Financial And Economic in UK Assignment

Financial And
Economic
Literacy for Managers

Table of Contents
INTRODUCUTION.................................................................................................................... 3
Question 1.................................................................................................................................... 3
Concept of Consumer Sovereignty on production and profit maximization..............................3
Question 2.................................................................................................................................... 5
Market structure, demand and Supply of Tesco and Morrison..................................................5
Question 3.................................................................................................................................... 6
Concept of profit and Wealth maximisation.............................................................................6
Question 4.................................................................................................................................... 8
4. Business economic Concepts of environmental policy, fiscal policy, supply side policy .....8
contribute to UK Government.................................................................................................. 8
Question 5.................................................................................................................................... 9
Presenting calculation of ratio and others................................................................................. 9
a. Ratio Analysis for 2017 & 2018........................................................................................... 9
b. Present Value..................................................................................................................... 10
c. Net Present Value............................................................................................................... 10
CONCLUSION.......................................................................................................................... 11
REFERENCES.......................................................................................................................... 12
2

INTRODUCTION
There is always dilemma about the concept of how the financial market works and how
they operate and how they impact the global economic environment. The financial literacy for
managers means to understand how the business is performing and to evaluate and assess the
same. The economic literacy means deals with concept affecting money management such as
interest rates. In the present report principles of business and financial economic in international
context with identifying and explain the impact of governmental, monetary and economic
policies on the decision baking of the business are discussed. Along with this, concepts of
environment models of business are defined. The market structure, demand and supply of Tesco
and Morrison is presented in the report.
Question 1
Concept of Consumer Sovereignty on production and profit maximization
The consumer sovereignty is that theory that the preference of the consumers determined
the production of goods and services. This means that the consumers use their spending power as
voting for the goods. If the spending of the buyer is good on a particular good this means the
production needs to increased and vice verses if the customers do not spend the minimal on the
product which is required for the production of goods and service (Adomako, Danso and Ofori
Damoah, 2016). The consumers are assumed to choose the commodities according to their
preference and have a significant in the context of their choices. In the capitalist economy the
consumer have a freedom of choice. This means that the customer is regarded as sovereignty,
king or Queen. This is referred as consumer sovereignty.
The concept of consumer sovereignty is directly linked with the profit maximisation of
the organisation as the consumer who has given a choice of preference to buy a commodity and
in whatever quantity he/she wants. The urgency in the desire of certain goods is directly related
to the fact that a consumer is ready to spend a large sum of money and but the good even at the
higher prices which means higher profits (Potrich, Vieira and Mendes-Da-Silva, 2016). If
requirement is not that urgent means they are not willing to pay a good amount of money on a
3

particular good or service. It shows the reluctance of him/her in spending more money on that
goods or service and wants to buy the product at lower prices. With expecting lower profits the
producers shrinks the production and produce in smaller quantities of the goods in the market.
Thus it can be stated that consumer is sovereign and the manufacturers are bound to set
the prices of their goods and commodities as per the demand of customers (Ali, Rahman and
Bakar, 2015). The more producers produce the larger the profits they earn. The fate of the
manufacturer is sealed with the consumer sovereignty as if the customer has no liking to their
goods, commodity or service they can in no condition earn profits and if producer set low prices
he/she can incur losses.
Business economy and its concepts:
The concept of business economics can be defined as that field of economics which is
applied in a business by use of economic theories and quantitative methods to analyse the
business enterprise, financials, market related and environmental issues as a whole (Lusardi and
et.al., 2017). This contributes in diversification of the organisation structure and defines the
relationship with labour, capital and product market. The concept of business economic includes
demand and supply, scarcity, incentives, purchasing power and opportunity cost.
The business economic models:
The business economic model is hypothetical construct which is used by producers as a
set of variables to define relation or the quantitative correlation. The models used in the
economic are:
The classic Economic model:
This model depicts the law of demand and supply and their correlation. The law of
demand states that with an increased in the demands the prices will increase. The law of supply
states that with an increase in the price of the product the supply will increase in the market
place, where in both the law all other factors demand unchanged (5 Economic Concepts, 2018).
This is applied by the business in the international tare to determine the effect of prices changes
on demand and supply of goods and services of the organisation.
4

