Strategic Financial Management And Corporate Governance: A Case Study On Tesco Plc
The Importance and Scope of Strategic Financial Management
Strategic financial management is a financial study which considers the strategic goal of an organization and helps the organization to meet the objectives and the goal in terms of financial context. Strategic financial management include those financial aspects which affects the overall financial process and management of a business (Williams et al, 2005). It is important for a business to manage and plan the strategies for better financial management. It is a process which outlines and defines the strategies and directions to meet the overall objectives and financial performance of the company. It is a good process to make better decisions.
In the report, the process of strategic financial management has been done on Benedict Co to measure the overall performance of the company as well as the comparison study on the company along with the competitors of the company in the same industry. Corporate governance report and environmental and social review of the report has also been studied to measure the performance of the company. The report mainly concludes about the importance and scope of strategic financial management.
Tesco plc is a British company which is operating its business in retail industry. The company mainly operates its business in general merchandise and grocery. It has diversified its business at international level to improve the overall performance of the business. The main products of the business are supermarket, hypermarket, convenience store, superstore etc. Tesco plc has been founded in 1919 and currently, it is operating its business through 6553 stores (Home, 2018). The stakeholder position and CSR position of the business has been evaluated in this report.
Stakeholders are the party which has an interest in the business and could be affected by the business’s action, policies and the objectives. The primary stakeholders of a business are investors, customers, employees and suppliers. Stakeholders could be internal parties of the business as well as external parties of the business. Internal stakeholders are those people whose profits and interest in the business comes along with a direct relationship such as investment, ownership or employment (Weygandt et al, 2009).
On the other hand, external stakeholders are those people who do not have a direct relationship with the business but the parties are affected in few ways through the outcomes and actions of the business. Creditors, suppliers, public groups etc are the main stakeholder of the business. Stakeholders are quite crucial for the business. Ignorance of stakeholders could affect the overall business of the company. Proper management of the stakeholders in the business would actively promote the business and improve the overall performance of the business (Guedes et al, 2018).
The main problem in an organization which arises due to the stakeholders is their various self interests which might not be aligned with the stakeholders of the business. In other words, a conflict could be there. The main goal of the business is to manage a good relationship with the stakeholders and maximize the profitability of the business. The most efficient companies successfully administer the expectations and the self interest of their stakeholders in the business.
Stakeholder Analysis and Management in Tesco plc
In case of Tesco plc, it has been found that the main stakeholders of the business are as follows:
- Customers: Customers are the external stakeholders of the business which are not within the limits of the business but the actions of the business affect the customers.
- Employees: Employees are the internal stakeholders of the business which are within the limits of the business and the actions of the business directly affect the employees of the business (Annual report, 2016).
- Suppliers: Suppliers are the external stakeholders of the business which are not within the limits of the business but the actions of the business affect the supplier’s interest.
Corporate governance is a set of practices, rules and processes through that a business is controlled and directed by the business. Essentially, corporate governance involves the interest of stakeholders such as shareholders, employees, customers, suppliers, financial institutes, government and society of the company. On the other hand, environmental and social review is the process which is done by each organization to help the society to become better.
It is a social responsibility of each organization to work for the betterment of the society as the business is the part of the society. For this, company conducts various policies and events which would help the society to become better as well as the environment and the surrounding of the business could also be better (Davies and Crawford, 2011). In case of Tesco plc, it has been measured that the corporate governance committee has been managed by the business in such a way that clear direction could be done on the various decisions related to the business. The committee is responsible for any activity of the business. The governance framework of Tesco offers clear activities and parameters of responsibilities and delegation from the board.
Further, the environmental and social review of the business explains that the main motto of the business is to focus on “every little help makes a big difference”. The main effect of the environmental and social review and corporate governance has been done on the stakeholders of the company (Environmental and social review, 2018).
Corporate social responsibilities are a regulating business model that assists a business to be socially accountable for its stakeholder, publically and itself. By practicing the corporate social responsibility, companies could be conscious about the kind of impact which is hold by the company on various social, economical, environmental aspects of the business (Damodaran, 2011). To engage in the CSR explains that a business could operate its business in various ways which enhances the environment and the societal effect of the business positively.
