Business report on Tesco - Essay Example

The retail industry is one of the most competitive industries in the world. This industry is also very important for society because the products provided by the players that participate in it are essential for the survival of humans. The prices of food items affect the budgets of all families. In the United Kingdom a company that has excelled in the retail business is Tesco. The purpose of this paper is to provide a business background of the company, an analysis of its performance, and to recommend strategies the company could use to excel in the future. Business Background: Tesco Tesco is one of the world’s largest retailers with operations is in 11 countries worldwide. The firm has 480,000 employees. The company was founded in 1919 by Jack Cohen. The corporate headquarters of the firm are located in the United Kingdom. The mission of the firm is to be the champion for customers, helping them to enjoy a better quality of life and an easier way of living (Tesco, 2015). Three of the core values of the firm are understanding customers, meeting their needs, and acting responsibly in the community. As a corporation Tesco has diversified its portfolio into other sectors including the banking industry. Tesco Bank is a wholly owned subsidiary of Tesco that was established in 2008. The chief executive officer (CEO) of Tesco is Dave Lewis. Including franchises the firm has 6,814 stores across the globe. The firm also has six online stores. Tesco is a publicly traded company whose stocks are openly sold in the London Stock Exchange (LSE) under the symbol TSCO. As of November 28, 2015 the price of TSCO stocks was $169.15 (Yahoo, 2015). The market capitalization of the company is $13.67 billion. The accounting of the company is based on a fiscal year instead of the natural year. The 2015 fiscal year started on March 1, 2014 and it ended on February 28, 2015. The independent auditor of the company is PricewaterhouseCoopers. Company performance In fiscal year 2015 Tesco generated sales of £62,284 million. The sales of the company decrease by 2% in comparison with the previous year. The net income of the firm in 2015 was a loss of £5,766 million. In 2014 the firm was able to achieve a profit of £970 million. The total assets of the firm as of February 28, 2015 were £44,214 million, while the total equity of the firm at the same date was £7,071 million. The cash reserve of Tesco at the end of fiscal year 2015 was £11,819 million. The bad financial performance of the firm in 2015 caused the cash reserve of the company to go down by 9.68%. In terms of total liabilities the company owes £37,143 million. To further assess the financial performance of the company a brief ratio analysis is going to be performed. The net margin shows the absolute profitability of a company, while the gross margin is a measure of broad profitability. Tesco PLC had a net margin and gross profit in 2015 of -9.26% and -3.39 respectively. Both indicators show that the profitability of the company was bad in 2015. The current ratio shows the ability of a company to pay off its short term debt. A current ratio is considered acceptable if is above the 1.0 threshold. Tesco’s current ratio in 2015 was 0.60. The current ratio of the company is subpar since it is well below the 1.0 threshold figure. The liquidity of the company is not good. The EPS of Tesco in 2015 was -£70.24. EPS tends to have an effect on the market price per share of a company as reflected in the price-earnings ratio (Garrison & Noreen, 2003). Inventory turnover shows how many times a company’s inventory has been sold during a year. In 2015 the inventory turnover of Tesco was 21.78. The average sale period measures how many days it takes to sell inventory one time. The average sale period of Tesco in 2015 was 16.76 days. Recommendations Tesco faced tough financial times during fiscal year 2015. One of the main issues the company faced was the fact that the cost of goods sold during the year exceeded its revenues. In order for the company to gain profitability once again it is imperative for the company to lower its cost of goods sold. This can be achieved by sourcing products from new suppliers that offer more competitive prices. Another way to reduce cost of goods sold is by negotiating better prices with its current suppliers. The firm can offer incentives to large suppliers by increasing their purchase volumes with specific suppliers that are willing negotiate. Increasing purchase volumes can help the company achieve greater economies of scale. A second strategy that can be used by Tesco to increase its performance is to increase its level of online sales. E-commerce has become a more popular medium to purchase goods by customers worldwide. It is projected that global e-commerce sales are going to reach $3.5 trillion within the next five years (Lindner, 2015). Currently Tesco has only six online stores operating. This is a very small number considering the fact that the company has 6,814 physical stores across the world. The firm should at least double the number of online stores in order to increase its reach. In order for the company to attract more buyers to their online stores Tesco has to utilize the latest advertising strategies in the marketplace. One of the hottest trends in the marketing world is mobile marketing. Mobile marketing can be defined as interactive multichannel promotion of products or services for mobile phones and devices, smartphones, and networks (Techopedia, 2015). The use of mobile marketing has several advantages including the fact that SMS messages are read within 15 minutes to an hour of being sent. In comparison emails send for advertising purposes take days to be open. The company should immediately hire a marketing consultant that specializes in mobile marketing. The firm should make a major investment in mobile marketing based on the recommendations of the consulting firm. The use of mobile marketing will attract a new base of customers that had not previously purchased goods from Tesco. The recommended initial budget to implement this strategy is £100 million. The strategies recommended in this report should be implemented simultaneously by the company. Executive Summary Tesco is the leading retailer in the United Kingdom. The firm has operations internationally across 11 countries. In 2014 the company was able to achieve a profit of £970 million. Tesco PLC had a net margin and gross profit in 2015 of -9.26% and -3.39 respectively. Both figures reflect that the profitability of the company was bad. The current ratio of the firm was 0.60, a figure that is low. The company has to decrease its cost of goods sold. The firm has to better exploit the e-commerce marketplace. To attract a new breed of customers the firm must utilize mobile marketing. References Garrison, R., Noreen, E. (2003). Managerial Accounting (10th ed.). Boston: McGraw-Hill Irwin. Lindner, M. (2015). Global e-commerce sales set to grow 25% in 2015. [Accessed 28 November 2015] Techopedia.com (2015). Mobile Marketing. [Accessed 28 November 2015] Tescoplc.com (2015). Core Purpose and Values. [Accessed 28 November 2015] Yahoo.com (2015). Tesco PLC (TSCO.L). Yahoo Finance. [Accessed 28 November 2015] Read More