Chetan Manek

Unit 11 – Impact of finance on business decisions

Centre No: 12224

Candidate No: 1606

Chetan Manek


Section                                                                        Page No.

  1. Introduction
  1. Tesco Background Information
  2. Stores
  3. Share Price

  1. Sources of Finance
  1. Short Term Finances

2.2        Long Term Finances

2.3        Tesco’s Finances

2.4        Financial Recommendation

  1. Ratio’s
  1. Liquidity Ratio
  2. Gearing Ratio
  3. Profitability Ratio
  4. Shareholder Ratio
  5. Recommended Ratio

  1. Investment Appraisal
  1. DCF/NPV
  2. ARR
  3. Payback
  4. Sensitivity Analysis

To:

From: Chetan Manek

Date:

Subject:

1.0        Introduction

For this assignment, I have been asked to carry out an investigation into one medium-sized or large business organisation. I will write an analytical report analysing & evaluating the effects of financial information to make business decisions it has on the short and long term on the organisation, which I have chosen. The organisation, which I have decided to investigate, is Tesco PLC is because they have a large set of financial data, especially because it is an established organisation, which has been in its market for a long time. I will investigate the different procedures Tesco operates and will give advice to Tesco on their financial future.

  1. Tesco’s Background Information

The organisation that I am studying is TESCO PLC. Tesco is a public limited company. Tesco is one of the world's leading international retailers. Since the company first used the trading name of Tesco, in the mid 1920s, the group has expanded into different formats, different markets and different sectors.

The principal activity of the group is food retailing, with over 2,500 stores worldwide. Tesco has a long-term strategy for growth, based on four key parts: growth in the Core UK business, to expand by growing internationally, to be as strong in non-food as in food and to follow customers into new retailing services.

Tesco is a private sector business, and is owned as a PLC company (Public Limited Company). PLC’s have Limited Liability, which means that they are no liable for items such as a property and vehicle if the business goes bankrupt, only money that has been put into the organization can be retained. A limited company is a separate legal entity. Most large organizations are limited by shares and must include “limited” or “plc” as appropriate in their name. A limited company is classes as private (LTD) unless the association informs all included representatives that is a public limited company (PLC). As Tesco is a Public Limited Company it can raise finances by selling shares on the stock market. They will need to ensure that they are regenerated and that there is a certain level which remains in Tesco’s name.

Advantages of a Limited Liability Company

  • Liability is strictly limited to the investments made by the shareholders. That means that all the money which is invested into tesco will be paid through by their shareholders.
  • Company Officers are not personally liable for their actions unless, in most instances, there is a clear and serious breach of their fiduciary duty.
  • Limited liability often benefit from greater prestige' than their sole proprietorship or partnership counterparts. The reason is probably because such an enterprise normally requires more planning and is therefore deemed more credible.
  • Opportunities to have a significant tax advantage. Most countries around the world give exclusive tax incentives to this type of entity.
  • The rights of shareholders are normally clearly defined and protected.
  • Corporate taxes only become payable after the end of the financial year. This means that money that would otherwise be taxed on a monthly or quarterly basis of every 3 months, is available to earn further money before the final payment of tax.
  • Create goods at lower unit price (economies of scale).

Disadvantages of a Limited Liability Company

  • In larger companies shareholders often lose direct control over their investment.
  • Limited liability companies generally require the appointment of accountants of which take control of all the finances.
  • Certain professional bodies, especially those representing the legal and medical fields, do not allow members to register a limited liability company.

The industrial sector

There are four different groups into which industries may be divided:

  • Primary
  • Secondary
  • Tertiary
  • Quaternary

 industries extract or use raw materials; for example, mining and agriculture. Secondary industries are manufacturing industries, where raw materials are processed or components are assembled. Tertiary industries supply services such as retailing. The quaternary sector of industry is concerned with the professions and those services that require a high level of skill, expertise, and specialization. It includes education, research and development, administration, and financial services such as accountancy.

Tesco belongs to the tertiary sector as it supplies services such as retailing and distribution.

Main business activity

The main duty that Tesco deals with is retail of food and drink and all other ordinary consumer products. The quality standards of the products are very high and the prices are reasonable. Tesco have their own label ranges and are more sophisticated. They have three different brands within Tesco. Finest range, a regular brand and its value brand. Each brand is targeted at different customers who expect them to be priced at their appropriate level. This product differentiation allows Tesco to offer premium-priced and cheaper-value products under the same umbrella. These three things are considered when looking to introduce different products into the market:

  • Target customers expectations
  • Be in harmony with other aspects of the marketing mix
  • Reflect supply and demand conditions

The graphs below were taken from the website . They show the growth of Tesco as a company over the last 5 years, it can clearly be seen that Tesco has grown over this period, and are predicting to grow further over the next few years.

                             

I will look at these three aspects of the organisations finances.

  • Cash flow Forecast
  • Profit & Loss Account
  • Balance Sheet

  1. Stores

From the table which has been I have created below it can clearly be identified that Tesco is a worldwide organisation, and is established throughout the world In several different location. The table shows that there are nearly 2000 stores in the UK, and that is the expected amount after 2007. There are also 11 other countries were Tesco is an established organisation, mainly throughout Europe and in Asia.

  1. Share Price

A share represents ownership in part of a company. When you buy a share in a company, you become a part of the business and share in the future of that business. Also known as an equity. This is presented in the form of a certificate. It is bought at a certain price on the stock market and can be sold any time at the current price. This is updated every 15minutes and can be checked several ways.

I have found a graph, which was on yahoo finance of the prices of shares on a graph. It can be seen on the graph that there have been several high and low points for Tesco, this is shown in one day. And there are several changes in price during the course of the day.

The next graph shows how the share prices have changed in the last two years. And by looking at the graph it can clearly be seen that the progression of Tesco has only been going in one direction. Since the lowest point in November 05 the share price has nearly increased by 50p by January 07 which means investors will be earning 50p extra for every share they have in Tesco.

Join now!

Whilst I was searching for information on the internet I came across a set of all the current shareholders at Tesco, it shows the company which has invested money and the amount of percent they have of the organisation.

1. Barclays Global Investors (3.82%)
2. Legal and General (2.79%)
3. Schroder Investment Mgt Ltd (2.87%)
4. State Street Global Advisors (2.73%)
5. Axa Investment Managers (2.63%)
6. Threadneedle Investments (2.33%)
7. Scottish Widows (2.08%)
8. M & ...

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