Course: MBA – Master of Business Administration – V1

Teacher: Muhammad Almezweq

Student ID: R1607D1662592

Date of submission: 13 October 2019














This report will be discussed in two parts. The first part of the discussion looks at the Annual report of Tesco for the year 2016 with the aim to identify key stakeholders and then analysing the Environmental and social review report to demonstrate the corporate social responsibilities to this three chosen stakeholders. The choice of stakeholders will be based entirely on their influence both on financial and non financial outlooks on Tesco business.

The second part of this report will analyse and evaluate the financial position of Benedict Co. using financial ratios calculated from the supplied income statement and statement of financial position for two years, 20X0 and 20X1 and the relevance of the ratios to its stakeholders. Overall financial performance of Benedict Co when compared with its competitors, it was concluded that the business was not a successful one and company may not last for longer and therefore as a purchase manager I will not consider Benedict Co.

Company background

Tesco PLC (2019) is a British retail company operating in the UK, Republic of Ireland and internationally in Czech Republic, Slovakia, Poland, Hungary, Malaysia, Thailand, India and China.  The company was founded in 1919 by Jack Cohen. Tesco was born in 1924 when Jack Cohen came together with his tea supplier, T.E. Stockwell. The name TESCO comes from the combination of initials of the two guys’ first name and surname. It‘s headquarters are located in Hertfordshire, England. The business is engaged in retailing and its related activities, retail banking and insurance services. Tesco is listed on the London Stock Exchange and Financial Stock Time Exchange 100 index. Tesco is the fourth largest world retailers with 476 000 employees that serves a million customers every week in store and online (Tesco PLC, 2019). Tesco brought a new face of retail of self service in 1946 which was unusual culture in British shopping at the time. Tesco store was floated on share stock with a price of 25 pence in 1947. About 500 stores were opened in the 1950s in different locations. Tesco applied different strategies founded on Cohen’s philosophy of ‘pile it up and sell it cheap’ from collecting green stamps on their branded items and exchanging them for Green shield value goods, selling food and non food items and opening new superstores. In 1973 Tesco continued to expand their business wings by introducing petrol stations in their major sites to attract even more customers. Tesco became first British retailer in 1995 to launch club cards which drew nearly five million customers in the first year. Tesco shares overtook Sainsbury as a result. Tesco sought to close the gap of other segments of customers and satisfying their interest as seen in their move into finance in 1997 and launching Tesco Finest for their upmarket clients. Year 2000, Tesco went online in an effort to bring services closer to customers. This growth can be seen even today with quality and fresh produce giving customers options for healthier eating. In the last eighteen years Tesco has been actively involved in supporting local communities, schools, funding researches aimed at prevention of major health diseases.


Stakeholder is defined as “any group or individual who can affect or is affected by the achievement of the firm’s objectives (Freeman, 1984). Stakeholders can be internal or external groups or organisations. Stakeholders include employees, customers, suppliers, shareholders, regulatory bodies, general public and various other individuals depending on the type of the firm and its industry. The corporate social responsibility of stakeholders focuses on supporting the firm’s corporate strategic goals in order to realise them.  Social responsibility can be defined as  practices undertaken by businesses that contribute positively to the society.  Stakeholder model diverts resources away from profit maximising behaviours such as through donations, charity causes, etc. Stakeholder theory maintains that business has responsibility to make profits and satisfy interests of multiple stakeholders. These stakeholders represent the individuals or groups that have an interest in the actions and behaviour of the business. It is important that the management need to maintain a positive relationship with society and the environment to operate effectively. Stakeholders do not have the same influence on the business, so they are categorised into primary and secondary stakeholders. Primary stakeholders have a greater influence on the organisations. They include business customers, suppliers, employees, government agencies and local community. These groups are of utmost importance because the business relies on them for long term survival. Management should spend more time with them in order to satisfy various interests of these groups. Although secondary stakeholders are not critical as primary stakeholders they can influence public perception of the business, they include special interest groups and media. Secondary stakeholders do not have frequent interaction with the business but can play a significant role on transmitting information about the business.  Roberts (1992) in his standpoint suggests that managers should consider stakeholder conflicting interests when planning corporate strategy. Shareholder model on the other hand believes that the business of the business is business, that is to say the only social responsibility of the business to maximize profits according to the established laws. The objectives and nature of the business as well as the size of the business will help determine the model that businesses can follow in terms of corporate social responsibilities. Tesco follows the stakeholder model to demonstrate its social responsibility through tackling challenges that affect the communities they operate in.

