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Strategic Financial Management (17269)

AF4S31 Assessment 1

Dr. Rasol Eskandari

July 2020

Table of Contents

ANALYSES AND EVALUATES THE FINANCIAL POSITION OF BENEDICT Co.

• INTRODUCTION
• TESCO CORPORATE STRATEGIC FINANCIAL ANALYSIS
  • Explains the term ‘stakeholder’ and identifies three types of stakeholders of Tesco
  • Stakeholders
  • Tesco’s Stakeholders
• Report Analyses how the Environmental and Social Review and the Corporate Governance
  • Tesco’s Performance in Terms of its CSR to its Customers and Suppliers
  • Introduction and methodology
  • Analysis of the Company’s Financial Ratios
    • Profitability Ratios:
    • Use of Resources Ratios:
    • Liquidity Ratios:
    • Gearing ratios:
    • Investor ratios:
• CONCLUSION AND CAUSES FOR CONCERN
• APPENDIX
  • 1. Industrial Financial Data
  • 2. Benedict Co.’s Income Statement
  • 3. Benedict Co.’s Balance sheet
  • 4. Calculated Capital employed
  • 5. Calculation of Benedict Co.’s financial ratios
• REFERENCES

as primary or secondary. Bresson (2003) argues that stakeholder analysis is the "smart step" for companies to understand and formulate strategies and manage the company's internal and external environment to achieve superior profitability. Internally, these types of stakeholders, such as employees, are associated with the company's duties and are important to daily tasks. Connected, related to the functional part of the company, but with management levels such as shareholders. Finally, externally, these types of stakeholders have a supervisory role as a government. In summary, stakeholders are individuals, companies, institutions, entities, or directly the entire community that can influence or be affected by the company's activities. According to (Tesco 2017), Tesco's 2016 Annual Report classified stakeholders into three main categories: internal (primary) and external (secondary) and related.  Tesco’s Stakeholders There are three main stakeholders: colleagues (staff), customers, and suppliers, from the 2016 Tesco Annual Report (Tesco, 2017, pp48, 53). Others are environmental groups, shareholders, investors, funders, owners, and partners known as external stakeholders. Secondary are government, councils, provinces, competitors, the media, journalists, regulators and charities, and corporate social responsibility. Concerning Tesco's 2016 Annual Report report, Tesco has three stakeholders that are explicitly highlighted in the Corporate Governance Report: employees, colleagues, customers, and suppliers. The company refers to colleagues as Tesco employees as the company invests to serve its customers better. The company has also reflected on key performance indicators for its employees as it indicates recommendations-related metrics and an excellent place to work or shop. Suppliers are Tesco's main stakeholders that belong to associations within connected stakeholders. Finally, Tesco customers are referred to as the people or entities that buy the company's products and services, return, or recommend it to other buyers. Analyses how the Environmental and Social Review and the Corporate Governance Report We must analyze how the Environmental and Social Review and Corporate Governance report helps Tesco demonstrate its social and corporate responsibility (CSR) to two key stakeholders. These are the clients and suppliers highlighted and highlighted in the Annual Report 2016 (Tesco, 2017). Note that he demonstrated that the company's performance depends on these two shareholders. These indicate that the company dramatically appreciates its contribution to its profitability by providing key performance indicators to customers and

suppliers that are presented by measuring the performance of Tesco Company (Tesco 2017, pp12). The measurement of the performance of customers and suppliers in support of particular corporate governance objectives, specific measures and goals are established by rebuilding trust and transparency (Tesco, 2017, pp. 30, 48, 50). Healthy CSR activities implemented in community and charity projects within the framework of these objectives. The company also adopted the UK Corporate Governance Code by highlighting the relationships between social and environmental actors and the adoption of specific reporting structures (Tesco, 2017, pp. 30).  Tesco’s Performance in Terms of its CSR to its Customers and Suppliers Through the corporate governance report on (pp. 8, 12-13, 30, 39, 43, 51, and 126), shows Tesco's non-profit goals and social and environmental responsibilities. As reported by the CEO, Tesco's priorities are threefold: protect and strengthen the balance sheet, restore competitiveness, and rebuild trust and transparency (Tesco, 2017). To accomplish this, Tesco has 476,000 energetic employees and 6,902 retailers serving millions of customers (with 78 million shopping trips per week) with a strong slogan: "Buyers are better every day" and has outlined a strategy it works. With your suppliers. The main factor in this is the corporate social responsibility of the fittest, with 18 million meals donated through redistributive work and food collection in the neighborhood. With the aforementioned, Tesco's corporate social responsibility and corporate governance are essential to rebuilding trust and transparency between its customers and suppliers. Tesco (2017) has also tried it, an example: creating 6902 communities around Travis, a community food campaign nationwide, building a temporary flood store, all surplus food from all Tesco stores in the UK and shipping it to charities, create a number 100 supermarkets until the end of 2016 working to help feed those in need, in cooperation with local charities (Local Food Collection and Distribution Community), to raise $ 30 million to promote healthy living through from a UK charity with diabetes and the British Heart Foundation, since 2015, Customers participated in specific community projects to receive $ 11.5 million raised from the sale of Tesco bags; Donated through Help Bags as it considers (the UK's most significant environmental improvement campaign) Tesco (2017) reports that the performance of these non-financial CSR initiatives is related to Tesco's financial goals. ANALYSES AND EVALUATES THE FINANCIAL POSITION OF BENEDICT Co. Introduction and methodology Benedict has been a leader in premium rescue solutions in the UK since 1983, so he has professional experience buying and selling merchandise or other items that are damaged or left behind in transport claims or warehouse losses (Benedict Co. 2019). Managers, investors,

