Felm4026 Financial And Economic Assignment Answers

1. Explain the principles of business and financial economics in an international context.
2. Identify and explain the impact of governmental, monetary and economic policy on decision making in a business context. 
3. Describe and apply macro and micro concepts and models to business decision making.
4. Interpret financial information (external and internal) and apply to decision making within a business context.
5. Discuss the rationale and impact of decisions for business strategies to users and stakeholders.
6. Examine and discuss the relationship between theory, application in business and financial economics in an international context

Introduction

Environmental factors in the business refer to the factors that affect the performance of a business organization. They are divided into internal environmental factors and external environmental factors. Internal business environment factors are the factors that affect a business, and they can be controlled from within the company (Dombret & Ebner, 2012). An example is business operations or quality of employees. External environmental factors are the issues that affect business but cannot be influenced by the business. This report discusses the internal and external factors that affect businesses and also analyzes the financial statements of Marks and Spencer for the past five years with the aim of determining how this performance has been influenced by aspects of business organization. The paper also analyzes the effect of changes in demand and supply on market disequilibrium.

Q1a)

There are various internal and external factors that affect a business firm. The internal factors that impact a business organization are factors within the control of the business organization. Some of the internal factors that affect any business organization include Suppliers, employees, business organization and operations and resources(Dombret & Ebner, 2012). Suppliers are the organizations who supply a firm with raw materials or products required to reselling. The business has control of this factor because it can choose who should be its supplier and who should not. The degree of control over suppliers although depends on the number of suppliers in the market. When suppliers are many, a business can be able to have some degree of control over prices and quality of products it gets.

Employees are another internal environmental factors that are critical in the success or failure of a business organization. The strength of employees is essential in any business organization achieving its long term and short-term objectives. A firm should ensure it has highly trained and experienced workforce to ensure maximization of output. The process and relationships between employees and customers are made efficient and hence resulting in high-quality services and products. The firm's resources also impact on the performance of an organization. These resources include financial resources, physical resources human resources and natural resources.

The external factors that affect business firms include political factors, technological factors, economic and social factors. Political factors are the factors that are related to local and national politics. They include political stability and regulatory requirements by the local and national government. These factors cannot be controlled by any firm, and hence they can only adapt to them. The economic factors are such as inflation and GDP have a huge impact on business organizations. Factors such as unemployment and exchange rates also impact on business organizations. In addition to this, social factors such as preferences, fads and trends in the society impact on the performance of the business. The culture and religion of the people also impact business operations. A business firm must ensure that the operations of the business are in line with the customs and ethics of the society to ensure that it succeeds. Technological factors impact a business firm since advancement in technology means that businesses must adopt to keep up with the changing technologies.

B)

In the recent past, there have been rapid changes in the consumer retail industry. Some of these changes have been influenced by the external environment while other changes originate from within the company itself. This report analyzes the financial statements of Marks and Spencer Group PLC between the year 2013 and 2018. These statements are used in analyzing how the changes impact on the performance of the company.

Marks and Spencer were established in the UK in the year 1884. The company has grown over the years and established itself as a leading fashion retailer globally. The company also offers products such as food items, general merchandise and home accessories. In the year 2013, the revenue of Marks and Spencer was 10,026 million pound. In the year 2014, the revenue of the company increase to 10,310 million sterling pounds. This represents an increase in revenue of 284 million pounds. This is equivalent to 2.8% growth in revenue. In the year 2015, the company generated revenues amounting to 10311 million pounds (Veseth, 2015). This was a very little growth compared to previous years` rise in revenue. However, in the year 2016, the revenues of the company rose to 10555 million pounds. This is an increase of 244 million pound which represents a 2.4% increase in revenues. In the year 2017, the company recorded a revenue of 10,622 million pounds which a 0.6% increase. Further, the company increased its revenue to 10698 million pounds.