In case of Tesco, stakeholders that have significant impact on the business include its employees, customers, shareholders and suppliers.

Tesco exist to put their customers’ needs first in every action they make (Tesco, 2016). This is reflected in their values of “Every little help makes a big difference’, ‘No one tries harder for customers’ and ‘We treat people how they want to be treated” (Tesco, 2016). Tesco embarked on improving availability of products, adding more ranges and more choice of products under one roof whilst offering excellent customer service. In October 2015 Tesco became the first British retailer to introduce price match at the checkout in an effort to regain competitiveness and stable prices. With the advancement in modern technology, Tesco continues to innovate and deliver excellent customer experience and growing customer loyalty in the process. Tesco measure customer satisfaction through surveys on weekly basis and the feedback has been a positive one. It is unsurprising that more customers are recommending to shop at Tesco stores, an increase of 1.2 % customer loyalty and this has added more value into business and creating a stronger financial position.

Employees or colleagues as they are referred to on the annual report, Tesco provide its staff with the right skills and training opportunities in order to serve customers a little better every day. Tesco has a strong and consistent people policy that makes it the best place to work at. Tesco drives an open and transparent business model where colleagues are free to express their concerns without fear or favour. Everyone at Tesco is paid fairly according to their work. In 2016 Tesco became a signatory of United Nations Global Compact Initiative which requires them to report on their implementation of human rights. Tesco promotes diversity through monitoring gap pay. Consequently this business strategy approaches increase their reputation in the market place and society hence the according to the survey, 81% of colleagues recommended Tesco as the best place to work. Introduction of the benefit pension scheme for colleagues providing sustainable benefits and future cash certainty led to better discount rates and therefore reducing long term liabilities.

Tesco need suppliers that can produce great value products that are sourced in a safe and responsible way. Partnerships are very crucial in Tesco business as shown in the KPIs to build stronger relationships so as to conduct a business that is commercially successful and socially responsible. Supplier surveys recorded a 70% group supplier satisfaction which further gives Tesco stores a competitive edge among its competitors. Tesco is committed to uphold and respect for human rights, labour rights and anti corruption as expected member of the UN Declaration of human rights and ILO. Tesco founded Ethical Trading initiative, an initiative that engages its members to develop and integrate a corporate code that encompasses working condition in global supply chains (Annual report, 2016).  Tesco runs a programme that ensures surplus food is not wasted but delivered to underprivileged societies. Tesco Chief executive, Dave Lewis chairs a coalition of leaders from different institutions that is dedicated to accelerating progress towards UN SDGs Food Waste Target 12.3. This leadership position gives Tesco market presence through networking and collaborations.

Tesco has demonstrated strategic use of CSR in developing and defining procedures and policies that integrate social, environmental, and ethical and human rights into their business strategies. Companies that invest in their stakeholders social and environmental issues achieve a positive impact in the society while maximising profits and creating long-term value for shareholders. This is reflected by improvement in profitability, in the year 2016 Tesco delivered a group operating profit of £944m reduction of total indebtedness by £6.2bn. Tesco continue to demonstrate its commitment through operations and staying true to their values. Their business strategies were built with these key stakeholders in mind to help achieve a balance of financial and non financial objectives. Tesco corporate strategies are reaffirmed in their actions through regaining competiveness, strengthening the balance sheet and regaining trust in their business. As a result of corporate social responsibility, Tesco have global penetration as evidenced by the company’s footprints internationally, increase in customer loyalty, improved bottom lines, retained talent, value to shareholders as well as brand imaging.


Profitability ratios

Ratios 20X1 20X0 Difference
ROCE % 24 27,1386431 -3,1386431
Gross profit margin % 48,052 41,767 6,285
Net profit margin % 31,1688312 36,9477912 -5,77896
Net asset turnover (times) 0,77 0,73451327 0,03548673

Return on capital employed, ROCE shows how much profit is generated from operations. It compares profit with capital invested (Scicluna, 2016).

Benedict Co made a ROCE of 27.14% in 20X0 and 24% in 20X1. A decline (-3.14%) can be explained by an increase in profit before interest and tax and capital employed in 20X1.

Gross profit margin measures the percentage of gross profit generated from revenue.

Benedict made a gross profit margin of 41.77% and 48.05% from 20X0 and 20X1 making a positive growth of 6.28%. It is observed that the company made more sales (+19.16%) than the previous year subsequently increasing the gross profit from 10.4million to 14.8million.

