communities
The company has been working on 2 main fronts as part of the sustainability and
corporate responsibility towards the customers and the communities, the first project is
the ‘Eat Happy/Farm to Fork’ project which has reached a key milestone in November
2015 with 1 million children having participated in education trail initiative aimed at
raising awareness about the process of food production and making healthy eating
choices which increased the overall awareness of the average customer, allowing the
consumers to make healthier and more responsible choices. The company has
highlighted one of its targets which is to to make it easier for customers, colleagues and
the communities to have a healthier life. One way is by creating partnerships with health
experts like Diabetes UK and the British Heart Foundation that support prevention and
cure for the biggest health challenges in modern days. In 2015 the company has raised
7.89 million pounds that are placed towards prevention projects and important health
researches.
2.2.2 Environment
Tesco has a great social responsibility towards the environment, and this has
been detailed in the company’s 2016 annual report, examples of such responsibilities
plastic bags, the company has raised through the ‘Bags of Help’ program 11.5 million
pounds, where proceeds from sales of carrier bags are reinvested into local projects to
Page 9 of 18
On the other hand, the company has continued to make progress on trying to
prevent food waste from farm to fork, first through their suppliers, by making as much
use of the edible crops as possible. Second through the company’s own operations,
The Community Food Connection (CFC), run in partnership with FareShare FoodCloud,
working to deliver one main aim, which is to never throw away food that could be eaten.
The program allows stores to notify local charities to how much extra food available at
the end of each day, through the FareShare FoodCloud app. Charities simply respond
by text message to confirm that they will collect the surplus food. This has been
expanded to more than 100 stores; nearly 9 million meals have been donated with with
a value reaching over 4.6 million in one year. Tesco is the only UK retailer to publish
independently assured food waste data for its own operations. The company didn’t send
any food waste to landfill since 2009 which is a great measure in preserving the
Another important topic is carbon and greenhouse gas emissions, with the recent
global warming concerns that have been sounded by scientists across the world,
party, KPMG LLP using the assurance standards ISAE 300 which is also reported in
details in the annual reports. The aim is to reduce those gas emissions year of year, in
2016 report, it confirmed that the company has reduced the net carbon intensity per sq.
ft. of retail and distribution floor space by 1.8% compared to the previous year, and
Page 10 of 18
3. Benedict Co. Financial Position Analysis
3.1 Introduction
selling damaged or abandoned freight and other similar items, from transport claims or
warehouse losses, simply they purchase almost anything worldwide that can be
transported. The company has been in operations since 1983. During this section of the
using a range of financial ratios, demonstrating the overall financial status of the
to measure the efficiency and profitability of a company based on its financial reports,
3.2.1 Profitability
business's ability to generate earnings relative to its revenue, operating costs, balance
sheet assets, and shareholders' equity over time, using data from a specific point in
relative to the previous period’s ratio indicates that the company is financially well
performing.
Page 11 of 18
In Benedict Co case, the Return on Capital Employed [ROCE] which is the
primary profitability ratio, expressing the percentage of return the company earned and
the capital employed. In this case, the ROCE dropped from 21.9% in year 20X0 to 18%
in 20X1 despite the increase of sales, this indicates that the revenue per invested
capital has reduced, which is a negative indication. This might be due to new
investments into the company that might be expect to improve returns on multi-year
term for example. Other importance matrix is the Gross Profit percentage; in this case,
the Gross Margin has improved and jumped 41.7% to 48% which is a significant
increase in sales revenue, but the Net margin declined from 36.9% to 31% which
indicates that the cost of sales has increased which affected the revenue, at this point
the company has to review its operating costs, and to apply efficiencies whenever
possible. Another angle to look at is the Net Asset turnover ratio which shows how
efficiently the company's capital is used to produce turnover, in 20X0 the turnover ratio
was 0.24, and it increased to 0.28 in 20X1, although this doesn’t imply that there is a
problem, but emphasis on the fact that efficiencies need to be deployed in operations to
The use of efficiency ratios which are sometimes called activity ratios are used
efficiently the company uses its short-term assets and liabilities. An important measure
is the number of debtor days or the trade receivable day, as this is very important in
cash collection flow affecting the overall company’s cash flow, this figure was 55.7 days
in 20X0 and reduced to 90 days in 20X1 which is showing a delay in collecting revenue,
Page 12 of 18
which negatively impact the cash flow; keeping in mind that average number of days for
companies in the same field is 55 days. As a quick remedy is to ensure faster cash
collection will be by issuing invoices on time and tackle the debtors more often to
Trade Payable days is another measure that impacts the company’s cash flow, it
was 108 in 20X0 and jumped to 155 in 20X1, it isn’t particularly bad, but the industry
standard is 90 days which might reflect negatively on the company’s business structure
and might prevent partners from dealing with company in future contracts. Inventory
days shows the number of days the company holds its inventory before selling it, this
number also increased from 65 to 118 days which shows that the selling process is
hindered for some reason and needs to speed it up, as the average among competitors
is 60 days. The cash conversion cycle gives idea of the length of time it takes the
company to generate cash from operations, this value was 13 in 20X0 and increased to
53.6 in 20X1, this needs to be looked at and corrective actions need to be implemented.
