Accounting & Finance for Decision Making Case Study

Table of Contents

Introduction of Accounting And Finance For Decision Making Case Study
4. Critical evaluation of the risks and returns on its financial performances
Table 6: Evaluation of the financial performances of Tesco plc
Introduction

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Introduction of Accounting And Finance For Decision Making Case Study

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1. Executive summary

The real problems faced by Tesco plc during the Covid 19 pandemic have been explained in this report. The importance of resolving the problems has been measured into the business activities of the company. The process based on which the article intelligence can be implemented into Tesco plc has been comprehensively discussed in the evaluation. The operational capabilities that need to be changed in its financial activities have to be properly measured into the evaluation of the businesses. The relevant measures have been applied into the analysis that makes tremendous impact into the financial strategies. The conduction of the payback period and the evaluation of the NPV are considered as one of the main areas of this analysis.

The evaluation of the NPV and implementation of the IRR are two main aspects into the evaluation of this project. The pestle and SWOT has been analyzed that helped in evaluating the financial performances in relation with the investment appraisal of Tesco plc. The concepts of the cost of capital and the cost and benefits have been explained that are related with the financial analysis of the business. The return of NPV and the financial activities of the business have been properly evaluated into one of the main financial areas of the analysis. The risks and returns involved within the investment appraisal have been developed with the report. Based on the financial analysis, it has been observed that the financial performances of Tesco plc decreased in the financial year 2021. However, with the help of the implementing artificial intelligence the profitability of the business can be improved in the next five years.

2. Evaluation of the proposed investment

2.1 Purpose

The investment proposal is to implement artificial intelligence (AI) into the retail business of Tesco plc as it will reduce the overall expenditure of the business. It will help in making a positive impact on the supply chain management of the organization. As opined by Benford et al. (2018), the purpose of making implementation of the AI into the retail businesses is to make proper price projection and certain techniques used into the price formulation. With the help of using AI into the distribution channels, in the post pandemic period the orders of the products can be gathered through online portals. Hence, the primary approaches to implement AI into the Tesco plc into the organization.

2.2 Process

The main problem that has caused the lack of the financial blockage in Tesco plc is shortage of technological usages that have a negative impact on the business activities. Due to the large number of the orders placed from the customer's perspective in the post covid period which cannot be properly solved by the financial officers of the company. As narrated by Pusca (2019), the internal capability gap can be solved with the help of establishing AI technologies into the business. Due to the outbreak of Covid 19, the operating profit margin of Tesco plc has been reduced by 7% as a major portion of the financial operations has been blocked.

2.3 Proposition

Application of the AI into Tesco plc can help in eliminating the financial gaps of the business as the overall concentration of the AI is to increase the total value of the business. The internal capabilities of the business can be established as proper implementation of the techniques bring sustainable growth into the evaluation. As visualized by Ledley et al. (2020), implementation of the theory of mind and reactive mechanism article intelligence are visualized as two positive approaches that helped in eliminating the issues related with the inventory valuation into the business. The three stages involved with machine learning are supervised learning and reinforcement techniques have made a positive impact into the business operational activities.

3. Conduction of the investment appraisal

3.1 Conduction of the payback period

The payback period of the investment appraisal has been estimated as 3.8 years after calculating the net cash flows of all the respective years. [Referred to Appendix 1]

3.2 Evaluation of the net present value

*Investment appraisal in Tesco plc*
Description	Year 0 (£K)	Year 1 (£K)	Year 2 (£K)	Year 3 (£K)	Year 4 (£K)	Year 5 (£K)
Programme Cost	(750)	(500)	(600)	450
Annual Benefits	400	800	900	1,100	1,500
Net Cash Flow	(750)	(100)	200	900	1,100	1,950
Cost of Capital (CoC)	38.0%
Discount Factor	1.00	0.72	0.53	0.38	0.28	0.20
Present Value (PV)	(750)	(72)	105	342	303	390
Net Present Value	(750)	(822)	(717)	(375)	(72)	318
Year 0 (£K)	Year 1 (£K)	Year 2 (£K)	Year 3 (£K)	Year 4 (£K)	Year 5 (£K)
Investment appraisal in Tesco plc	(750)	(822)	(717)	(375)	(72)	318

Table 1: NPV of the investment

(Source: Created by learner)

Figure 1: Diagrammatic presentation of the NPV

(Source: Created by learner)

The NPV of the different months have been estimated into the analysis as the present market schemes and policies have to be measured (Haris et al. 2019). The NPV of the financial year has been estimated as £318 related with the investment appraisal in Tesco plc.