Net profit margin is represented as a percentage of the company’s profit after operating costs (admin and distribution costs) are deducted.

Net profit margin for Benedict Co was 36.95% in 20X0 and 31.17% in 20X1 indicating a decrease (-5.78%). This can be attributed to company’s inefficiency to utilise the sales to make profit therefore attracting higher interest charges.

Net asset turnover measures the how efficient the capital employed is generates turnover.

In case of Benedict Co, 0.73 times in 20X0 and 0.77 times in 20X1 to generate $1 sale. This slight increase (+5.19%) can be explained by company’s ability to utilise capital employed to generate cash.

Liquidity ratios

Ratios 20X1 20X0 Difference
current ratio 1,18518519 1,25490196 -0,069716776
Quick ratio 0,7037037 0,74509804 -0,041394336


Current ratio can be defined as a liquidity ratio that measures the company’s ability to pay short term obligations. Current ratio tells us the number of times assets can be converted to cash over 12 months period.

Current Ratio = current assets ÷ current liabilities

Benedict company current ratio is 1.25 for year 20X0 and 1.19 for year 20X1. This slight decrease (-5%) can be explained by an increase in the non-current liabilities (+50%) and overdraft probably to acquire more current assets (+100%) for the respective years. This is not healthy for the business as current assets like inventory can take longer to sell and also customers take a longer time to pay. The cash tied to inventory may also end up salvaged due to damages, expiries and or obsolete items. Generally speaking, a higher current ratio is desirable as it indicates the liquidity of the business. Competing companies show a better current ratio therefore can meet the short term obligations quicker.

Quick (or acid-test) ratio is similar to current ratio except that inventory is excluded from current assets. The ratio is also termed short term solvency, as sometimes inventory can be slow moving products making it impossible to cover day to day obligations.

Quick ratio = current assets – inventory ÷ current liabilities.

Benedict Co quick ratio declined (-7%) from 0.75 for year 20X0 to 0.70 for year 20X1. This quick ratio tells us that the company does not have sufficient cash available to meet its current liabilities. Consequently this puts the company at a disadvantage in securing trade credits from suppliers or borrowing a loan to continue business.

A quick ratio of 1 and above is good as it means all short term obligations will be met in less than 12 months by its competitors.

Use of resources

Ratios 20X1 20X0 Difference
Stock days 118,625 65,4482759 53,17672414
Debtor days 90,0649351 55,7028112 34,36212382
Creditor days 155,125 108,241379 46,88362069
Cash conversion cycle 53,5649351 12,9097078 40,65522727


Trade receivable days show the average number of days it takes the debtors to collect outstanding payments from customers in a year.

Trade receivable days = trade receivable ÷ credit sales x 365

Benedict Co took an average of 56 days in 20X0 and 90 days in 20X1 to collect those sales, an increase (+60%) in average collection period which puts the business at a disadvantage compared with competitors who take a considerable shorter time to receive payments.

Inventory days show the average number of days’ worth of stock sold and replaced by the company over a year.

Inventory days = inventory ÷ cost of goods sold x 365

It took Benedict an average 65 days in 20X0 and 119 days in 20X1 before it turned stock into cash while the competing companies take an average of 60 days. Inventory days should be kept as low as possible as longer days may incur more costs from storage and destruction.

Trade payable days show the average number of days it takes to pay creditors and is computed as follows:

Trade payable days = trade payable ÷ credit purchases x 365

Benedict Co took an average of 108 days in 20X0 and 155 days in 20X1 to pay its creditors. The trade payable days in the industry is 90 days which is shorter than it takes Benedict for two successive years. This risk the chance of trade credits from creditors as payment may be secured against its valuable assets which indicate inefficiency use of resources.

Furthermore, the company takes longer to make payments on credit purchases than it receives payments from debtors, another disadvantage to Benedict Co.

Cash conversion cycle (or net working capital) is the number of times it takes the company to generate cash from operations.

Cash conversion cycle (WCC) = inventory days + trade receivable days – trade payables days

From 20X0 to 20X1, the company’s WCC increased from 13 days to 54 days which is 41 days more, needed by the company to turn assets to cash to meet its short term obligations. Companies in the same industry need only 25 days on average to generate cash from its operations. These results explain a serious problem in the financial status of the business and more work is needed to understand this poor financial position.