This is an important metrics used to determine if the company can pay off
current debt obligations without raising external capital. Two ratios are involved,
Current ratio which is a liquidity ratio that measures the ability to pay short-term
obligations due within one year. It has dropped from 1.25 in 20X0 to 1.19 in 20X1
while the industry average is 1.6. This is alarming, as if the ratio keeps dropping
at one point the company might not have the capital to meet its short-term
Page 13 of 18
The other matrix is the Quick ratio, which is similar to the current ratio but
company’s ratio reduced from 0.745 in 20X0 to 0.7 in 20X1, again this is
considered alarming, it might drive away investors and partners and need to be
Gearing ratios consist of group of financial ratios that compare some form of
which demonstrates the degree to which the company’s activities are funded by
shareholders' funds versus creditor's funds. The capital gearing ratio increased from
23.6% in 20X0 to 30% in 20X1 and the debt/equity ratio increased from 30.9% to 42.8%
in the respective year. This indicate that the company has more financial leverage
3.2.5 Investors
Investors are an important stakeholder for the company, and managing the
relationship is a vital managerial aspect; in 20X1 the return on equity has dropped from
27% in 20X0 to 23.50%, which is in line with the drop in ROCE. On the other hand
dividend per share slightly increased from $0.20 to $0.25, this is due the total increase
of dividend paid by the company which has been increased from 3.6M to $4.5 M.
Dividend Yield is the ratio of the annual dividend compared to the share price, this ratio
Page 14 of 18
decreased from 0.55% to 0.46% (down by 0.9%) which is inline with the stock price increase,
4. Conclusion
From the financial analysis of Benedict Co. it appears that the company is not
heading in the right direction, as their profit margins have been declining and the
revenue per invested capital has dropped, this might repel investors away which might
have some devastating results, mostly being unable to raise more capital to run their
day on hand has been prolonged, which lead to a poor current ratio, which indicates
that the company is barely able to manage its short-term obligations which are due
within the fiscal year. While the company’s gross and profit margins declined it is not
clear why the decision to increase dividend, but there is a possibility that the company is
the company’s sales revenue has increased in 20X1 compared to 20X0 but the profit
margin dropped which indicates increase in cost of sales, this needs to be strategically
mainly to better utilize its capital and cash collection process. We recommend further
analysis to take place; such as applying financial ratios over various periods of time and
to compare more “year of year” data, to get a better understanding of the company’s
Page 15 of 18
Appendix
ROCE =
Operating Profit [not including Interest and Tax] X 100 / Total Assets [Including non-current Liabilities]- Current liabilities
Net Profit= Operating Profit [not including Interest and Tax] X 100 / Total Sales
Cash conversion cycle = Inventory (Stock) days + Receivable (Debtors) days – Payables (Creditors) days
Page 16 of 18
Quick Ratio = [Current assets – Stock] / current liabilities
Debt to Equity Ratio= [long term debt / (Share Capital + Reserve)] X 100
[Earnings after tax and preference dividends / (Ordinary share capital plus reserves + Reserve] X 100
dividend per share = Dividend paid to ordinary shareholders / Number of issued ordinary shares
Dividend yield = [Dividend per Share / Market Price per share] X 100
Page 17 of 18
References:
BBC https://www.bbc.com/news/magazine-23988795 (Accessed 24 April 2019)
Clarke, T. and Clegg, S. (1998) Changing Paradigms: The Transformation of Management Knowledge for the 21st Century.
Freeman, R.E. and Reed, D.L. (1983). Stockholders and Stakeholders: A New Perspective on Corporate Governance.
Porter, M. E. (1985). The Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press.
Ross A.S., Westerfield W. R. and Jordan D. B. (2019). Strategic Financial Management, Mc Graw Hill Education, UNICAF
April 2019)
Page 18 of 18