TESCO PLC FINANCIAL STATEMENT ANALYSIS.docx

TESCO PLC FINANCIAL STATEMENT ANALYSIS.docx

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TESCOPLCFINANCIALSTATEMENTANALYSIS

TESCOPLCFINANCIALSTATEMENTANALYSIS

CourseCode：

BS4S07

Coursename:

ManagementSystemsAndFinancialInformationForDecisionMaking

StudentName:

ZiyanHuang

StudentID:

11071583

TescoPLCFinancialStatementAnalysis

Question1

TescoPLCwhichislistedinLondonStockExchangeusuallypreparefinancialstatementsforitdifferentuserswhoarebothinternalandexternal.Financialstatementstendtocommunicatewiththeseusersaboutthevariousaspectsoftheorganization.Furthermore,accountinginformationisvitaltoexternalaswellasinternalusersasitenablesthemtomakefinancialdecisionsthatarebetter.

ManagementisoneoftheinternalusersoftheaccountinginformationofTescoPLC.Theyneedinformationrelatingtocompanyperformanceaswellaspositioninthemarket.Thereforeinformationrelatingtoprofitability,operationefficiency,currencymanagementneeds,riskmanagementaswellasfinancialhealthoftheorganizationisvitalinformationthatmanagementlookwhenanalysingaccountinginformationofthecompany（Waybright&Kemp2010）.Theyneedthisinformationtomakedecisionsrelatingtomeasuresthatcanbeemployedtoimprovethefinancialperformanceofthecompanyinfuture.

Ontheotherhand,employeesofTescoPLCareotherimportantinternalusersoftheaccountinginformationrelatingtothecompany.Theyneedtounderstandwhetherthecompanywillbeprofitableenoughinfuturegoingbythepastandcurrentfinancialperformance.Theyneedinformationrelatingtobudgets,salesanddemandforecasts,incomestatements,statementofcashflowandothers.Thisaccountinginformationenablesemployeestoassesstheprofitabilityofthecompanyaswellastheconsequencesrelatedtoitinrelationtotheirjobsecurityandremunerations（Collier2003）.Theyneedaccountinginformationforpurposesofmakingdecisionsrelatingtowhethertheywillstayintheorganizationortheywillstartlookingforotherjobs.

Additionally,ownersortheshareholdersofTescoPLCareotherimportantusersofaccountinginformation.Theyneedtounderstandthefinancialperformanceandhealthofthecompanywithanaimofdeterminingthesafetyoftheirfundswithinthecompanyaswellasreturnsthattheymayexpectfromtheoperationsofthecompanyinfuture.Therefore,theyuseaccountinginformationtoanalysetheprofitabilityaswellasviabilityrelatedtotheirinvestmentswithinthecompany.

Creditorsareoneoftheexternalusersofaccountinginformationofthecompany.Thecreditorswhoprovidefinancialservicestothecompanyinformofloansareconcerned.Theyrequiredeterminingthefinancialhealthoftheorganizationbylookingatissuessuchastheabilityofthecompanytomeetitinterestexpensesfortheloansgiventoitbyvariouscreditors.Thecreditorsneedthisinformationforpurposesofdeterminingwhetherthecompanyiscreditworth.Thedecisionsrelatingtotermsofcreditaredependentonthefinancialhealthofthecompanyasdeterminedbyitscreditors.Thedecisionswhethertosupplyaswellaslendfundstothecompanyarebasedontheassessmentofthecreditorsonthecompanycreditworthinessusingaccountinginformation.

TaxauthoritiesotherexternalusersofaccountinginformationofTescoPLC.Thetaxauthoritiesareinneedofaccountinginformationtoseetoitthatthecompanytaxreturnsareinlinewithwhatisrecordedinthebooksofaccountofthecompany（Hall2007）.Therefore,taxauthoritieswilldeterminethecredibilityofthecompanytaxreturnsbasedontheaccuracyofitaccountinginformation.

Inaddition,inventorsareexternalusersofcompanyaccountinginformation.Theinvestorsneedinformationrelatingtorevenues,earningsofthecompany,abilityofthecompanytoremaininbusinessandgenerateprofitsnowandinfuture.Inordertoassessthewhetheracompanyisworthinvestingininvestorsneedthecompanyaccountinginformationsuchasfinancialstatements.Theinvestorsrequireaccountingneedtomakedecisionsonwhethertoinvestinthecompanybysurethattheyaregoingtoearnreturnsthatarereasonableoninvestmentsthataregoingtoinvesttothembeforemakinganycommitmentoftheirfundstothecompany（Kimmel,Weygandt&Kieso2011）.

Finally,regulatoryauthoritiessuchnationalandinternationalaccountingregulatorybodiesaretheotherexternaluserswhousethecompanyaccountinginformation.Theyneedinformationrelatingtorulesandregulationappliedbythecompanyaccountantswhenpreparingaccountinginformation（Bodnar&Hopwood2001）.Theyrequirethesetypesofinformationwithanaimofdeterminingwhetherthecompanycompliedwithaccountingrulesaswellasregulationsrelatingtodisclosureofthecompanyaccountinginformationtovarioususers.Therefore,theaccountinginformationisimportanttoaccountingregulatoryauthoritiesintheirroleofprotectingtheinterestsofvariousstakeholdersofTescoCompany.