3.3 Estimation of the internal rate of return

The percentage on the internal rate of return has been observed as 23% which has been estimated based on the net cash flows and NPV of the project. [Referred to Appendix 2]

3.4 Pestle analysis

*Particulars*	*Explanation*
P- Political factors	Stability in the government, the administration system into the country and the associated procedures make its impact into the investment appraisal of Tesco plc (Ahmed et al. 2020).
E- Economical factors	The economical factors that make its impact into the investment appraisal are GDP of the country, rate of inflation and the total rate of unemployment make its impact into the overall investment (Anagnostopoulou et al. 2019).
S- Social factors	Social factors such as the income level of the investors as well as their qualification level made an impact on the total level of investment into the post Covid period (Nguyen and Nguyen, 2020).
T- Technological factors	The relevant opportunities for further expansion and the improvement into the total operating procedures make its impact into the total business volume (Anton and Nucu, 2020).
L- Legal factors	The technological implementation act and the company’s act of the UK visualize certain restrictions into the total operational activities of the business (Pusca, 2019).
E- Economical factors	The application of the AI technologies will help in minimizing the total level of pollutants into the factories of Tesco plc.

Table 2: Pestle analysis

(Source: Created by learner)

3.5 SWOT analysis

*Strengths*	*Weakness*
? One of the biggest companies into the UK market. ? Growing number of the stores observed into the post pandemic period. ? Effective supply chain distribution channels.	? Decrease into the operational profit in the year 2020 and 221 respectively. ? Lack of operational growth into the respective markets. ? Unfair business operational performances.
*Opportunities*	*Threats*
? The expansion of the total business activities. ? Emerging growth into the market into the upcoming years. ? Price matching policies implemented.	? Rising cost into the business. ? Supply chain issues. ? Huge competition with the other supermarkets

Table 3: SWOT analysis

(Source: Created by learner)

4. Critical evaluation of the risks and returns on its financial performances

4.1 Evaluation of the sensitivity analysis

*Investment appraisal in Tesco plc*
Assumptions
Particulars	Amt $	Products sold
Products sold	$ 100,000.00	$ 92,500.00	$ 500.00	$ 750.00	$ 1,000.00	$ 1,250.00	$ 1,500.00
Price per product	$ 500.00	$ 200.00	$ 15,000.00	$ 15,750.00	$ 17,325.00	$ 20,790.00	$ 25,987.50
Store rent of the business	$ 4,500.00	$ 175.00	$ 20,000.00	$ 21,000.00	$ 23,100.00	$ 27,720.00	$ 34,650.00
Total payroll	$ 3,000.00	$ 150.00	$ 25,000.00	$ 26,250.00	$ 28,875.00	$ 34,650.00	$ 43,312.50
Profit & loss statement		$ 125.00	$ 30,000.00	$ 31,500.00	$ 34,650.00	$ 41,580.00	$ 51,975.00
Particulars (Assumptions)	Amt $(Assumptions)	$ 100.00	$ 35,000.00	$ 36,750.00	$ 40,425.00	$ 48,510.00	$ 60,637.50
Total revenue	$ 92,500.00	$ 75.00	$ 40,000.00	$ 42,000.00	$ 46,200.00	$ 55,440.00	$ 69,300.00
Cost of sales	$ 45,000.00
Gross profit	$ 47,500.00
Standardized costs	$ 19,230.00
Operating profit	$ 28,270.00

Table 4: Evaluation of the sensitivity analysis

(Source: Created by learner)

4.2 Visualization of the cost of capital

The cost of capital of the investment appraisal has been estimated as 38% into the present investment appraisal. The present net cash flows, discounting factors and the annual benefits gained into the analysis have been measured.

4.3 Cost and benefits evaluation

The costs and benefits observed in the investment appraisal are related with the total programmed costs and the annual benefits obtained from the evaluation. The annual benefits observed from the present investment appraisals are £400, £800, £900, £1100 and £1500 from the respective five years.

4.4 Justification of NPV

The return of the NPV has been determined based on the present value factor and the evaluation of the discounting factors into the discussion.

4.5 Visualization of the discounted payback period

*Discounted payback period of investment appraisal*
Year	NET Cash flows (£)	Balance
Year 0	-750	-750
Year 1	-100	-850
Year 2	200	-650
Year 3	900	250
Year 4	1100	1350
Year 5	1950	3300
Payback	3.8	3.80 years
Discount Factor	1	0.72	0.53	0.38	0.28	0.2
Year	CF	PV CF*	Balance
Year 0	-750	-750	-750
Year 1	-850	-612	-1362
Year 2	-650	-344.5	-956.5
Year 3	250	95	-249.5
Year 4	1350	378	473
Year 5	3300	660	1038
Discounted cash flows			1261.5
Discounted payback period in years			5.590909091

Table 5: Evaluation of the discounted payback period

(Source: Created by learner)

