FRONT COVER:  Programme Title  Module Code and Title  Assignment Title  Student Details EXECUTIVE SUMMARY (250 words, max)  General Introduction of the whole assignment and what you have done: o...

economic & financial management
economic & financial management
TESCO Assignment
EXECUTIVE SUMMARY
The module tries to help build an understanding of macro and micro level economic factors and impact on the company’s top line and bottom line. Analysis of trends horizontally (over a time period) shows how a company’s financial performance has changed, given the changes in market conditions and its own key strategic decisions or goals set by management.
Taking reference from Financial Ratios measure a company’s profitability, solvency position, liquidity and operational efficiency. It is important to understand the financial performance from those dimensions to facilitate financial decision-making. The ultimate goal of an organisation is to maximise shareholders’ wealth. Solvency position helps understand how leveraged the company is and how much risk it is holding and the impact on its asset quality, sales turnover etc. Liquidity ratios evaluate cash flow position and its ability to meet short-term obligations. Operating ratios depict the efficacy in operating activities, which in turn impact the operating costs of the company.
Introduction
Financial statements gives us the information and knowledge about the inner working of the organisation with respect to the cash flows, profits and revenue earned. This help us to quantify the health of the organisation. Financial Analysis offers more accurate and effective way to comprehend the organisation and the information gauged through this process offers plethora of insights to internal as well as external stakeholders. This helps all the concerned stakeholders assess the position of the company and contribute to the performance. Financial statements help us evaluate overall business, project units, proposed budgets, and other organisation related transactions to regulate the performance of the business and check the suitability.
By the virtue of this assignment, I was able to leverage the concepts of financial ration described in the class and apply it on the organisation chosen to understand its performance and health. Always fascinated with how German organisation operates, I have chosen Tesco for the research of this assignment. Established in 1987 by Joachim Kohl and Klaus Hilger, it is a record label and mail order organisation with distributors, specialising in several domain like industrial, noise, neofolk and ambient music. This assignment provided me the opportunity to perform comparative analysis using the numerical ratios taking into consideration the data from the annual reports of last three years 2017, 2018 and 2019. This provided me the platform to screen the trend that can be gauged understand the trends that ratios are projecting. In the later part of the report, I have provided three key strategic decisions that organisation should take as a resultant of financial analysis
1.1 MACRO ECONOMIC ANALYSIS
2018 has been the weakest in terms of GDP Growth, consumption, exports, imports and investment. Inflation Rate increased significantly in 2017 but has since started correcting. Trade Balances have remained fairly consistent, reflecting the state of net imports. Unemployment, however continues to decrease. Below is the summary of key economic indicators:
    Key Statistics
    2016
    2017
    2018
    Population (million)
    65.6
    66.0
    66.5
    GDP per capita (USD)
    40,664
    40,002
    42,539
    GDP (USD bn)
    2,669
    2,642
    2,827
    Economic Growth (GDP, annual variation in %)
    1.8
    1.8
    1.4
    Domestic Demand (annual variation in %)
    2.4
    1.4
    1.6
    Consumption (annual variation in %)
    3.1
    2.1
    1.7
    Investment (annual variation in %)
    2.3
    3.5
    0.2
    Exports (G&S, annual variation in %)
    1.0
    5.6
    0.1
    Imports (G&S, annual variation in %)
    3.3
    3.5
    0.7
    Industrial Production (annual variation in %)
    1.0
    1.8
    0.8
    Retail Sales (annual variation in %)
    4.8
    1.9
    2.7
    Unemployment (% of active population)
    4.9
    4.4
    4.1
    Fiscal Balance (% of GDP)
    -2.9
    -1.9
    -1.5
    Inflation Rate (CPI, annual variation in %)
    0.7
    2.7
    2.5
    Policy Interest Rate (%)
    0.25
    0.50
    0.75
    Exchange Rate (vs USD, eop)
    1.23
    1.35
    1.28
    Exchange Rate (vs USD, aop)
    1.36
    1.29
    1.34
    Current Account Balance (GBP bn)
    -102.8
    -68.4
    -81.6
    Trade Balance (GBP billion)
    -132.7
    -137.0
    -138.1
    International Reserves (USD bn)
    124
    138
    160
Table 1: Key Economic Indices for UK
GDP: Gross Domestic Product is roughly 2.5–3.0% (£55–£66 billion) below the expected GDP without Brexit. Based on pre-crisis forecasts and global economic performance in 2017 and 2018, the UK can be said to have has missed out almost entirely to capitalise on global growth, which would normally
Household spending increased at the weakest rate in 4 years, whereas government spending rose the most since 2012.
Table 2: GDP Growth Rate from 17-19
UNEMPLOYMENT: Unemployment has been below its natural rate equilibrium. This is a reflection of resilience in employment and in the household spending, despite the weakness in growth, productivity and investment since the referendum. As a result, growth has been more consumption-driven.
PRIVATE SECTOR INVESTMENT: Business investment by private sector has experienced its most sustained period of weakness other than that during a recession and is potentially the lowest in the G7. Low investment now will translate to low growth in earnings and productivity in the future.
EXCHANGE RATE: Exchange Rate against the US Dollar crashed post referendum and was very volatile over the uncertainty period in the markets.
Falling exchange rates, high employment, and low levels of investment caused the unit labour costs to rise sharply.
1.2 IMPACT OF MACRO ECONOMIC FACTORS ON TESCO
Uncertainties like Brexit and other macro-economic conditions have squeezed the budgets of TESCO’s customers. Failure to prepare for the UK’s departure from the EU caused disruption to business and led to uncertainty in terms of procurement and sourcing, pricing, supply management and most importantly demand for its products.
Demand and consumption has slowed down across various industries which has also affected the company’s sales. Exchange Rates have impacted its profitability in real terms since it operates in multiple international markets.
The company has tried to respond to macro-economic instability through customer propositions developed across different channels and geographies and improved product development and quality management processes.
1.3Mirco - Economic Factors Affecting Tesco
Tesco is one of the colossal nourishment and food retail chains spreading all across the globe. Other than being massive in the business of retail, Tesco organisation has additionally expanded the its line of business to different fields like hygiene and toiletries, products for home decor, cloth lines for family and electronic gadgets. The organisation has been fruitful throughout the years because of its effective and efficient operations and management of supply and chain. However, now the organisation faces certain challenges that is evident after comprehension of the financial statements.
Tesco contends with a various assortment of retailers of different sizes and faces along with expanded challenge from...