The production possibility frontier model:
This model defines that fact of maximum productivity of two or more products with
specific set of input on the curve. These factors are technology, labour or capital. The PPF
models denies that with change in the set of inputs the demand of the commodity in the market
place also changes with respects to the price, consumption and utilisation of the input for
production. This model is use by the business to determine the effect of changes in the prices and
availability of inputs over the production and demand of goods.
Question 2
Market structure, demand and Supply of Tesco and Morrison
Tesco is one of the largest retailer in the world and it have it have 476000 colleagues and
serves millions of consumers in a span of well time through their stores as well as online
platform. I the sales of the group standout be 48.4 pounds in 2016 with an operating profits of
pound 944 (French and McKillop, 2016). The statutory operating profits of the organisation
stand to be at 1046 pound along in 2016. It sticks to its core values that is no one tries harder for
customers, treat people how they wanted to be treated and every little help makes a big
difference. All this directly affect the demands of the goods and commodities of the Tesco Plc.
There is a increase in the demand of British milk in this year in the standard rage of yogurt from
2/3 to 100% and increased demand of milk in the whole country. The demands of the products
of Tesco have increased from 2015 to 2016. This has directly increased the profits and valuation
of the shared of the business.
With an increase in demands and grasping a larger area of market share it has build a
great reputation in leading countries of the world (Eniola and Entebang, 2016). The market
structure of Tesco can be defines as it have opened its outlet in many developed and developing
countries but still is not operating in the emerging economies such as India.
Morrison is tough competitors of Tesco as it belong to same industry and operating in
same files as of Tesco. This organisation is making its market structure stronger by improving
the shopping trio for its consumers, building long term relation with the consumers and last but
5

not the least creating the values for tis shareholders. For 2016 it has distributed a dividend of
5.43 p which is 8.6% underlying profits of the organisation of 337p. Morrison has launched over
500 new products in autumns and further of 100 more in Christmas. The feedback from the
consumers is best ranges and the company is looking forward to provide the best products as it
has a significant potential of increased demand and enhanced growth of the business.
This can be seen than Tesco is more inclined towards enhancing and improving its profits
while Morrison is as the edge of increasing the shareholders’ value by increasing the dividend
payments and providing best consumer experiences in the shopping trips. This is clear that both
the organisation have different approaches in the grabbing the markets structure, increasing the
demands and managing the supply and distribution channels.
Question 3
Concept of profit and Wealth maximisation
a) Comparing and contrasting the concept of profits and wealth maximisation:
Comparing the Wealth and Profit maximisation concepts of business:
This concept is related with increment in the value of business so as to increase the value
of the Share held by the stakeholders. The managers of the business are required to continually
search for the higher possibilities of returns on the fund which are invested by the organisation
with reducing the chances of loss. This calls for a detailed analysis of the cash
flows associated with each prospective investment, as well as constant attention to the
strategic direction of the organization (Profits and wealth maximisation 2018). Even profits
maximization is the economic objective activity of the organisation. The profitability is one
of the key evaluation point for a firms efficiency. Every business has to earn profits to
cover its cost and secure funds for the future growth. The profits also secure the business
form the uncertainties and future risk that can arise any time. This can be stated that both
profits and wealth maximization works in enhancing the value of the firm in direction of
value and profits.
Contrasting Wealth and Profits maximisation objective of business:
6

BASIS FOR
COMPARISON PROFIT MAXIMIZATION WEALTH
MAXIMIZATION
Concept The main objective of a
concern is to earn a larger
amount of profit.
The ultimate goal of the
concern is to improve the
market value of its shares.
Emphasizes on Achieving short term
objectives.
Achieving long term
objectives.
Consideration of
Risks and
Uncertainty
No Yes
Advantage Acts as a yardstick for
computing the operational
efficiency of the entity.
Gaining a large market share.
Recognition of Time
Pattern of Returns
No Yes
b) Wealth maximisations superior to profit maximisation
The concept of wealth maximisation is superior to the profit maximisation one. This can
stated as this process is related with increasing the net current value of the business rather in the
profit maximisation one only focus in on increasing the profits in the concept of wealth
maximisation the shareholder value enhances with increment in the capital gains with an
objective of bringing in the highest possible returns. Moreover this concept is far vaster than the
profits one as in this concept only financial profits are targeted to be incremented. With
7

