Organizational Culture, Brand Creation, And Risk Analysis Of Tesco Company

Risk and Financial Analysis of Tesco Company

Question:

Discuss About The Organizational Culture And Creation Of Brand?

This report focuses on the risk and financial analysis of a company. In this report, Tesco Company has been taken into consideration. There are various financial tools such as ratio analysis, cash flow analysis and capital budgeting tool which may influence the business of an organization. In this report, various types of risks which would be faced by a company on the global scale have been evaluated. This company has used various strategies to overcome or manage these risks. After that, ratio analysis has been used to evaluate the financial performance of a company.

It is British international general merchandise and Grocery Company. The main head quarter of company is in Welwyn Garden city, England, United Kingdom. TheIt has the vision to create strong position in client’s mind through its integrity and commitment (Brigham and Ehrhardt, 2013).         

It has the mission to generate core competency in selling products and services through its advanced supply chain.

It is evaluated that company has been facing several kinds of risks in its business which may cause serious loss of profit or even bankruptcy. There are several risks such as operational risks, financial risks, reputational risks, compliance risk and strategic risks.  The annual report and other business functioning of the company have been assessed to evaluate all the possible risk of business (Tesco Plc, 2014).

It has been undertaking various strategic alliance and investment decisions.  However, business management plan of Tesco Company is based on the well-structured comprehensive business plan. Ideally, the strategic decision of company is highly influenced by competitors offering, clients demand, and technologies changes. For instance, Tesco Company was having the strong position in the market. However, due to the increased use of technologies and online business models, Tesco faced high destruction in its retails products selling (Tesco Plc, 2017).

This compliance risk arises when company fails to comply with the applicable rules and regulations. These are the main risk which arises due to the non-compliance program of Tesco Company. It is evaluated that it has faced high amount of penalties due to the non-compliance of international rules and regulation.  It has the international business and may fail to establish proper harmonization in its international and domestic reporting framework (Tesco Plc, 2016).  

Operational risk refers to an unexpected failure in the company in its daily operations. It may be technical failure, server outrage and other value chain activities problems. Operational risk issue arises due to the failure of its operational activities. For instance, if the payment department of Tesco wrote a check of $ 1, 00,000 instead of 10,000 by mistakes then a company may face loss of $ 90,000. In addition to this, if the offered in retails business in not up to the mark due to the less efficient functioning of employees then company may also lose some clients in market (Titman, Keown and Martin, 2017).

It is the type of risk which has high financial impact on the business of an organization. This risk refers to flow of money in and out of the busienss or possibility of sudden financial loss. Tesco Company has been facing this financial risk due to its less efficient financial investment plan. This risk arises due to the non-effective capital investment plan. For instance, if a company has two investment project plan and due to its less effective capital budgeting decisions, it opted loss-making project. It may result to destruction of the capital invested in particular project of company. This rise arises due to internal and external business factors. Tesco Company needs to asses these factors before investing money in particular project (Tesco Plc, 2015).

Mission and Vision

There is different kind of business risk but all the companies may face reputational risks. It is evaluated that if the reputation of company is damaged then it may impact the profitability and earning capacity of organization. The reputation risk is based on the employee turnover, marketing activities and promotional plan of the organization. For instance, if company damaged its brand image then it will have to lose various tenders.  The reputation risk could take the form of the major lawsuit, an embarrassing product recall, negative publicity about the business (Tesco Plc, 2014).

These risks arise due to changes in purchasing power, bank interest rate, call risk and changes in tax policies and laws. It is analyzed that Tesco Company has faced issue these issues due to the changes in the economic factors of organization.

This risk is also known as systematic risk. The main impact of these types of risks mainly affects the share price of company and value of organization. However, my using marketing making and hedging technique, financial manager of a company could overcome this type of issues (Yahoo finance, 2018).

This risk arises due to the change in the foreign exchange rate of one country as compared to other countries. Tesco Company may destruct the value of its income if, at the time of converting its capital into another currency, the currency rate went down.

This risk arises if the transaction date of company is different from the reporting period of a company. It is evaluated that due to changes in the foreign exchange rate, Tesco Company may destruct the value of its capital.

These all above risks are a major concern which may impact the financial and non-financial business. It is evaluated that if Tesco Company could manage these above-given risk through its advanced strategic planning then it could easily implement proper strategic program. However, Tesco Company could mitigate financial risk by using hedging and capital budgeting techniques.

Tesco Company has been managing these all types of risk by using different strategic plans and procedure in determined approach. The below-given table reflects how well Tesco Company could manage these risks (Fernandes, Ferreira and Moura, 2016).

After evaluating all the risks and associated factors of business, it could be inferred that Tesco Company could manage these all risk by implementing proper strategic plans either related to taking strategic business planning, use of financial tools and forecasting technique. It is analyzed that due to its exposure to its global business, company has managed its transactional and reporting risk. It arises due to the changes in the value of the currency due to forewing exchange risk.

This analysis reflects the financial performance of Tesco Company. It is evaluated that since last five years, the financial performance of Tesco Company is very effective and showing the high amount of growth. However, due to sluggish market condition, Tesco Company has faced the high amount of loss in its business.  The ratio analysis helps in the establishment of relation between two financial factors of business (Finkler, et al. 2016).

Types of Risks Faced by Tesco Company

This ratio reflects the liquidity position of company. It shows company’s ability to pay off its short terms and long-term debts with the available resources.

