SWOT and Ratio Analysis: The Tesco - Case Study Example

SWOT and Ratio Analysis By Introduction The Tesco supermarket is the largest food retailer in the United Kingdom that operates over two thousand stores internationally. Tesco supermarket operates approximately one thousand eight hundred stores in the United Kingdom and it is greatly diversified in the Europe and Asia continents. Tesco is also attached to online services in their link Tesco.com that offers a range of finance services (Burch and Lawrence, 2007). There are also offline services by the organization and its headquarters is situated in Hertfordshire, United Kingdom. The organization makes sure that customers are provided with quality services and products since the consumers or rather customers are concerned with the value but not the price. The food and drink retail sector represents the greatest industry in the United Kingdom and this provides various employment opportunities that boost the living standards of the occupants of the United Kingdom. In the year 2003, the retail sector accounted for approximately 10 percent of the United Kingdom’s Gross Domestic Product. Currently the supermarkets in the United Kingdom are greatly analysed on the way they treat their suppliers and customers because they are greatly concerned with the supply strategic networks. This article analyses the external and internal factors that affect the company. This will be through the examination of Porters Frame work on the concept of SWOT analysis that is perfectly attached to the progress of operations in an enterprise and in this case, it is the Tesco Supermarket (Burch and Lawrence, 2007). There will be also the scrutiny of the ratio analysis of the organization. The ratio analysis of the Tesco supermarket will help in the evaluation of the financial position of the firm. This is because profit maximization is always a major issue in the implementation and progress of an enterprise. The SWOT analysis of Tesco Supermarket The market in which the Tesco Supermarket operates in is very competitive this is because other enterprises such as the Morrison’s and Sainsbury are always striving to be the best in the retail market. One year ago Tesco Supermarket was the best retailer enterprise both in the United Kingdom and internationally (Coe and Wrigley, 2009). In order to maintain this success of profitability the organization must perform a SWOT analysis. The SWOT analysis is a concept that was introduced by a great economist known as Michael Porter in his theoretical framework of economics and management. This principle is always concerned with the internal and external factors that affect a business enterprise. The internal elements are the Strengths and Weaknesses while the external factors are the Opportunities and strengths. In order for the Tesco supermarket to maintain an excellent competitive advantage, it must adhere to this concept because it is through the SWOT analysis that a firm knows the kind of attributes or rather value that customer’s need on the products and services (Leahy, 2012). The analysis of the factors is illustrated below for a great growth and development of an enterprise specifically the Tesco Supermarket. Strengths The Tesco supermarket is a great retail enterprise thus its fame is known internationally. This will always give the organization in marketing their products because people will always buy them because they have the mentality the fame cannot come out of products with least qualities (Coe and Wrigley, 2009). Customers are always loyal to the products from the Tesco supermarket due to their best qualities and the convenient services and this makes the consumers to enjoy the value for their money. The packaging of the Tesco supermarket is always appropriate for the type of product it carries, which helps attract consumers. The Tesco supermarket is also quite innovative and it has implemented the service of online shopping that operates for twenty-four hours plus a convenient delivery. The management of the enterprise is very responsible due to their experience and skills in management that ensures that the operations of the Tesco supermarket are best. The organization is also equipped with the modern technology that makes its operations fast and reliable. Weaknesses The Tesco enterprise finance profit levels were attained though credit card amount overdue, bad debts and household insurance claims. The enterprise at most of the time will have to lower their prices being the price leaders and this will in turn lower their profit margin. The communication within the organization is always not open because most of the progress of the enterprise is kept to the management and the board of directors (Leahy, 2012). Corrupt leaders that will always embezzle funds that are allocated for development and expansion projects always comprise the organization. Opportunities The Tesco supermarket is among the top largest enterprise in the world. This will always give the enterprise an advantage of buying goods in bulk thus low prices. It will enjoy this factor due to the principle of economies of scale. The online services of the enterprise greatly expand due to the digital migration of the whole world that is facilitated by the modern technology. Most