maximising the value of the business it generate ability as to increase its market value and of this
stock over time. The market value of the firm is based on many factors like its goodwill, sales,
services, quality of the products, their demand etc. As it can be seen clearly that with the scope
of wealth is wide as it considers many factors under one concept while in the profits one only
monetary gain are bring focus upon with a narrower scope and coverage of business activities
and operation. The concepts of on increasing the value of shareholder’s value are a versatile goal
of company and is highly recommended criterion for evaluating the performance of a business
organisation (Eniola and Entebang, 2017). This assist in increasing their share in the market,
attaining leadership, maintains consumer satisfaction and many other benefits are also there.
With this it can be stated that the wealth maximisation concept of the business wider and
defiantly have a superiority over the profit maximisation concept of business.
Question 4
4. Business economic Concepts of environmental policy, fiscal policy, supply side policy
contribute to UK Government.
Environmental Policy – The term Environmental policy is described as action or commitment
which is undertaken by any company or business organization to adhere to the rules, laws,
regulations, norms and policy which focus is on solving the environmental problem & issues.
The aim of formulating environmental policy is to ensure optimal utilization of natural and
economic resources, its effective usage such that it can reduce level of pollution created by
making sustainable use (Keller, Halkier and Wilska, 2016). Also, it helps in maintaining the
natural environment and its surroundings so that it can contribute and promote to human welfare
and protect natural and economic system. It also ensures economic growth for long-term and
fosters development. It also ensures that environmental resources are available for facilitating
the future economic growth thereby managing risk associated with growth factor from
unfavorable environmental conditions (Keller, Halkier and Wilska, 2016).
Fiscal policy – The concept of Fiscal policy defines the meaning by which the country's
Government makes adjustment related to changes in the level of spending of government money
and also making decision related to rate of tax so as to keep a check or for monitoring, assessing
8

its impact and how it influences the nation's economy (Bhandari, Evans and et.al., 2016). It is
somewhat similar to monetary policy with the help of which the central bank can have influence
on the nation's money supply. Fiscal policy basically consist of Taxation and Government
spending with its impact on economic growth of the country (Bhandari, Evans and et.al., 2016).
Supply side policy – The Supply-side policy are considered as micro-economic policies of the
economy which aims is to make markets and industries more efficient and effective in
conducting its operating function thereby contributing to the growth of gross national income
and real gross domestic product of the economy. The term Supply Side Policies are the policy
which aims at the increasing the aggregate supply of the company at individual as well as at the
economy level of the country. The main aim behind formulation of supply side policy is to
enhance the operational, production capacity and capability of the company and of the economy
by making improvement in the quality as well as quantity of the production i.e. of goods and
services. It also emphasizes on the sustainable growth of economy without bringing a rise in the
inflation growth (Lazarus, Erickson and Tempest, 2015).
Question 5
Presenting calculation of ratio and others
a. Ratio Analysis for 2017 & 2018.
1. Current ratio
Current ratio = Current Assets / Current Liabilities
Particulars 2017 2018
Current Assets 3277 2460
Current Liabilities 2833 2097
Current ratio =
Current Assets / Current Liabilities 1.1567243205 1.1731044349
9

2. Quick ratio
Quick ratio = Total Current Assets – Inventory – Prepaid Expenses / Current Liabilities
Particulars 2017 2017
Total Current Assets – Inventory –
Prepaid Expenses 3277 2460
Current Liabilities 2833 2097
Quick ratio =
Total Current Assets – Inventory –
Prepaid Expenses / Current Liabilities 1.1567243205 1.1731044349
3. Debtors payment period
Debtors payment period = Trade Debtors / Sales Turnover * 365
4. Stock turnover period
Stock turnover period = Average Inventory ÷ (Cost of Goods Sold ÷ 360)
10

b. Present Value
Particulars Figures
Number of periods 36 months
Interest rate 2.75%
Periodic deposit amount £105
Outcome:
Particulars Figures
Present value £2380.34
Future value £6320.99
Total principal £3780.00
Total interest £2540.99
c. Net Present Value.
Year
Project
A
PV factor
@ 5.88%
Discounted
cash inflows
Proje
ct B
PV factor
@ 5.88%
Discounted
cash inflows
0
-
175000
-
17500
0
1 0 0.943 0 60000 0.943 56603.77
0 30000 0.890 26699.89
11

