Analysing Financial Statements to Evaluate Overall Performance of a Company

MAIN BODY

1 Discussion on the Role of Management in Meeting Stakeholder Objectives Including the Application of Agency Theory

Fundamental Financial Objectives:

These objectives are the goals that are vital for a business organisation. In the case of Tesco Plc, which is a large-scale company and has acquired major market share. This company has a number of objectives which are required to be fulfilled by their operations. Some of these fundamental financial objectives of Tesco Plc include revenue growth, profit margins, and&& sustainability. These objectives are related to the monetary terms and are based on maximizing the earnings of the company. Revenue growth is related to the sales volume of the company, profit margins are related to the net earnings of the company, and sustainability is related to maintaining a reliable profit ratio of the company.

Agency Theory And Its Significance In Achieving Fundamental Financial Objectives:

Agency theory is a concept that shows the relationship between principles and agents involved in a business. This theory helps in resolving problems that exist in these relationships in order to enable a business firm to fulfill its goals. In the case of Tesco PLC, principals are the store managers or supervisors and agents are distributors who distribute products of Tesco. This company deals in a retail business, but in order to improve their profitability, they have appointed various distributors which acts as their agents. This theory helps in achieving financial fundamental objectives such as acquiring a major market share which can be fulfilled by this theory. As it involves maintaining better relationships between principal and agent through which more agents can be attracted and more market can be captured.& Agency theory also impacts the financial management decisions of this company and these decisions are:

• The first most financial decision influenced by agency theory is the volume of products which is required to be produced as some of those products are sold by agents.
• Another decision influenced by agency theory is the investment decision. Tesco Plc analyzes its agent relationships before investing in any venture as agents affect their profits and those earnings are utilised for investments.
• Price allocation is also a major decision that is taken by considering agent relationships. Prices of products that are sold by Tesco are fixed by considering agent relationships as they directly interact with customers due to which they have more knowledge about client's requirements.

Limitations of Agency Theory:

• Agency theory deals with relationships between agents and principles and its major drawback is the reliability of agents. As agents are external parties there are chances that they can be a threat to the company's image.
• Another disadvantage of agency theory is that the agent charges a huge amount of commission due to the profitability of Tesco being affected.
• Agents represent other distributors and end users and their behavior and misconduct can be a threat to the company's growth and development (Higgins, 2012).

2 Defining Various Policies

Macroeconomic objectives are the goals that are related to the macro targets of a company. These objectives can include positive economic growth, maintaining full employment, satisfying balance of payments, and many more. In order to fulfill these objectives, there are various policies which are used.

• Role of fiscal policy - This policy is managed by the government of an economy in which authorities adjust its spending levels and tax rates in order to monitor the nation's economy. This strategy is a sister strategy of monetary policy. This policy plays an important role in maintaining positive economic growth.
• Monetary policy - These policies are regulated by governmental authorities which look after the functioning of central banks. This policy ensures the liquidity of the central bank in order to create economic growth.
• Exchange rate policy - &This rate of an economy affects aggregate demand as this rate is related to import and export. The exchange rate is a phenomenon that gives the rate by which imports and exports take place.
• Interest rate policy - This policy mentions rates of central banks of interest. Interest can be levied on customer prices, exchange rates, and loans provided by central banks or other banks (Molina and Preve, 2012).

2.1 Use of Various Policies In Achieving Macroeconomic Targets

The policies which are discussed above helps in achieving macroeconomic targets in various ways which are mentioned below:

• Fiscal policy provides an overview of the level of spending and ascertains the volume of expenditure over earnings. This policy helps in achieving the macroeconomic target of growth as this policy plays an important role in ascertaining what amount should be spent and what should be reserved ultimately resulting in economic growth.
• Interest rate policy and exchange rate policy help an economy to maintain rates that are levied on exports, imports, loans, and other instruments. These policies of rates help a nation to maintain liquidity in their economy so that in tough times funds that are kept in reserves can be utilised.
• Monetary policy provides instructions to central and commercial banks about their rates and reserves. This policy helps an economy to fulfill its macroeconomic objective of maintaining a balance of payments from which a country can attain development (Anderson and et.al., 2011).

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CONCLUSION

From the above project report, it has been concluded that Tesco is a large-scale organisation that maintains relationships with its agents in order to ensure profitability and increased sales volume. Various policies are analysed in this report such as fiscal, monetary, and interest rates which help an economy to achieve its macroeconomic objectives such as full employment and positive economic growth.&

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