An analysis of the profit after tax indicates that in the year 2014, M&S profit stood at 29.1 million pounds. The profits increased in the year 2015 to 115.7 million pounds. The companies` growth in profit after tax continued to the year 2016 where it recorded a profit of 404.4 million pounds. In the year 2017, the profit of the company was 481.7 million pound while in the year 2018, the profit was 506.0 million. Therefore, from the above results, it is clear that the profit of the company increased by 16.388% (Veseth, 2015). This is a very impressive growth for the company over this period. The growth of the companies profits can mainly be attributed to the growth in the food and beverage sector. The companies growth in sales in the food industry has been due to good marketing techniques by the company. M&S has also maintained high-quality products which have helped in maintaining good brand image and hence customers are ready to pay more for products (Stengel, 2011). This results in higher revenues and hence increase in profits year after year. Another reason why M& S has experienced an increase in revenue and profits globally is that it has a highly motivated and experienced workforce. This employees provide high-quality services to customers and hence contributing to the growth of the company. Despite the rise in profits in some sectors, the company has suffered a decline in the sales of clothing. The decline in sales of clothing has been attributed to an increasing in competition from online stores which has contributed to the declining in revenues of the company (Sreenivasulu, 2017). The company has also begun closing shops. It plans on closing one-third of its 300 stores in the UK to cut its operating costs.

1c)

Market disequilibrium occurs when markets fail to clear and find a final equilibrium point. It occurs when demand is greater than supply or vice versa. A change in demand of products in a business such as Asda supermarket causes the equilibrium price and quantity to change. Equilibrium price is defined as the price at which the demand for a product or services equals its supply (Veseth, 2015). Equilibrium quantity is the quantity which at which supply and demand are the same.

 A change in demand will cause equilibrium price and output to change in the same direction. A decrease in demand will cause a reduction in the equilibrium price and quantity of a good. An initial decrease in demand will cause excess supply in the market. With time the prices of the products will fall and hence resulting in an equilibrium price and quantity. A decrease in demand will cause the demand curve to shift to the left-hand side. This will result in the equilibrium price decreasing and an increase in equilibrium quantity. After some time, the suppliers will increase their supply due to the high prices in the offing. This will, therefore, result in a balance of both equilibrium price and quantity and hence resulting in a balance in the market. For example, when the demand for vegetables in Asda supermarket increases, the suppliers will raise their prices and hence resulting in disequilibrium. After some time, consumption will decrease, and hence the prices will reduce to balance with the demand and hence equilibrium will be attained again (Leinwand, Mainardi & Kleiner, 2016). When the supply of vegetable at the supermarket increases, there will be a sudden fall in prices and hence causing market disequilibrium. When the prices decrease, suppliers will reduce supply, and the price will increase slightly and hence resulting in equilibrium price and quantity.

When the demand for McDonald products increases, the company will tend to increase the price of the product hence bringing about disequilibrium. The decision to increase may be due to an increase in production costs or to take advantage of the high demand and increase revenues (Dart & Lewis, 2017). After increasing the prices, consumers will respond to the price increase by lowering their demand. Some customers may shift to consume an alternative product, or they may decide to stop consuming completely. McDonald`s may, therefore, decide to reduce the price of the product and hence the resulting in equilibrium price and quantity.

2)

Financial Instruments are very critical especially for retail outlets in the UK. This is because the instruments help the business to carry out various transactions including payments and multiple transfers of funds between businesses. Banks is one of the financial instruments in any economy. The main role of a bank as a financial intermediary is receiving deposits from customers (Krafft  & Mantrala,  2010). For example, a supermarket like Asda deposits most of the cash it collects from its daily business transactions. Banks also advance loans to businesses such as Asda and even other small retail businesses in the UK. These loans are used by the retail businesses for expanding businesses or to improve the liquidity of the business. Banks also provide investment advice to retail businesses. This helps these businesses to identify profitable investment opportunities and hence improve profits for the business.

Mutual funds also play a very big role in small and medium retail businesses in the UK. Managers need to be aware of these intermediaries to take advantage of them and improve their businesses. The mutual funds provide active management of capital pooled together by shareholders (Gerken, Mishkin & Eakins, 2015). The fund manager connects with shareholders by purchasing stock in companies they think can outperform the market. This helps companies in raising enough capital to aid in the expansion of business. An example of a mutual fund that the retail businesses such as Asda can join is the Franklin Templeton Investment Management Limited.

The stock market is another financial intermediary that is critical for retail businesses in the UK. The London Stock Exchange provides an opportunity for listed companies to raise huge capital. Retail businesses in the UK can meet conditions that are required for a company to be listed in the stock exchange. The companies can then sell its shares to the public and raise capital for expansion.

Insurance companies are also very critical as a financial intermediary. Insurance companies help businesses to spread their risk and hence reduce the probability of losses. (Couto, Plansky & Caglar, 2017) Insurance companies offer different types of insurance policies to business organizations. The companies can insure the business against, fire, burglary, terrorism and loss due to the unfavourable economic environment. For example, a retail business such as Marks and Spencer could insure all its retail outlets against fire or theft. Once the company suffers any loss resulting from fire, the insurance company will be pay Marks and Spencer and return the company to its original position. Insurance companies are therefore important since they help the companies to manage risks in the business and hence concentrate on achieving results for the business.