that although ROCE has fallen within two years of the review, more sales may be lower in price to attract customers. This increase in sales and the decrease in sales cost in this scenario may explain the increase in the gross profit margin. The increase in used capital sales can be explained by the apparent increase in net assets turnover during the years under review, from 0.73 to 0.77 times. In Scicluna (2019, p. 9), we also saw the improvement in Benedict's ability to generate income from used capital.

2. Use of Resources Ratios: Ratios 20X1 20X0 Observations Stock days 118.63 65.45 Increased Debtor days 90.06 55.70 Increased Creditor days 155.13 108.24 Increased Cash conversion cycle 53.56 12.91 Increased Table 2. Use of Resources Ratios. Scicluna, C. (2018) (Bragg 2018) explained that the average days of debtors could be measured by the average number of days required for a company to receive payments (commercial fees) from its customers for invoices issued to them. (Table 2) shows a significant increase of 43.9 days (62.66%) in 20 x 1 compared to the previous year represented by the rise in the number of debtor days from 55.7 to 90.06. We believe this is a significant decrease in the company's ability to collect commercial accounts receivable, as is poorly reflected in its 20 x 1 performance. Benedict Co compares poorly to industry players with an average of 55 days due to trade. (Kaplan Financial, 2012) believes that a positive note is that a deliberate policy is to attract more business and competition with industry players. (Table 2), there is a Benedict increase in creditor days from 108.24 to 155.13, a difference of 43.31 days in the years 20X0 to 20X1. Commercial payouts are much more than the average for players in the industry. Besides, accounts payable are longer than accounts receivable, Benedict's retail providers may choose to deal with other industry players and not credit the company. The company's financial position can be poorly explained. The company converts its investment in inventory and other resource inputs into cash through the cash transfer cycle, which is the calculation of cash flow that measures the time it takes the company. There is a noticeable increase in Benedict Co's cash transfer cycle from 12.91 to 53.56 from 20X0 to 20X1, as shown in Table 2. We attribute this to the increase in shares, debtors, and credit days noted in Table 2. Thus, Benedict was underperforming and was ineffective in using its resources to generate cash from its capital assets.

3. Liquidity Ratios: Ratios 20X1 20X0 Observations Current ratio 1.19 1.25 Decreased Quick ratio 0.70 0.75 Decreased Table 3. Liquidity Ratios. Scicluna, C. (2018) In Table 3, we observe there has been a slight decrease in the current and rapid ratios from 1.25 to 1.19 and from 0.75 to 0.70, respectively, in the years under review. In 20 x 1 year for $ 1.19 in current assets, the company had bonds of $ 1.0. As a result, Benoît can marginally cover his obligations. The decrease in the current ratio is the result of the increase in sales previously reported. To increase the current rate, Benedict Co can reinvest its profits by buying more assets, taking out a long-term loan, or paying off its debts. A very high current ratio may mean that the money is not optimal. Jim (2011) argued that the current ratios of 1. to 1.5 could mean that the business may have difficulty paying its obligations. The rapid ratio, or "acid test," analyzes the most liquid assets and compares them to current liabilities. In Table 3, it observes that although the rapid ratio fell from 0.75 to 0.70, it remained high and satisfactory for the recommended numbers between 0.5 and 1 (IFC, no date). It may have decreased due to the reported increase in sales in 20X1.
4. Gearing ratios: Ratios 20X1 20X0 Observations Gearing ratio 30.00% 23.60% Increased Debt/equity ratio 42.86% 30.89% Increased Interest cover 5.38 16.40 Decreased Table 4. Gearing Ratios. Scicluna, C. (2018) Based on our calculation in Table 3, the gear ratio increased slightly from 23.60% to 30.00% from 20X0 to 20X1, which is less than the recommended 50% (Scicluna, 2019). The increase can be attributed to the company's long-term debt increase from $ 8 million to $ 12 million (50%) compared to a slight increase in the capital used from $ 33.9 million to $ 40 million (17.99%). Kaplan Financial (2012) also argues that evaluating a company's financial position focuses mainly on its stability and risk exposure when analyzing how to structure and finance the business. This is known as gears. The scale measures the company's external debt (outstanding loans) compared to equity financing (capital and reserves).

