Solution
The reliability of the accounting system data in Tesco Plc is identified by indicators identified in figure 2;
Figure 2: Reliability of Tesco Plc Financial Data
Tesco Plc also has strict controls over the purchase requisitions and orders but offers the teams in their operations the role of allocating account and cost-centre codes which often leads to errors in the processing of their financial data. Also, the companies’ house data reliability is influenced by the accounting standards, auditing standards, interpretation of generally accepted accounting principles, the nationality of a parent company and auditing/ accounting form employed. For instance, in the retail sector, the difference between Tesco Plc and their competitors is how they treat the profit and depreciation. In Tesco, they follow the EBITDA treating the depreciation as a factor worthy of independent reporting. In the end, the published resources of comparative financial information reliability are influenced by an approach of a publisher to standardising the financial statements and the accuracies of the translation from the published data into the preferred format. The subsidiaries of Tesco Plc in Asia and Europe financial information is directly affected by the nationality of the parent company in UK.
Task 2 – Answer (650 – 750 words)
A.C. 1.2 – Apply different types of analytical tools and techniques to a range of financial documents, formulating conclusions about performance levels and needs of stakeholders
| Accounting Ratios | Formula | 2018 | 2019 |
| Gross profit as percentage of sales
(Gross Profit margin) |
Gross Profit
—————– x 100 Revenue |
4,144
————— x 100 63911
6.48% |
4,216
————— x 100 63911
6.59% |
| Average age of debtors in days | Receivable
—————— x 365 Revenue |
1954.80
—————- x 365 37815.73
18.86 |
1970.80
————— x 365 38818.73
18.53 |
| Average age of creditors in days | Creditors
—————— x 365 Cost of Sales
|
6885
————— x 365 36200.72 =69.42 |
7868
————— x 365 34234.43 =83.88 |
| Current Ratio | Current Assets
——————– Current Liabilities
|
13749
————– 19,233 =0.711 |
12,570
————– 20,680 =0.61 |
| Net Profit as a percentage of sales | Net Profit
——————– x 100 Revenue
|
1837
————– x 100 37815.73
4.8% |
1987
————- x 100 38818.73 5% |
| Gearing | Debt (Long term liability)
——————————- Equity (Total Assets-Current Liabilities) |
2,625,000
—————– 10480
=250.77 |
2,863,000
—————— 14834
=193 |
A.C. 1.3 – Conduct comparative analysis of financial data
Average age of debtors in days
Considering this ration, the receivable days has decreased slightly from 18.86 to 18.53 days. The slight decrease means that they have been tied up unnecessarily with an adverse implication on the Tesco Plc liquidity. This is affirmed by Bhunia (2013) metrics which note that this leads to a negative implication of clients buying from competitors offering increased favourable credit terms.
It is recommended that in an event Tesco receivable dates continue to increase upwards in the future, they can review the debt terms payments with their customers. As a result, the less increase would not have any significant impact on the Tesco plc liquidity.
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