Corporate social responsibilities are quite crucial for a business to manage and improve the overall performance of the business. In case of Tesco plc, it has been found that the main impact has been done on the stakeholders of the company:
The changes and the new implementation in the environmental and social review of the business have improved the level of the employees. Through the given draft of the company in annual report (2016), it has been found that the gender gap of the company has been reduced.
The table explains that the ratio of male and female workers of the company at all the levels have been improved from last year. The company respects the human rights and offer the same support system to all the employees so that the issues of the business could be overcome and better efficiency could be given by the employees of the company. The business focuses on the health issues of the employees and special services and leaves are offered to them in case of health issues. In current year, company has raised Pound 7.89 million from last year in the employee health budget (Environmental and social review, 2018).
Corporate Governance and Environmental and Social Review in Tesco plc
Further, the main operations of the business is related to the production business which impacts a lot on the health of the issues and the chances of sudden accidents are also higher. Due to which, the company has implemented various new policies and various safety tools have also been set up by the business at the site so that no issues and risk could take place regards to the accidents and the health of the employees.
Further, the impact of the environmental and social review and corporate governance of the business on the customers have improved the level of the employees. Through the annual report (2016), it has been found that the main motto of the business is to focus on “every little help makes a big difference”. The other values of the business explains that the company tries harder for the customers to be satisfied and the company treats to the customers in the same way that want to be treated.
The new policies of the company explain that the company has focused for the customer to choose the healthier options and reduce the food waste which would help the poor people to have food. The company respects the human rights and offer the various policies and an event which not only helps the customers of the company as well as it helps the business to support the society for the betterment. The business focuses on delivering the nest services to its customers and always put them on the first. It focuses on the quality first along with ensuring that the society and environment policies of the business does not affect due to it.
Further, the main operations of the business is identifying the threats to the customer’s health and for it, company has reduced the 4.6 billion calories and 1480 tonnes of sugar from its soft drinks (Environmental and social review, 2018). The business has also started a campaign in which the donated food by the customers is given to the people who are in need which would help the business to improve the overall performance.
Through this case, it has been found that the overall level of the business has been improved and it would help the business to improve the overall social and environmental position in the business.
In the given case, the data of the Benedict Company has been evaluated to identify the financial performance of the company for the investors, suppliers, lenders and other stakeholders of the company. The financial ratios of the business have been calculated and it has been compared with the industry benchmark to identify the performance of the company.
Ratio analysis is ratio application which compares the similar variables of the company along with the competitors of the company or from previous variables to compare the financial performance of the business and evaluate the last conclusion of the report. It is a systematic process which manipulates the financial figures of company’s financial statement to produce the information for the investors, suppliers, lenders and other stakeholders of the company (Davies and Crawford, 2011). The financial information and the arithmetic information of the business are obtained in the final reports of a business.
Corporate Social Responsibility and Its Impact on Tesco plc
In this report, current ratio, quick ratio, inventory turnover ratio, trade receivable days, trade payable days, return on assets, return on equity etc has been evaluated to measure the overall financial performance and position of the company. All of these ratios have been calculated for the different purpose and the relevance of each of these ratios is also different. Such as, current ratio and quick ratio have been calculated to measure the liquidity position which is helpful for the suppliers to evaluate that whether the company would be able to pay all the short term debt quickly or not (Bromwich and Bhimani, 2005).
Further for the potential customers and lenders of the company, inventory turnover ratio, trade receivable days and trade payable days have been calculated which would help them to identity the efficiency position of the company and total time period in which the total cash would be converted (Brigham and Ehrhardt, 2013). In addition, to identify the financial performance of the company in context with the investors, return on assets and return on equity have been calculated which would help them to analyze that how much return could be generated from the company.
These ratios are quite helpful for the company and its stakeholders to evaluate the financial performance of the company and make a conclusion about the overall performance of the company. These ratios would make easier for the stakeholders to make a better decision about relations and investment into the company.
The ratio analysis study has been performed on the company and it has been compared with the financial ratio of the last year of the company. The ratio analysis study of the company is as follows:
Current ratio:
Current ratio evaluates the short term debt payment position of the company. It recognizes that whether the company is able to pay all the current liabilities through the current assets of the company (Bierman, 2010). According to the given case study, it has been found that the liquid position of the company is 1.19 in current year which has been lowered from last year by 0.06.
