Critical Analysis of Financial Performance, Benefits and Drawbacks of Annual Budget and Balanced Sco

Part 1 - Critical Analysis of Financial Performance

Part 1

Question: Produce a critical analysis of the financial performance of the organisation that you work for (or Tesco plc) the year 2020 based on the accounting information in the annual report. This analysis should consider the information provided in the annual report, income statement and statement of financial position.

About to explain what aspects of financial performance you will analyse. Use the work you did in Week 3, covering gross margin, operating profit margin and return on capital employed. (Tip. If you find return on capital employed difficult to work with, focus on net debt instead)

Discuss these financial performance measures in detail. What are the key business drivers behind these changes? How well is the company doing in 2020? What do gross margin and operating profit margin measure. Use in text references to text books that you’ve read to support your ideas. Discuss whether these ratios have improved or deteriorated in 2020 compared to 2019 and what the key reasons for this are. Read the annual report to find out why.

Conclude your analysis of the financial performance of the company.

Part 2

Question: Critically discuss the benefits and drawbacks of using annual budgets and their relevance to your organisation (or Tesco plc).

Explain that you will be analysing the benefits and drawbacks of annual budgets and their relevance to your organisation. Discuss what range of academic sources you will be using and why.

Main body of answer about split between benefits and drawbacks.

Benefits of budgets

A possible way of organising your thoughts would be to use the following sub headings.

• Planning
• Co-ordinating
• Control
• Motivation

Under each sub-heading you will need to provide arguments for these characteristics supported by referenced academic evidence.

Drawbacks of budgets

You can discuss any drawbacks that you wish provided you support your arguments with evidence. If you’re not clear where to start try these sub headings.

• Problems with the subjectivity of financial estimates
• Behavioural aspects of budgets
• Focus of budgets on Shareholder value to the exclusion of other stakeholders

About to explain your own conclusions. This should be a balanced conclusion based on the evidence that you have reviewed.

Part 3

Question: Critically evaluate the extent to which greater use of the Balanced Score Card form of performance measurement within your organisation (or Tesco plc) might improve financial performance.

Introduction

About to explain what the balanced score card is, who invented it, and that you will be analysing the strengths and weaknesses of the Balance Score Card.

Strengths

A possible way of organising your thoughts would be to use the following sub-headings, however your own reading may result in different ideas, it’s up to you!

• Reduces short termism by linking performance measurement to long term strategy.
• Unlike traditional budgeting, the BSC doesn’t rely solely on subjective and often manipulated accounting data.
• The 4 aspects of the BSC includes a financial aspect which is included in traditional budgeting but in addition includes 3 other aspects (customer, internal process, learning/innovation)
• Allows the inclusion of high-quality objective external data as Key Performance Indicators.

Drawbacks

You can discuss any drawbacks that you wish provided you support your arguments with evidence. If you’re not clear where to start try these sub headings.

• The BSC is complicated and time consuming for senior management.
• The KPIs may conflict and cause confusion, there is no clear ranking of the relative importance of KPIs so this conflict might not be resolved.