customers will be loyal to the services and products from the organization and this will trigger the idea of expanding into other markets. The Tesco organization and its mobile implementation strategy has the chances of expanding greatly due to the fact that the whole world is embracing modern and advanced technology. Threats The buying patterns of the consumers are greatly are changing with the advancing levels of technology thus the consumers will always demand products with high value and with that the enterprise must perfect its levels of production (Vane and Mulhearn, 2012). The increasing prices of the raw materials from both non-food and food will greatly reduce the profit margins exposing the enterprise to risks of losses at any time. Another threat is always the stiff competition from other firms such as the Morrison’s and Sainsbury that make the company to strive to maintain the competitive advantage. In cases where the enterprise hesitates from maintaining the customers with the products and services of standard quality there is a high probability of the customers to divert and purchase from the other enterprises (Seth and Randall, 2005). The Ratio Analysis The ratio analysis is always concerned with the financial position of the firm. Finance is always a major factor that shows the stability of an organization because money is the driving factor of all operation in the enterprise. The finance department in the organization should ensure that there is appropriate auditing for the Tesco supermarket in order to know the rate at which it needs to inject finance in order to make great returns (Leahy, 2012). There are specific issues that are always analysed in the ratio analysis of an enterprise. This article will do the evaluation critically in order to project information that can be easily interpreted by whoever accesses the article. Once there is a clear description of how an organization utilizes its finance then profitability is always easy to achieve. The ratio analysis includes profitability, liquidity, financing gearing and investment ratios. Profitability The profitability ratios are always evidence that a company is operating on long-term growth with the ability of generating profits. The profitability will always increase when the margin increases and becomes more stable over time (Leahy, 2012). The data below on profitability is in form of percentage. 2013 2012 2011 Gross profit margin 6.31 8.44 8.37 Operating profit margin 5.8 6.0 6.4 Return on capital employed 8.98 15.85 15.84 Return on shareholders’ funds 22.5 18.7 0.2 The figure below represents the operating margin in the United Kingdom market only: The return on capital employed is always concerned with the debt and other liabilities of the enterprise that are always useful to perfect investors. The figure below represents the return on capital employed in the United Kingdom market: Liquidity The liquidity ratio is always important for providing information that indicates the ability of an organization to meet the short-term obligations (Seth and Randall, 2005). It is also important in illustrating the success of an enterprise over the short term. 2014 2013 2012 Current ratio 0.65 0.66 0.67 Acid test ratio 0.48 0.49 0.51 Efficiency The efficiency ratio is paramount in an enterprise as it helps for the analysis of how an organization utilizes assets and liabilities in order to generate profits. The analysis for Tesco was as follows: 2013 2012 2011 Average inventories turnover period per days 21.98 20.88 19.04 Sales revenue to capital employed per times 4.16 4.45 4.55 Sales revenue per employee per Euro 122698 122993 122698 Financial gearing The Tesco supermarket uses the financial gearing when it finances its operations by funds from the use of loans instead of the shareholder’s funds (Vane and Mulhearn, 2012). This is always a paramount risk assessment measure. 2013 2012 2011 Gearing 50 % 53.12% 52.31% Invest cover ratio per times 1.90 10.17 8.40 Investment ratios Tesco supermarket investors will always use this concept in order to make the enterprise more attractive and lucrative thus making other investors to have interesting in joining the enterprise. 2013 2012 2011 Dividend cover ratio 1.16% 2.65% 2.69% Dividend yield ratio 3.97% 4.60% 3.32% Earnings per share 17.29 39.34 34.40 Dividends per share 14.75 14.70 13.52 Process per earnings ratio 21.50 8.07 11.21 Conclusion The food and drink retail sector represents the greatest industry in the United Kingdom and this provides various employment opportunities that boost the living standards of the occupants of the United Kingdom (Vane and Mulhearn, 2012). The Tesco supermarket is a top performer in the market and must strive through management that will make sure that it is maintaining its competitive advantage. References Burch, D. and Lawrence, G. (2007). Supermarkets and agri-food supply chains. Cheltenham: Edward Elgar. Coe, N. and Wrigley, N. (2009). The globalization of retailing. Cheltenham, UK: Edward Elgar. Leahy, T. (2012). Management in 10 words. New York: Crown Business. Seth, A. and Randall, G. (2005). Supermarket wars. Basingstoke [England]: Palgrave Macmillan. Vane, H. and Mulhearn, C. (2012). Economics for business. Basingstoke, Hampshire: Palgrave Macmillan. Read More