Financial analysis Essay
Stakeholders also encompass entities that are affected by similar achievements. According to (Tesco, 2016) the chairman acknowledges that there are huge responsibilities for the company to customers, shareholders, colleagues and supplier partners. With the focus on customers, the chairman expects that all other stakeholders’ needs will be met. In ensuring the existence of trust between Tesco and its customers, customers are given lower and stable prices. Their trust will be earned since they will recognize Tesco as offering the best shopping experience with the best prices. Employees have their human rights catered for via practicing of consistent people policies. The benefit derived is that Tesco employees feel welcome within the premises and they have confidence that the operational environment is safe. Another initiative is employees’ and customers’ health.
Tesco has engaged in partnerships with health experts such as Diabetes UK and British Heart Foundation. These partnerships leverage on Tesco’s ability to reach local communities whereas the health partners draft initiatives to counter the major health challenges across the UK. Through the redesign, the company has strengthened its capabilities in identifying human rights risks hence it is capable of addressing systemic issues such as modern slavery (Tesco, 2016). This model has sidelined audits and accommodated partnerships with other supplier partners and other entities such as civil society, union representatives and government bodies. In order to counter workforce abuse within its supply chain, Tesco is applying key performance indicators. This model has increased its corporate impact within the supply chain since it remedies any human rights abuses within hence meeting labor requirements.
Within the corporate governance report, there is a focus on employees. Customers may have a close attachment to Benedict hence they would have preference for Benedict to be a going concern in the long term. The other stakeholders will be investors. They are the individuals committing their funds to Benedict so that such funds can be applied in furthering the objectives by management. Their main concern will be potential profits as well as security of their investment (Fontaine, et al. This implies that past performance along with expected results will shape their decisions. In the event of illiquidity at Benedict, suppliers may cut their supplies hence interfering with conduct of activities at the company. Section (a): Purpose and relevance of ratios The first class of ratios is profitability ratios.
Under this class, the net margin ratio has been selected to evaluate the extent of earnings as a fraction of sales. This ratio is essential in determining profitability from each unit of sales (Bull, 2007). The net margin will indicate Benedict’s ability to pay for expenditure and ensure that its operations keep running smoothly. As a result, these stakeholders will evaluate the possibility of interest payments on their loans. The second class of ratios is liquidity ratios. These ratios will be necessary in determining the ease with which Benedict can pay off its short term obligations without raising external capital or even liquidating its assets. It details the degree of coverage of short term debts if collectors were to demand their funds as an emergency.
The first is working capital. If Benedict is deemed to be struggling by lenders, they may limit advancing funds to Benedict. Other stakeholders interested in liquidity will be suppliers. Since supplies are commonly paid after delivery is done, liquidity will be evaluated upon by these stakeholders to determine whether payments for future supplies will be paid timely. The third class of ratios is efficiency ratios. Analysis under efficiency ratios will explore Benedict in terms of using its assets for effective management of its liabilities. Correlation between this ratio and relations with suppliers is high since worsening financial conditions increase the ratio hence indicating delayed payments to suppliers. There will be another class of ratios on investors’ returns. This class will be of interest to investors since they are stakeholders who have risked their funds for use within the company.
The first will be earnings per share. It will show these stakeholders about their expected gains from investing at Benedict. 745 Efficiency 20×1 20×0 Trade receivable days 91 days 56 days Inventory days 219 days N/A Trade payable days 81 days 63 days Return to investors 20×1 20×0 EPS 0. 39 DPS 0. 20 P/E ratio 15. 23 There was a decrease in the net margin since sales increased whereas net profit decreased. Even though sales increased, the gross margin increased since the gross profit increased significantly. Even though sales increased, there was an overall ratio increase since trade receivables doubled. On the other hand, trade payable days increased indicating that the increase in trade payables was higher than the one for sales. When it comes to ratios interesting investors, earnings per share decreased since net earnings decreased.
Notably, number of outstanding shares remained flat. Dividends per share increased owing to the increase in total dividends paid. Lenders may fear that Benedict will be unable to pay short term loans whereas suppliers may fear that Benedict will be unable to make payments at agreed dates. When it comes to efficiency ratios, there is an increase between the periods. Clearly, Benedict is taking longer to collect funds from sales. The industrial outlook makes it worse since Benedict is inefficient given its longer trade receivable days. Lenders will fear advancing short term funds since Benedict is inefficient in collecting revenues. They have also raised concerns for other stakeholders including suppliers and lenders given the high illiquidity and inefficiency. However, ratios may misrepresent the impression at an entity given the period under review.
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