CAPITAL MARKETS

Capital Markets

Capital Markets

Introduction

Tesco first acquired stores in the Irish Republic in 1978 by purchasing a chain of discount stores and immediately rebadging them as Tesco. The company then became the discounter. However, due to a lack of emphasis on the Tesco brand the venture was unsuccessful and the stores were sold in 1986.

Currently, Tesco is the UK's leading food retailer in an extremely competitive market. For this reason it has decided to expand operations across Europe. As part of this expansion programme, the company moved to Ireland again in May 1997. It now has a total of 109 supermarkets and 46 off licences in Northern Ireland and Eire, making it one of the leading food retailers in both markets.

The company refers to itself as Tesco UK. Although Northern Ireland is part of the United Kingdom, it is not regarded as associated with Tesco UK. Therefore, throughout this article, the term Tesco UK refers to England, Scotland and Wales, and both Northern Ireland and the Irish Republic are considered separately under the name Tesco Ireland.

a) Financial Management Decisions

Financial Management is the efficient and effective planning and controlling of financial resources so as to maximize profitability and ensuring liquidity for an individual(called personal finance), government(called public finance) and for profit and non-profit organization/firm (called corporate or managerial finance). Generally, it involves balancing risks and profitability.

The decision function of financial management can be divided into the following 3 major areas:

Investment Decision

1. Determine the total amount of assets needed by a firm hence closely tied to the allocation of funds

2. Two type of investment decisions namely:

* Capital Investment decisions re: large sums, non routine, longer term, critical to the business like purchase of plant and machinery or factory

* Working Capital Investment decisions re: more routine in nature, short term but are also very critical decisions like how much and how long to invest in inventories or receivables

Financing Decision 1. After deciding on the amount and type of assets to buy, the financial manager needs to decide on HOW TO FINANCE these assets viz the sources of fund

2. Financing decisions for example:

* Whether to use external borrowings/debts or share capital or retained earnings

* Whether to borrow short, medium or long term

* What sort of mix - all borrowings or part debts part share capital or 100% share capital

* The needs to determine how much dividend to pay out as this will directly affects the financial decision.

Assets Management Decision 1. Once assets have been purchased and appropriate financing ar secured, it now involve the efficient and effective management of current assets like cash, inventories & receivables so as to maximize returns and minimize the risk of liquidity.

2. Example of assets management decision like

* Extension of credit term to increase sales

* To hold more stocks or on a longer term

b) Financial Management Decisions in Last Five Years taken by TESCO

Mixed Approach

The question of whether to adapt or standardise the marketing mix has been ...