Investor ratios

Ratios 20X1 20X0 Difference
Return on equity % 23,5714286 27,027027 -3,455598456
Dividend per share 0,25 0,2 0,05
Earnings per share 0,36666667 0,38888889 -0,022222222
Dividend cover 1,46666667 1,94444444 -0,477777778
Payout ratio % 68,1818182%




Price/earnings ratio 15,2727273 9,25714286 6,015584416
Dividend yield % 4,46428571 5,55555556 -1,091269841
Earnings yield % 6,54761905 10,8024691 -4,254850088


Return on equity, ROE measures corporation profitability by revealing how much profits the company generated with the money shareholders have invested. ROE is calculated as the amount of net income as a percentage of the shareholders equity.

ROE = net income ÷ total equity x 100

Benedict Co. had a ROE of 27.03% in 20X0 and 23.57% in 20X1. A decline (-3.46%) is due to an increase in long term debt that attract higher tax rate.

Return on assets, ROA is a measure of profit per dollar of assets (Ross, et al 2016).

ROA= net income ÷ total assets x 100

In 20X0 and 20X1, ROA for the company was decreased from 17.95% to 13.00% respectively.  This indicates that the company is not efficiently utilising its assets to generate cash. The profit that Benedict used to make on assets has declined by 4.95 %.

Dividend per share, DPS is the amount of dividend available to each shareholder is referred to as Dividend per Share. In 20X0 were 0.2 and 0.25 in 20X1, an increase of (+0.05) is due to the increase in the dividends paid from $3.6million in 20X0 to $4.5million in 20X1.

Earning per share, EPS is the amount of profits available to each shareholder. Benedict Co EPS slightly declined from 0.39 in 20X0 to 0.37 in 20X1 suggesting lower earnings.

Dividend cover, from 20X0 to 20X1 reduced from 1.95 to 1.48 respectively due to a lower EPS.

Payout ratio for Benedict Co. increased from 0.51 to 0.68 in respective years. Payout ratio is an inverse of dividend cover.

Price earnings ratio, observed an increase of 9.26 to 15.27 in 20X0 and 20X1 respectively.

Dividend yield, a decline from 5.56% to 4.46% in 20X0 and 20X1 was calculated.

Earnings yield, decreased from 10.80% and 6.55% in successive years.

Gearing ratios

Ratios 20X1 20X0 Difference
Capital gearing ratio % 30 23,5988201 6,401179941
Debt/Equity ratio % 42,8571429 30,8880309 11,96911197
Interest Cover 7,38461538 18,4 -11,01538462


Gearing ratios show the level of long-term borrowings (Scicluna, 2016).

Capital gearing ratio is calculated as long-term debt as a percentage of capital employed for management. For Benedict a 23.60% in 20X0 and 30% in 20X1 was observed. The increase is due to an increase in non current liability from $8m to $12m and capital employed as discussed before. A higher ratio may bring negative consequences to the business.

Debt/Equity ratio is a measure of long term debt as a percentage of total equity for share holders. In Benedict Co, a debt/equity of 30.89% in 20X0 and 42.86% in 20X1 was measured. This increase (+12%) indicates a higher risk to shareholders.

Interest cover shows the number of times the profit from operations covers the interest charge on the long term borrowings. In 20X1 the PBIT covers finance costs 7.38 times and in 20X0 it was 18.4 times. A declining interest cover is worrying as ROCE and NPM fell from the previous year but the operating costs increased putting the business in a bad financial space.

In conclusion, the financial ratios of Benedict Co have revealed that the financial performance is far below average than its competitors. Its financial performance continues to plummet over the two years resulting in decrease of profitability. The management has failed to utilise the resources to maximize profits while attracting more long term debts leading to a reduced ROCE and NPM.

The company has failed to take advantage of its longer trade payables and shorter receivables to turn assets or stock into cash much quicker. Due to this, there is an inefficiency of working capital cycle, thus 41 more days are needed to generate cash from operations.

Lower market liquidity ratios suggest that Benedict may end up selling its valuable assets to offset against current liabilities. The business risks being cut off trade credits and placed on cash only basis if it continues with a bad liquidity ratio.

The company gearing ratios are high indicating that the company may face undesirable consequences if they fail to meet long term obligations.

A similar poor financial performance was observed in investor ratios. Benedict management failed to create value for its shareholders due to declining investor ratios.