Quick ratio:
Further, quick ratio evaluates the short term debt payment position of the company. It recognizes that whether the company is able to pay all the current liabilities through the current assets which could be converted into cash at any time of the company. According to the given case study, it has been found that the quick liquid position of the company is 0.70 in current year which has been improved by 0.05 from last year.
Inventory turnover ratio evaluates that how efficiently the company could manage the inventory against the COGS. It recognizes that how many times a business sell its total inventory in dollars in a particular time period (Brewer, Garrison and Noreen, 2005). According to the given case study, it has been found that the inventory turnover ratio of the company is 118.63 days in current year which has been improved from 65.45 from last year.
Improvements in Employee Health and Gender Equality at Tesco plc
Trade debtor’s ratio evaluates that how efficiently the company could manage the debtors against the COGS. It recognizes that how many times a business receives the amount from debtors in a particular time period. According to the given case study, it has been found that the debtor’s turnover ratio of the company is 90.06 days in current year which has been improved from 55.70 from last year.
Trade payable’s ratio evaluates that how efficiently the company could manage the creditors against the sales of the company (Brealey, Myers and Marcus, 2007). It recognizes that how many times a business pays the amount to its creditors in a particular time period. According to the given case study, it has been found that the creditor’s turnover ratio of the company is 155.13 days in current year which has been improved from 108.24 days from last year.
Return on assets ration evaluates the total net profit of a business against the total assets of the business. It recognizes that how much profit is generated by the company against the total available resources of the company. The given case and the calculations express that the return on assets of the business has been reduced from 0.18 to 0.13 in current year.
Return on equity ratio evaluates the total net profit of a business against the total equity of the business. It recognizes that how much profit is generated by the company against the total equity of the company. The given case and the calculations express that the return on assets of the business has been reduced from 0.27 to 0.24 in current year.
The financial performance of the business has been evaluated and it has been recognized that few changes are required to be done by the business to improve the financial performance and the position of the business. It has been found that the profitability position of the company is reducing continuously which would affect the investor’s level and the overall performance of the business.
It has also been found that the few strategies have been changed by the company from last year in current year. In the year of 20X1, it has been evaluated that the net profit of the company has been lowered even after improving the sales. These changes have occurred due to higher operating expenses and thus it is suggested to the business to reduce the level of the extra expenses (Arnold, 2013). However, the case explains that the dividend paid amount was higher from last year which has helped the company to improve the stock price as well as the investment level of the company.
On the basis of the evaluation on financial performance of Benedict co, it has been measured that the financial performance benchmark of the industry is quite different from the Benedict co. The current ratio of Benedict is 1.19 whereas the competitor’s ratio is 1.6 which explains that it is necessity for the company to improve the level of the current assets so that the liquidity position of the company could be improved and liquidity threat could be reduced (Besley and Brigham, 2008). In addition, the quick ratio has also been evaluated and the same difference has been found. Company should focus on the quick assets so that both the level could be managed.
Further, the trade receivable days of the business have been compared and it has been found that the level of business is higher which must be reduced by the company to reduce the level of the required working capital. The trade payable days of the business has been compared and it has been found that the level of business is higher than the competitors which are a good sign for the company as company could run the business in lower price as well. Lastly, the inventory position has been compared and it has been recognized that the performance of the company is required to be changed through making few changes into its efficiency level and the strategies.
These changes would help the business to not only improve the overall performance of the business as well as the market position and the performance. These changes would make it easier for the stakeholders of the business to make positive decision about the business (Baker and Nofsinger, 2010). Further, it has also been found that the dividend payout policies of the company are quite attractive. The company is following the relevant dividend policy to pay the dividend to the shareholders of the company which not only attracts the investors to invest into the company but as well as it would help the business to improve the stock position in the market.
Conclusion:
Through this case of Tesco limited, it has been found that the overall level of the business has been improved and it would help the business to improve the overall social and environmental position in the business. The corporate governance, environmental and social review and corporate social responsibility of the company are quite strong.
The overall position of the Benedict co and its competitors explain that it becomes very important for the business to make few changes into the strategies and policies to improve the position for the investors, lenders, suppliers, customers etc of the company. After these changes the trust of the investors, lenders, suppliers, customers and other stakeholders of the business would be improved and it would help the business to maintain the performance.
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