3 0 0.840 0 25000 0.840 20990.48
4 0 0.792 0 20000 0.792 15841.87
5 175000 0.747
130770.18025
156 40500 0.747 30263.96
Total discounted cash
inflows 130770.18 150399.98
Less: initial
investment 175000 175000
NPV -44229.82 -24600.02
CONCLUSION
To conclude this report it can be stated the consumer sovereignty is a real concept which
drives the demand and profits of an organisation. The consumers are the driving force for the
business in increment or decrement of the gains of sales of their products. Furthermore n this
report the organisation structure, demand and supply of the Morrison and Tesco have been
presented. For the mangers the concept of wealth and profits maximisation is essential to
consider while the former one is far superior to the latter one. Moreover the ratios analysis and
net present value for the organisation Zenobis have calculated. With this the concept of
environmental policy, fiscal policy and supply side has been represented in the context of
government seeking economic prosperity of the UK.
12

REFERENCES
Books and journals
Adomako, S., Danso, A. and Ofori Damoah, J., 2016. The moderating influence of financial
literacy on the relationship between access to finance and firm growth in Ghana. Venture
Capital. 18(1). pp.43-61.
Ali, A., Rahman, M. S .A. and Bakar, A., 2015. Financial satisfaction and the influence of
financial literacy in Malaysia. Social Indicators Research. 120(1). pp.137-156.
Bhandari, A., Evans, D. and et.al., 2016. Fiscal policy and debt management with incomplete
markets. The Quarterly Journal of Economics. 132(2). pp.617-663.
Eniola, A. A. and Entebang, H., 2016. Financial literacy and SME firm
performance. International Journal of Research Studies in Management. 5(1) pp.31-43.
Eniola, A. A. and Entebang, H., 2017. SME managers and financial literacy. Global Business
Review. 18(3). pp.559-576.
French, D. and McKillop, D., 2016. Financial literacy and over-indebtedness in low-income
households. International Review of Financial Analysis.48. pp.1-11.
Keller, M., Halkier, B. and Wilska, T.A., 2016. Policy and governance for sustainable
consumption at the crossroads of theories and concepts. Environmental Policy and
Governance. 26(2). pp.75-88.
Lawrence, K.D., Kleinman, G. and Lawrence, S.M., 2015. Time Series Models to Predict the
Net Asset Value (NAV) of an Asset Allocation Mutual Fund VWELX. Handbook of
Financial Econometrics and Statistics. pp.2445-2460.
Lazarus, M., Erickson, P. and Tempest, K., 2015. Supply-side climate policy: the road less
taken. Stockholm Environment Institute, Seattle.
Lusardi, A and et.al., 2017. Visual tools and narratives: New ways to improve financial
literacy. Journal of Pension Economics & Finance. 16(3). pp.297-323.
13

Piasecki, K. and Siwek, J., 2015. Behavioural present value defined as fuzzy number–a new
approach. Folia Oeconomica Stetinensia. 15(2). pp.27-41.
Potrich, A. C. G., Vieira, K. M. and Mendes-Da-Silva, W., 2016. Development of a financial
literacy model for university students. Management Research Review. 39(3). pp.356-376.
Rendahl, P., 2016. Fiscal policy in an unemployment crisis. The Review of Economic Studies.
83(3). pp.1189-1224.
Wallace, D., 2017. Environmental policy and industrial innovation: Strategies in Europe, the
USA and Japan. Routledge.
Online
Profits and wealth maximisation. 2018. [online] Available through :<
https://thefactfactor.com/facts/management/financial_management/wealth-maximization/
539/>.
5 Economic Concepts. 2018. [online] Available through :< https://www.freshu.io/nicole-
molinari/5-economic-concepts-every-college-student-should-understand>.
Net Present value. 2019. [Online]. Available through:
<https://www.principlesofaccounting.com/chapter-24/long-term-projects/>.
14