4.6 Evaluation of the financial performances of the Tesco plc

Particulars	Amount 2021	Amount 2020
Sales/ Revenue	£ 59,585,000.00	£ 57,887,000.00
Cost of Sales	£ 55,039,000.00	£ 53,538,000.00
Gross Profit	£ 4,546,000.00	£ 4,349,000.00
Operating Expenses	£ 1,923,000.00	£ 1,843,000.00
Operating Incomes(any)	£ 2,623,000.00	£ 2,506,000.00
Operating Profit	£ 5,246,000.00	£ 5,012,000.00
Finance Costs (any)	£ 26,000.00	£ 43,000.00
Finance Incomes (any)	£ 13,000.00	£ 15,000.00
Profit Before Interest and Taxes	£ 5,233,000.00	£ 4,984,000.00
Interest	£ 13,000.00	£ 15,000.00
Taxes	£ 263,000.00	£ 104,000.00
Profit After Tax (Net Profit)	£ 4,957,000.00	£ 4,865,000.00
Year	Gross Profit Ratio	Amount	Ratio
2021	Gross Profit	£ 4,546,000.00	7.63%
Sales	£ 59,585,000.00
2020	Gross Profit	£ 4,349,000.00	7.51%
Sales	£ 57,887,000.00
Year	Net Profit Ratio	Amount	Ratio
2021	Net Profit	£ 4,957,000.00	7.30%
Sales	£ 59,585,000.00
2020	Net Profit	£ 4,865,000.00	8.40%
Sales	£ 57,887,000.00

Table 6: Evaluation of the financial performances of Tesco plc

(Source: Created by learner)

The financial ratios have been measured based on the gross profit and net profit analysis of the business (Yahoo finance.com, 2022). The net profit margin of Tesco plc has been observed as 8.40% in the financial year 2020 which is reduced to 7.30% into the assessment year 2021 due to the reduction into the financial activities (Yahoo finance.com, 2022).

Reference list

Books

Benford, D., Halldorsson, T., Jeger, M. J., Knutsen, H. K., More, S and Naegeli, Hardy, A. (2018). The principles and methods behind EFSA's guidance on uncertainty analysis in scientific assessment. EFSA Journal, 16(1) doi:http://dx.doi.org/10.2903/j.efsa.2018.5122. Available at: https://www.proquest.com/docview/2570451545/C5CE9D9C0A964F9FPQ/2?accountid=30552, [Accessed on: 05/05/2022]

Pusca, A. 2019, "Human Relationships and International Relations: “Danubius University” of Galati and Its Credo", Acta Universitatis Danubius.Relationes Internationales, vol. 12, no. 1. Available at: https://www.proquest.com/docview/2310491757/A1BA04673C4A4323PQ/1?accountid=30552, [Accessed on: 05/05/2022]

Journals

Alarussi, A. S., and Alhaderi, S. M. (2018). Factors affecting profitability in Malaysia. Journal of Economic Studies.

Zhichkin, K., Nosov, V., Zhichkina, L., Zhenzhebir, V., and Rubtsova, S. (2020). The agricultural crops production profitability in modern conditions. In E3S web of conferences (Vol. 175, p. 13008). EDP Sciences.

Le, T. D., and Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65-73.

Ledley, F. D., McCoy, S. S., Vaughan, G., and Cleary, E. G. (2020). Profitability of large pharmaceutical companies compared with other large public companies. Jama, 323(9), 834-843.

Haris, M., Yao, H., Tariq, G., Malik, A., and Javaid, H. M. (2019). Intellectual capital performance and profitability of banks: Evidence from Pakistan. Journal of Risk and Financial Management, 12(2), 56.

Anagnostopoulou, S. C., Buhalis, D., Kountouri, I. L., Manousakis, E. G., and Tsekrekos, A. E. (2019). The impact of online reputation on hotel profitability. International Journal of Contemporary Hospitality Management.

Ahmed, E. R., Alabdullah, T. T. Y., Thottoli, M. M., and Maryanti, E. (2020). Does corporate governance predict firm profitability? An empirical study in Oman. The International Journal of Accounting and Business Society, 28(1), 161-177.

Nguyen, T. N. L., and Nguyen, V. C. (2020). The determinants of profitability in listed enterprises: A study from Vietnamese stock exchange. The Journal of Asian Finance, Economics and Business, 7(1), 47-58.

Anton, S. G., and Afloarei Nucu, A. E. (2020). The impact of working capital management on firm profitability: empirical evidence from the Polish listed firms. Journal of risk and financial management, 14(1), 9.

Online articles

Busienss standard.com, 2022, Business performance and its application its business, Available at: https://www.business-standard.com/topic/corporate-governance, [Accessed on: 05/05/2022]

Economictimes. UK, 2022, Macro economic factors in business, Available at: https://energy.economictimes/news/strengthening-trade-and-investment-between-india-and-the-united-kingdom-with-uk-export-finance/90665284, [Accessed on: 05/05/2022]

Forbes.com, 2022, Role of accounting, Available at: https://www.forbes.com/sites/columbiabusinessschool/2022/04/05/the-future-of-the-us-and-the-uk-regulations-innovation-and-investment/?sh=2b0e7afc158c, [Accessed on: 05/05/2022]

Gov.UK, 2022, Interpretation of management accounting techniques, Available at: https://www.gov.uk/government/news/11-year-disqualification-for-rental-property-investment-con-director, [Accessed on: 05/05/2022]

Websites

Statista.com, 2022, Financial analysis, Available at: https://www.statista.com/, [Accessed on: 05/05/2022]

Yahoo finance.com, 2022, Annual report of Tesco plc for the year 2020 and 2021, Available at: from: https://finance.yahoo.com/, [Accessed on: 05/05/2022]