  1. Industry financial data
Current ratio 1.6  
Quick Ratio 1.0  
Trade receivable days 55  
Inventory days 60  
Trade payable days 90  
2. Statement of income for Benedict Co for the year to 31 January
  20X1 20X0 % Difference
  $’000 $’000  
Sales 30 800 24 900 23,6947791
Cost of sales 16 000 14 500 10,3448276
Gross profit 14 800 10 400 42,3076923
Admin expenses 1 700 400 325
Distribution costs 3 500 800 337,5
Finance costs 1 300 500 160
Profit before taxation 8 300 8 700 -4,5977011
TAXATION 1 700 1 700 0
Profit after taxation 6 600 7 000 -5,7142857
Dividends 4 500 3 600 25
Share price $/share 5.6 3.6 55,5555556
Share capital 18 000 000 18 000 000 0
Nominal value 1 1 0








3. Statement of financial position for Benedict Co. as at January 20X1



20X1 20X0 % Difference
$’000 $’000  
Non-current assets 38000 32600 16,56441718
Inventory 5200 2600 100
trade receivables 7600 3800 100
Total current assets 12800 6400 100
Total assets 50800 39000 30,25641026
share capital 18000 18000 0
Reserves 10000 7900 26,58227848
Capital and Reserves 28000 25900 8,108108108
6% bonds 12000 8000 50
Trade payables 6800 4300 58,13953488
Overdraft 4000 800 400
Total current liabilities 10800 5100 111,7647059
Total liabilities 50800 39000 30,25641026


4. Benedict Co.’s Capital employed


20X1 20X0 % Difference
$’000 $’000  
Total assets 50800 39000 30,25641026
total current liabilities 10800 5100 111,7647059
Capital employed 40000 33900 17,99410029


  1. Calculations of Benedict Co. financial ratios
Ratios Formula 20X1 20X0
ROCE PBIT ÷ Capital employed x 100 8300 + 1300 / 50 800 – 10 800 * 100 8700 + 500 / 39 000 – 5100 * 100
GP margin% gross profit ÷ turnover x 100 14 800 / 30 800 * 100 10 400 / 24 900 * 100
Net profit margin % PBIT ÷ turnover x 100 8300 + 1300 / 30800 * 100 8700 + 500 / 24 900 * 100
Net asset turnover turnover ÷ capital employed 30 800 / 50 800 – 10 800 24 900 / 39 000 – 5100
Liquidity ratios
current ratio current assets ÷ current liabilities 12 800 / 10 800 6400 / 5100
quick ratio current assets – inventory ÷ current liabilities 12 800 – 5200 / 10 800 6400 – 2600 / 5100
Use of resources
stock days inventory ÷ cost of sales x 365 5200 / 16 000 * 365 2600 / 14 500 * 365
debtor days trade receivables ÷ sales x 365 7600 / 30 800 * 365 3800 / 24 900 * 365
creditor days trade payables ÷ cost of sales x 365 6800 / 16 000 * 365 4300 / 14 500 * 365
cash conversion cycle stock days + debtor days -creditor days 118,625 + 90,065-  155,125 65,448 + 55,703 – 108,241
Investor ratios
ROE % earnings after tax and preference dividends ÷ ordinary share capital plus reserves x 100 6600 / 28 000 * 100 7000 / 25 900 * 100
DPS dividend paid to ordinary shares ÷ number of issued ordinary shares 4 500 000 / 18 000 000 3 600 000 / 18 000 000
EPS earnings after tax and preference dividends ÷ number of issued ordinary shares 6 600 000 / 18 000 000 7 000 000 /18 000 000
Dividend cover EPS ÷ DPS 0,37 / 0,2 0,39 / 0,25
Payout ratio % Dividend paid to ordinary shareholders ÷ earnings after tax and preference dividends x 100 4 500 000 /6 600 000 * 100 3 600 000 / 7 000 000 * 100
Price/earnings ratio Market price per share ÷ EPS 5,6 / 0,3666 3,6 / 0,3889
Dividend yield % DPS ÷ Market price per share x 100 0,2 / 5,6 * 100 0,25 / 3,6 * 100
Earning yield % EPS ÷ Market price per share x 100 0,37 / 5,6 * 100 0,39 / 3,6 * 100
Gearing ratios
capital gearing ratio % long term debt ÷ capital employed x 100 12 000 / 50 800 – 10 800 * 100 8000 / 39 000 – 5100 * 100
debt/equity ratio % long term debt ÷ total equity x 100 12 000 / 28 000 * 100 8000 / 25 900 * 100
interest cover PBIT ÷ finance costs 8300 + 1300 / 1300 8700 + 500 / 500



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