led to a decrease of 25% interest rate, as noted. The rate of return on earnings decreased due to a significant reduction in profitability, and the value of earnings per share tends to zero. CONCLUSION AND CAUSES FOR CONCERN The analysis shows Benedict as a company with a weak financial position, without competitiveness, and with extreme financial and commercial risks. Its profitability and performance consider deteriorating profitability and a sharp increase in days of the company's creditors and money transfer cycle, an increase in the days of the debtor, and an increase in the liquidity pressure. This situation, which is exacerbated by the situation, is challenged by the rise in the gross rate of return and a slight increase in turnover of net assets. Therefore, additional analysis may be required to determine these results. Resource utilization rates show that Benedict has failed to accelerate stock trading, increase revenue, and convert stocks to cash. The calculated liquidity ratios show that the company may not be able to meet its short-term obligations and will not cover operating and marketing costs. The biennial review shows that the company's commercial and financial risks are growing. Inference coefficients confirm this position. Finally, investor ratios demonstrate that Benedict cannot profit for its investors since the observed return is less than the value of the earnings per share. Based on the analysis and data provided, Benedict is unable to meet the requirements of potential customers, investors, creditors, and suppliers. Finally, the analysis of investor relations, which was limited to earnings ratios due to stable returns, earnings, and earnings per share, demonstrates Benedict's inability to make a profit for his investors by earning fewer dividends.

APPENDIX

1. Industrial Financial Data

Current ratio 1. Quick ratio 1.

Trade receivable days 55 days Trade payable days 90 days Inventory days 60 days University of South Wales (2020).

2. Benedict Co.’s Income Statement

In $' A D E F 20X1 20X0 Diff. % 12 Sales 30800.0 24900.0 23. 13 Cost of sales 16000.0 14500.0 10. 14 Gross profit 14800.0 10400.0 42. 15 Admin expenses 1700.0 400.0 325. 16 Distribution costs 3500.0 800.0 337. 17 Finance costs 1300.0 500.0 160. 18 Profit before taxation 8300.0 8700.0 -4. 19 TAXATION 1700.0 1700.0 0. 20 Profit after taxation 6600.0 7000.0 -5. 21 Dividends $'000 4500 3600 25. 22 Share price 31 Jan $/share 5.6 3.6 55. 23 Issued shares Items 18000000 0

24 Nominal value $/spare 1 1 0. University of South Wales (2020).

3. Benedict Co.’s Balance sheet

In $' A D E F

Total assets

Minus Current liabilities

Capital employed 40,000 33,900 17. University of South Wales (2020).

5. Calculation of Benedict Co.’s financial ratios

Ratios Interpreta tion Formulas Calculations Results 20X1 20X0 20X1 20X Profitability Ratios Return on capital employed (ROCE) Indicates the % of return earned by a company's capital employed. PBITx TA-CL

1300)x (50,800 - 10,800)

Net profit margin Indicates the % of a company's turnover which is represented by profit after operating costs. PBITx Sales

1300)x (30,800)

500)x (24,900)

Gross profit % Indicates the % of the selling price that represents profit rather than cost. GPx Sales 14800 x 30, 10400 x 24,

Net asset turnover shows how efficiently the Turnover Capital employed

company's capital employed is used to produce turnover Use of resources Stock days Shows the number of days (average) worth of stock held by a company. Inventory x 365 Cost of Sales 5,200 x 16, 2600 x 14,

Debtor days Shows the number of days (average) that it takes debtors to pay. Trade receivables x Sales 7,600 x 30, 3,800 x 24,

Creditor days Shows the number of days (average) that it takes to pay creditors. Payablesx 65 Cost of Sales 6,800 x 16, 4,300 x 14,

Cash conversion cycle Gives an idea of the (average) length of time it takes a company to generate cash from operations Stock days

• Debtors days – Creditors days

Liquidity ratios Current ratio It gives the number of Current Assets

Return on equity A similar measure to ROCE Earning after-tax x Ordinary share capital plus reserves

x100) (28,000)

x100) (25,900)

Dividend per share (DPS) DPS Dividend paid to ordinary share

issued

ordinary shares

x1,000) 180,000,

x1000) 180,000,

Earnings per share (EPS) show the amount of dividend (DPS) and profit (EPS) available to each ordinary shareholder Earning after tax

of issued

ordinary shares

Dividend cover The inverse of pay-out ratio.

EPS

DPS

Payout ratio Inverse of dividend cover Dividend paid to ordinary shareholder s x 100 / earnings after tax (4,500 x 1000x100) 6, (6,600 x 1000x100) 7,

Price/ earnings ratio Shows the number of years' earnings that a shareholder would be willing to sacrifice in order to Market price per share / EPS

purchase one share. Dividend yield Shows the return to ordinary shareholder s as a % of the share price represented by DPS DPSx Market price per share (0.025 x

(0.02 x 100)

Earnings yield Shows the return to ordinary shareholder s as a % of the share price represented by EPS EPSx Market price per share (0. x 100)

(0. x 100)

0.0007% 0.0011% REFERENCES Benedict Co. (2018). Benedict Company profile. Available online: http://www.benedictcompany.com/services/ [Accessed on 24 June 2020].