Operations Management in Tesco Essay

Introduction In this assignment we will look at three aspects of operations management, which are Finance, human resource and information technology at an organisation. To understand the concepts better we have selected the case of Tesco Plc., UK. PART A: Managing Finance Financial management is a very important component of the operation management at a company. The role of the financial management at the company is to purposefully management the financial resources; present the performance of the organisation in financial terms. (Brigham E.F. and Ehrhardt M.C., 2010) The financial management has to acquire the required capital required for achievement of strategic and tactical objectives at a low cost. The financial management has to anticipate the financial result and maintain the financial balance as per the company’s needs. Information received by the Financial Management at Tesco The information that is of importance to the financial management of Tesco is * The investment cost of the funds on the capital market. * The  current rates of exchange that are prevalent in the market and short term interest’s rates that s prevalent in the monetary markets. * The financial management synthesises information that provides new investment opportunities available to the company. The financial management tries to make innovation in the financial field with the help of new financial instruments that are available in the market. Decisions taken by Financial Management of Tesco Plc. Based on the information, the financial management has to make critical decisions regarding finance of the company: * The financial management has to take decagons on the interest rates at which the company is willing to take loans. * It has to predict the future cash flow needs of the company. * The company has to make decision on the long term debt and short term loans while also making decision on the issue of shares and the option of self-financing. * The management has to make decision on the risk management technique to be adopted along with the financial impacts of the project that the company has undertaken on the financial health of the company. Role of Financial Institutions in Financial Decision Making Financial institutions are responsible for distributing financial resources to the users in planned manner. (Mondy R.W., 2009) There are different financial institutions in the market that specialise in collecting funds as well as lending it to different organisation to carry out their projects. The examples of financial institutions include banks, credit unions, asset management firms, building societies and stock brokerages. The financial institution can be categorised as * Deposit Taking Institutions * Finance and Insurance Institutions * Investment Institutions * Pensions providing institutions * Risk management institutions While there are government financial agencies who assigned to carry out the regulatory and supervisory function of different other institutions. The financial institutions have been integral in satisfying the financial and  management needs of different industries and this has also shaped the national economic scene. Deposit taking institution are mainly concerned with accepting deposits, providing commercial loans, real estate loans, mortgage loans and issuing share certificates. The finance companies provide loans, inventory financing and indirect consumer base, the companies gets funds form these institutions thorough the issue of bonds and other obligations. The insurance companies have become an integral part of a company’s financial obligations. The insurance companies also provide a different investment options and also provide loans for a number of purposes. The financial institutions such as stock, exchanges, commodity markets, futures, currency and options exchange are involved in creating and providing ownerships for financial claims. (Mondy R.W., 2009) These financial institution mange price change risks and maintain liquidity in the market. Through the various instruments the institutions provide investment opportunities and help businesses to generate funds for various purposes. The various investment banks are responsible for a number of financial activities such as underwriting securities, selling securities to investors, providing brokerage services and providing fund raising advice. Analysis of the Financial Statement of Tesco Plc. The financial statement is periodic documents that are published by companies to show the company’s financial performance. The information from financial statement is important for internal and external purposes. The financial statements are used by the employees and management for their own information about the company while the manager use tit to plan future activities and compare performances of departments in financial terms. The statements can also be sued to compare with other company’s statement to compare the performance on a macroeconomic level. A financial abatement mainly consists of four main components which are balance sheets, profit and loss account, cash flow statements and income statement. Each component has different function which can be lined out as: Balance Sheets: It provides the financial situation of the company as a whole. It records the tangible and intangible goods that the company owes or owns. The three categories in a balance sheet are assets, liabilities and shareholders’ equity. The assets are basically categorised in to current assets, fixed assets and other  assets. The liabilities section of the balance sheet consists of current liabilities and long term liabilities. The shareholders equity represents the net worth of the company. In balance sheet, the shareholder’s equity is calculated as the sum of liabilities and net worth. Profit and Loss Account: it summarizes the incomes and expenses of a company in a given period of time. This includes accruals which are incomes that will be realised only after the particular profit and account was prepared. Cash Flow Statements: These statements are very important to predict the future flow of finance in the company. The cash flow statement is concerned with understanding if there is enough money for all the activities and expenses of the company and stands as a good measure for a company’s liquidity. Income Statement: The income statements are used to measure the company’s sales and expenses over a specific period of time. They are prepared at the end of each financial year and shows the results of the operation of the company I the given time. The financial health of the company will also be analysed using Ratio Analysis, The Analysis of Financial Performance of Tesco Financial statement analysis is concerned with identify the strengths and weaknesses of the company’s finances and establish the relationship between the different financial statements. Tools and Techniques: There are various tools and techniques that have been identified to conduct financial analysis. The tools and techniques are categorised in to (Brigham E.F. and Ehrhardt M.C., 2010) * Horizontal and Vertical Analysis: The horizontal analysis is the comparison of two or more financial data. It represents the changes between years in both monetary and percentage form. While Vertical analysis is concerned with the preparing ad presenting common sized statements. * Ratios Analysis: The ratio analysis is considered to be the most powerful toll for analysing the financial health of the company, ratio simply means one number expressed in terms of the other. There are many forms of ratio analysis satisfying different functions which are profitability ratios, liquidity ratios, activity ratios, long term solvency ratios and leverage ratios. Table 1) Financial Ratio of Tesco Plc. Ratio/ Year| 2009| 2010| 2011| Gross Profit Margin| 7.6%| 7.8%| 8%| Operating Profit Margin| 5.91%| 5.88%| 6.07%| Return on Assets| 7.06| 4.69| 5.08| | | | | Return on Capital Employed| 7.06| 4.68| 5.07| Current Ratio|