Tesco financial review

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.

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. Primary 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.

Businesses can have trouble if they fund their activities inappropriately. For example, businesses that try to rely too heavily on short-term sources might run out of cash. Using bank overdrafts, Hire Purchase and leasing to acquire machinery and other fixed assets for too long can raise costs and drain working capital. Similarly, if a business tries to fund rapid growth with short-term sources, it might run out of cash. This is because growth often requires heavy capital expenditure, which might be better funded with long-term sources.

If Tesco wants to run a successful organisation, they will need to ensure that they do not rely on to much cash sales, to reinvest in their businesses. For example if Tesco do not plan for the future and think expect to make a lot of money in the next 6 months and business progresses slowly, employees may need to be fired of to cover the sudden drop in profits and inflows. Therefore, they need to ensure that they do have money to fall back on to re invest in new stock or expand different areas to ensure that it appeals to a wider variety of people. 

Although, using to much long term capital may also be a problem. It is not prudent to fund the purchase of raw materials with a long-term loan. For example, the raw materials will be used to meet immediate orders and payment for them will be received fairly soon, long before the loan is repaid. However, there is a growing belief that business should perhaps make more use of long-term sources. They are often cheaper and provided spending is kept under control, a more solid financial foundation is built.