Question2

PrimaryobjectivesofTescoPLC

TescobeingacompanythatisengagedinfoodretailinginEnglandhasabout519foodstoresthatarelocatedinvariouspartsofBritainsuchasWales,EnglandandScotland.Inordertoremaincompetitiveinthemarket,thecompanyhasanumberofprimaryobjectivesthatactasguidelineasitcarryoutitfoodretailingbusinessthroughoutits519stores.Oneoftheprimaryobjectivesofthecompanysinceitsformationhasbeingofferingitsclientspricesthataremorecompetitiveandthebestvalueinrelationtothemoneytheyspendintheirstores.Thisobjectiveisvitalforthecompanyforittosucceedinamarketwhichismorecompetitiveintheworld.Thegoalofcustomersisgettingthebestservicesandatthesametimegettinghighqualityservicesfrombusinessowners.Inaddition,customersarealwayssensitivetothepricesthatarechargedforservicesorproductstheypurchases.If,theyareoftheviewthattherearebettersubstitutesinthemarkettheyusuallyoptogoforthoseservicesaswellasproducts.Inorderforthecompanytoavoidlosingitcustomerstoitscompetitors,overtheyearsithasensuredthatitofferservicesandproductsthatareofhighquality.Thishasseenthecompanybeingabletosetpricesthatarelowerandfairforitsservicesandproductstocustomersthroughoutitfoodretailstores.Acarefullookatthecompanyhistoryandoperationsindicatesthatithasbeenabletosucceedinattainingthisobjective.Forinstance,thegrowingnumberofcustomersofthecompanyovertheyearsinvariousmarketscanbebasedongivingcustomersvaluefortheirmoneyandatthesametimechargingthempricesthatarecompetitiveinthemarketincomparisonwithotherfoodretailstoresinBritain.

Thesecondprimaryobjectiveofthecompanyhasbeenmeetingcustomers’needsbyseekingfromtimetotimeandactingontheopinionstheygiveinrelationtoproductquality,innovation,storagefacilities,choiceandservices.Themainaimoftheobjectiveisensuringthattheneedsofthecompanycustomersarealwaysgivenparamountpriorityinitsoperations.Inordertoretaincustomers,themanagementofthecompanyisawarethatitmustensurethatitofferservicesaswellasproductsthatareaccordingtotheneedsofthecustomers.Toachievethiscompanyhasfeedbackmechanismwherecustomersprovidetheiropinionsinrelationtowhattheyneedimprovedincompanyservices,productsandotheroperations.Thecompanyhasbeensuccessfulinattainingthisobjective,giventhatmajorityoftheproductsandservicesitofferisasresultofactingonthecustomersopinionsandintroducingthem.Forexample,ifcustomersofthecompanycomplainaboutpoorservicesthemanagementofthecompanyactoncomplainsimmediatelyandnexttimetheygetintheirstorestheygethighqualityservices.

Thelastprimaryobjectiveofthecompanyhasbeenprovidingitshareholderswithreturnsthatareprogressivefortheirinvestments.Thegoalofinvestinginacompanyasinvestorsisgettinghighreturnsthroughdividendsorbettershareprices.Therefore,themanagementofthecompanyhasbeendoingallitcantoensurethattheinvestorsgetreturnsfortheirmoneyinvestedinthecompany.Thecompanyhasnotbeenabletosucceedinthisobjectivegiventhatitattimesmakeslossesthereforegivingnoreturnstoinvestors.Forinstance,recentlythecompanyhasbeenmakinglosseswherebyitnetincomehasbeenonthedecline.

Secondaryobjectives

Ononeofthesecondaryobjectivesofthecompanyisdevelopmentoftalentsforitemployees.Thecompanyneedtoensurethatthetalentsofitsemployeesarewellnaturedanddevelopedsothattheycangivetheirbesttowardsthesuccessofthecompany.Thecompanyhasbeensuccessfulintheseobjectivesgivenithassoundmanagementpoliciesaswellastrainingprogramsaimedatdevelopingthetalentsofitsemployees.Forexample,itgivesincentivesandotherformsofrewardstothemostproductiveandinnovativeemployees.Secondly,theotherobjectiveofthecompanyisworkingwithsupplierscloselyinordertobuildlongtermrelationshipsthatarebasedonstrictpricecriteriaandquality.Thisisaimedatensuringthecompanyhasconstantsupplyforrawmaterialsneedtoproduceitvariousproducts.Thecompanyhasnotbeenabletomeetthisobjectivegivenfromtimetotimeithasbeenforcedtochangedsuppliersduetopoorqualityofproductstheyprovidetothecompany.

Inaddition,participationofthecompanyinformulationofvariousnationpoliciesregardingfoodsisanotherobjectiveofthecompany.Thecompanythroughthisobjectiveisconcernedaboutensuringthatthefooditemsthatitofferstoitscustomersarehealthy,safeforcon