After analyzing the details, it is analyzed that company has increased its cash ratio by .07 points since last five years. In addition to this, current ratio of company has also increased by .10 points in 2017 as compared to last five years. The quick ratio of company has increased to .68 which is .19 higher in 2017 as compared to 2014 data. This ratio reflects the company has increased its liquidity position and increased the current assets investment (Mohd, Idris, and Momani, 2013).

This profitability ratio reflects the profitability position of Tesco Company and how it has increased its business functioning. This ratio reveals company’s ability to earn profit from the revenue.  The operating profit of company has decreased to 1.99 % in 2017 as compared to last five year data. It is analyzed that company has decreased its return on equity to -0.072% in 2017 from 0.191%. In addition to this, return on assets of company has also decreased to -0.62% which is not the good indicator for the organization. This is evaluated that company has faced issue in the profit earning of company and decreased its profitability throughout the time (Shouman, El Shenawy, and Khattab, 2016).

This ratio shows how well company has maintained its solvency capacity. It is evaluated that company has the strong position to cover its fixed cost with its earnings before interest and tax amount (Rashid and Ghose, 2015).

This analysis reflects the solvency position of Tesco Company. It is evaluated that since last five years, cash coverage ratio of company has gone down. Tesco Company has reduced its interest payment. Debt to equity ratio of company has also increased by 4 points which reflects that company has increased its debt parts. Nonetheless, it also increases the financial leverage of the company.  Time interest ratio has shown negative results which is not good indicators of the efficient business functioning of Tesco Company (Schmidt, Spann and Zeithammer, 2014).

It has decreased its business efficiency by blocking more funds in its working activities. However, company has kept zero receivable funds. In addition to this, creditors ratio of company has also gone up by 20% which is not the good indicator for the business. The inventory turnover of a company has decreased by 7% which reflects that company needs to block less amount of capital in its inventory functions (Schmidt, Spann and Zeithammer, 2014).

The working capital reflects the amount of difference between the current asset and current liabilities of company. The Tesco Company has increased its capital investment in its operating activities. However, the amount blocked in the operating activities of business is negative which reflects that Tesco Company is managing/ its business effectively and blocking very less funding (Siguaw and Simpson, 2015).

The main financing decision of Tesco Company should be to increase the investment in its operating activities. It needs to increase the overall capital investment in its current assets (Finkler, et. al. 2016).

It is analyzed that earning management of Tesco company occurs when the mangers use these judgments in financial reporting and structuring transactions to alter financial reports to mislead the stakeholders about the financial performance of a company or to influence the contractual outcomes to report the outcomes.   It is evaluated that Tesco Company may have used this earning management to mislead its stakeholders for its financial performance such as showing false revenue and assets data (McKinney, 2015).

Transfer pricing- It is the price at which transactions between two related parties should have occurred irrespective of their relation and associated factors. For instance, if Tesco wants to buy some products from its other related entities then management need to book all of its transactions at the transfer price (Solomon, 2014).

If these transfer pricing and earning management is not done properly then it will destruct the transparency of the data and mislead the stakeholders in their capital investment decisions.

Conclusion

There are several strategic planning and strategic alliance of Tesco Company to achieve a greater level of effectiveness in strategic analysis, planning, and control, both in the long and short-term. Now, in the end, it could be inferred that company needs to manage these risk by using proper strategic plans and procedure.

References

Brigham, E.F., and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Fernandes, C., Ferreira, M. and Moura, F., 2016. PPPs—True Financial Costs and Hidden Returns. Transport Reviews, 36(2), pp.207-227.

Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.

McKinney, J.B., 2015. Effective financial management in public and nonprofit agencies. ABC-CLIO.

Mohd, W., Idris, S. and Momani, R.A., 2013. Impact of environmental dynamism on marketing strategy comprehensiveness and organizational performance. International Journal of Business and Management, 8(9), p.40.

Rashid, S. and Ghose, K., 2015. Organisational culture and the creation of brand identity: retail food branding in new markets. Marketing Intelligence & Planning, 33(1), pp.2-19.

Schmidt, K.M., Spann, M. and Zeithammer, R., 2014. Pay what you want as a marketing strategy in monopolistic and competitive markets. Management Science, 61(6), pp.1217-1236.

Shouman, E.R., El Shenawy, E.T. and Khattab, N.M., 2016. Market financial analysis and cost performance for photovoltaic psychology through international and national perspective with case study for Egypt. Renewable and Sustainable Energy Reviews, 57, pp.540-549.

Siguaw, J.A. and Simpson, P.M., 2015. A marketing plan for marketing instruction: A satirical look at student comments. In Creating and Delivering Value in Marketing (pp. 129-133). Springer International Publishing.

Solomon, M.R., 2014. Consumer behavior: Buying, having, and being (Vol. 10). Engelwood Cliffs, NJ: Prentice Hall.

Tesco Plc, 2015, annual report, Retrieved on 29^th November, 2017 from https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2017/

Tesco Plc, 2016, annual report, Retrieved on 29^th November, 2017 from https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2017/

Tesco Plc, 2017, annual report, Retrieved on 29^th November, 2017 from https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2017

Tesco Plc, annual report, Retrieved on 29^th November, 2017 from https://www.tescoplc.com/investors/reports-results-and-presentations/annual-report-2017/

Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.

Yahoo finance, 2018 retrieved on 19^h January from https://in.finance.yahoo.com/

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