Share Price Of Tesco Plc example essay topic

1) PLC is the Public Limited Company. Raise capital by selling shares and debentures to the public. Needs two directors and two shareholders. A member can appoint more than one proxy who can vote but can not address meetings.

The secretary must be qualified and posses the requisite knowledge and experience. Public scrutiny over accounts aids performance and efficiency. Large market for shares. No restriction on share transfers on stock exchange, but must keep track of who has shares. Encourages investment into company by share ownership by paying dividends. Can be exempt from the statutory requirement to have its year end accounts audited.

Has legal requirement concerning allotted share capital must be equal or greater than fifty thousand pounds. Can not exercise its borrowing powers or enter business transactions until the registrar has granted it a section 117 certificate. High degree of legislation, rule and formalities it must conform to, e.g. directors retiring at 70 years of age, minimum of two directors, voting for directors individually at a general meeting, share allotment. Must publish its accounts in full. Can not give financial assistance to a person to enable him to purchase the company's shares. In order to outline the four factors that would affect share price of Tesco plc, we should look at its performance in the previous years.

Having in 2001 posted record profits of some 1 ben pounds sterling, Tesco saw profits at the half-way stage hit 417 man pounds sterling, an increase of 14% compared to the same period previous year. Turnover was also up, recorded at 11.5 ben pounds sterling compared to 10.1 ben pounds sterling for the 24 weeks. In Tesco's core market, the UK, sales grew by 10% to 9.8 ben pounds sterling compared to 8.9 ben pounds sterling in 2001, of which 7.0% came from existing stores and 3.0% from net new stores. Existing store growth was driven by strong volumes of 6.9%. UK operating profit was 12.1% higher at 501 man pounds sterling up from 447 man pounds sterling. Tesco, along with other mega-businesses, have in the past come under criticism, especially having posted record profits while the UK's farmers were struggling with foot-and-mouth disease.

However, the UK firm says it compared prices every week on over 66% of its total sales, which revealed that its prices are 12.5% cheaper than they were five years ago. (1) Based on those facts, I can suggest the four factors that could affect the share price of Tesco plc. Further expansion is one of them, and probably the most important. The more stores Tesco has, the higher the share price would raise. The thing here is not only in maximizing the profits, but also in the simple fact that ordinary small investors who buy and sell shares would perceive company as growing and would buy its shares, which would mean accordingly the raise in the share price. The second factor is efficient management, since it is one of the most vital components if the company wants to operate in the most profitable way.

Still another factor is acquiring good will of the population, and Tesco have to do something in this direction, since the described below situation with the British farmers could ruin all the goodwill accumulated previously by the company. The last factor here is the tendencies in the market where Tesco operates, for instance, if two of its major competitors merge, Tesco shares might go down due to tat fact. 2) Economies of Scale can be used to reduce unit costs for the company. There are four types of Economies of scale, these are: 1) Financial economies: Big businesses can borrow money more easily and as they are big their strength will able them to bargain with banks for lower interest rates.

2) Administration economies: As the production increase the management costs do not increase at the same rate saving the firm administrative costs. 3) Buying economies: Firms buy in big bulk to obtain a discount on the goods they have bought. 4) Distribution economies: Firms save money as the transport of their goods are made to run more efficiently. Financial economies of scale could be advantageous to Tesco if they wanted to expand even to a greater extent, and thus needed some borrowed funds. Since Tesco is a fairly large company already and has good credit history and is known at both English and international markets, they could borrow money at the English banks at the lower interest rates than those given to regular borrowers and small companies. Taking into consideration Tesco expenditures, even small decrease in the interest rates would mean a lot of money saved for the company.

Tesco also benefits from administrative economies of scale: it sure has to have new employees if the company expends, however on the higher level management, no new people are needed, and that is where people learn the most money in the whole company. Thus, Tesco can expend tremendously without attracting more high ranking managers, saving money they would have paid in salaries. Buying economies of scales is something Tesco benefits greatly from, since company that large definitely has a significant say in dictating the prices to its suppliers. Certainly, with the financial leverage Tesco can deploy, they can buy commodities at the prices that are substantially lower than most of the small companies operating in the same market. Tesco takes advantage of those buying economies of scale, they get their commodities in such a way to pay the smallest amount possible, which have already been criticized by some economic experts. The distribution economies of scale are also vital for Tesco, they have so many stores in various regions that efficient transportation system is crucial for the main goal of profit maximization.

Thus, Tesco definitely benefits greatly from all the four types of the economies of scale described above.