FINANCIAL MANAGEMENT

Financial Management Assignment

Table of Contents

Introduction1

Critical Discussion on Primary and Secondary Objectives of the Companies1

Primary Objective of Tesco and its Achievement2

Secondary Objectives of Tesco and its Achievement2

Primary Objective of British Telecom and its Achievement3

Secondary objectives of British Telecom and its Achievement3

Summary of Gearing Policies of the Companies and Perceived Changes in Gearing for Each Company3

Interpretation5

Interpretation5

Critical Review of Dividend Policy Theories and its Applicability on Our Companies6

Interpretation6

Interpretation7

Trade-Off Theory of Gearing and the Pecking Order Theory8

Trade-Off Theory of Gearing8

Pecking Order Theory9

Differences and Similarities between the Theories9

References11

Appendix13

TESCO Plc Key Financial Ratios13

British Telecom Group Plc15

Financial Management Assignment

Introduction

This essay will analyze the financing policies of two companies: Tesco Plc and British Telecom Group Plc in a comprehensive manner. We will discuss whether or not these companies adopt a feasible approach in their gearing structures and dividend policies. We will see whether or not these two companies are successful in achieving their objectives and standing by them. In the end we will throw light on the differences between the trade-off theory of gearing and the pecking order theory, using evidences from empirical studies.

BT is a leading global provider of solutions and communication services operating in 170 countries. BT provides telecommunications services mainly local, national and international clients in their homes, their workplace and on the move, services and broadband products and services and products of fixed / mobile convergence. BT operates mainly through four divisions: BT Global Services, Open reach, BT Retail and BT Wholesale. The company was founded in the year 1924. More broadly, the context is the transformation of the telecommunications sector in Great Britain, which passes the status of state enterprise to the private enterprise operating within the framework of a European economy and liberalized markets world characterized by rapid technological change and increased competition. Since the privatization of BT in 1984, the number of the company were down more than half, from 235 000 to less than 100 000.

Critical Discussion on Primary and Secondary Objectives of the Companies

The attainment of organizational objectives remains the cornerstone of any company's strategies and policies. Let us first discuss the objectives of Tesco and see if it had been successful in achieving it.

Primary Objective of Tesco and its Achievement

One of the core objectives of Tesco plc involves giving the customers a worth for their money by offering lower prices. Offering lower prices to customers mean that Tesco commits towards promoting customer loyalty by offering a price that is affordable to the customers while they are retained through the quality perspectives too (Ozkan, 2001, pp. 175-98). This objective is achieved through promoting discounts on the products that not only serve as market penetration tools, but also win a reinforced effort for its objective. Tesco aim is to retain loyal customers by setting measurable and realistic targets that can be achieved, so that the company does not make any false promises to its valued customers.

Secondary Objectives of Tesco and its Achievement

The two secondary objectives, that need to be highlighted include:

Achieving superior margins of profit: ...