3a)

The current assets of Zenobia Limited A3,2772,460. Current asset refers to cash and other assets that can easily be converted into cash. Current assets are determined by the liquidity of the assets. The level of current assets of the company means that the company is very liquid and hence in an excellent position with its creditors. When current assets are divided with current liabilities, we get the current ratio of 1.2. This means that the current assets are 1.2 times more than the current liabilities and hence it can meet its current liabilities with ease.

The quick ratio decreased from 1.2 in 2017 to 1.1 in the year 2018. A quick ratio of above 1.1 indicates that the company can easily meet its obligations with the cash on hand without relying on stocks — the quick ratio of 1.1 means that for every $1 of cash on hand, the company has a current obligation of $1.

The debtor's payment period was 103 days for both the year 2017 and the year 2018. This ratio means that debtors who owe the company repay their debts within an average of 103 days.

The stock turnover period of Zenobia Limited for the year 2017 was 16 days while the one for the year 2018 was 14 days. This means that the company takes 14 days to sell out its entire stock holding. This is an improvement from 2017 since it means that goods are moving at a faster rate.

For the company to improve, it must invest in marketing and advertising. The company can also improve on customer service.

B)

Present value=CF/(1+r)n

PV=1,500/(1+0.34)3

=1,500/2.41=$622.41

It means that Zara should invest $622.41 to earn $1500 at the end of 3 years at an interest rate of 34%.

C)

GreenFord project

NPV=150,000+(30,000/1.067)+25,625/1.0672+26,000/1.0673+30,000/1.674+75,000/1.0675

=-150,000+28116+22478+21487+23077+54348= $-21981

GreenWich project

NSV=$175,000+60,000/1.067+30,000/1.0672+25,000/1.0673+20,000/1.0674+40500/1.0675

     -175,000+56232+26316+20661+15,385+29,348=$-27058

After analysing both projects, it is clear that both projects will have a negative net present value. Greenford has a net value of $-21981 while Greenwich has a present value of -$27058. It, therefore, means that Greenford has a better Net present value that project Greenwich.

References

Couto, V., Plansky, J., & Caglar, D. (2017). Fit For Growth: A Guide To Strategic Cost Cutting, Restructuring, And Renewal. Https://Apps.Uqo.Ca/Loginsigparb/Loginpourressources.Aspx?Url=Http://Www.Books24x7.Com/Marc.Asp?Bookid=120261.

Dart, M., & Lewis, R. (2017). Retail's Seismic Shift How To Shift Faster, Respond Better, And Win Customer Loyalty.

Dombret, A., & Ebner, A. (2012). Default Of Systemically Important Financial Intermediaries: Short?Term Stability Versus Incentive Compatibility? German Economic Review. Https://Nls.Ldls.Org.Uk/Welcome.Html?Ark:/81055/Vdc_100024493499.0x000025.

Gerken, W., Mishkin, F. S., & Eakins, S. G. (2015). Study Guide For Financial Markets And Institutions, Eight Edition - Frederic S. Mishkin, Stanley G. Eakins

Krafft, M., & Mantrala, M. K. (2010). Retailing In The 21st Century: Current And Future Trends. Heidelberg, Springer.

Leinwand, P., Mainardi, C., & Kleiner, A. (2016). Strategy That Works: How Winning Companies Close The Strategy-To-Execution Gap. Boston, Ma, Harvard Business Review Press.

Niemeier, S., Zocchi, A., & Catena, M. (2013). Reshaping Retail: Why Technology Is Transforming The Industry And How To Win In The New Consumer-Driven World. Http://Www.Books24x7.Com/Marc.Asp?Bookid=56368.

Stengel, D. N. (2011). Managerial Economics: Concepts And Principles. [New York, N.Y.] (222 East 46th Street, New York, NY 10017), Business Expert Press. Http://Portal.Igpublish.Com/Iglibrary/Search/Bepb0000115.Html.

Sreenivasulu, M. (2017). Trends In Retail Marketing In India. [S.l.], Anchor Academic Publishing.

Veseth, M. (2015). Introductory Microeconomics. Saint Louis, Elsevier Science. Http://Qut.Eblib.Com.Au/Patron/Fullrecord.Aspx?p=1876948.