Financial and Economic Literacy Report: Management in Business

This report provides a comprehensive overview of financial and economic literacy for managers, encompassing various aspects crucial for business success. It begins by exploring market structures, particularly focusing on Apple's strategies within monopolistic and oligopolistic environments, and how they adapt to globalization and technological advancements. The report then delves into microeconomic and macroeconomic principles, examining the relationship between price and demand, supply dynamics, and different types of goods like substitute, normal, giffen, and complementary goods. Furthermore, it analyzes government policies, including competition, fiscal, and supply-side policies, and their impact on economic growth, inflation, and unemployment. The report also discusses the importance of financial statements and ratio analysis for decision-making, alongside investment techniques such as IRR and net present value. Overall, the report offers valuable insights into the financial and economic concepts essential for effective management in the business world.

Financial and economic
literacy for managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
a).............................................................................................................................................1
b).............................................................................................................................................2
c).............................................................................................................................................4
TASK 2............................................................................................................................................5
TASK 3............................................................................................................................................6
a).............................................................................................................................................6
b).............................................................................................................................................9
c)...........................................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In the business, there are various aspects in relation to financial system and it will be
required that the managers of company shall have complete knowledge regarding them so that
they can carry out the actions to achieve growth (Ansong and Gyensare, 2012). The matters
which will be covered under this will include understanding of customer response to various
market situations. also the performance will be evaluated so that its improvement can be carried
out. The report presented below will be explaining the techniques which can be used.
TASK 1
a)
Apple is a well-known organisation which is involved in the production of personal
computers and in addition to this, there are certain other products also which are manufactured
by it. The introduction of the Ipad 2 will be telling about the future of mobile media (Disney and
Gathergood, 2013). there are various structures which can be used and the one which is used by
the company is different from those which are used by others and will include monopolistic or
oligopoly. The company will be able to maintain its position in the market as in this type of
structure, there are not much competitors and this is due to the reason that it will not be easy for
them to enter in the market and also, cost involved in this will be high. Company is following
oligopoly and this can be said as others are not able to compete with the company due to the new
and advanced features which are introduced by it. So it is not possible for others to made their
position and there will be less amount of competition which will have to be faced.
The monopolistic structure is carried out in the computers as more competition is present
in case of it. The whole market is divided among various organisation which are present and will
be able to maintain position.
Company will be able to achieve the growth and this will be done with the help of many
innovations made and opportunities which are created by the use of organisation structure
(Gathergood, 2012). There are many features of this which will lead to the accomplishment of
mission and will include function and product related grouping, spoke and wheel hierarchy. The
flexibility which is present under this will be limited but the control will be strongly maintained.
All economies which are present will be affected with the globalisation and restrictions in
trade will be eliminated. Main factors which shall be taken into consideration in this will be
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policies of government, geography and technology (Huston, 2010). In order to maintain the
quality, it will be ensured that all new techniques shall be used. Outsourcing is being used by
Apple in which it gives the order to manufacture products to others who will be undertaking the
work by keeping in mind the specification mentioned by company.
There are various methods which are used so that activities can be delegated to all the
countries and for that, companies in other parts are acquired or new plants are established. In
order to achieve the expansion, all of this will be undertaken together with the compliance of
policies formulated by government.
b)
In the business, there are two aspects which are to be considered and they are price and
demand. they both are highly related and will be having an impact on each other. The price will
be fluctuating and demand will change in inverse relation to it. It means that the demand will be
rising with fall in prices and vice versa (Carlin and Robinson, 2012). The demand will be
maintained with the identification of needs so that they can be met and by this, the curve of
demand will experience a shift. In the present situation, demand will be enhancing as the
reduction in price can be seen in diesel and unleaded petrol. This can be better understood with
the help of diagram provided below:
In this, it can be seen that with the rise in price from P0 to Pt, demand is falling Qo to Qt.
The other part is supply in which relationship exists but will be direct. This explains that with the
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increase in price, supply of product will also be raised and vice versa. By the use of this,
company will be able to make higher amount of earnings as more sales will be made. This can be
understood in a better way with the help of example and the same is provided below:
Per litre price Quantity supplied
116.3 52
117 60
117.5 93
118.3 102
It can be seen that the quantity which is supplied is increasing with the enhancement of
price per litre. So, the direct relation is clearly visible in it.
In case the quantity which is demanded will become equal to the quantity supplied, then
that situation will be known as equilibrium (Jappelli, 2010). In this case, the curve of supply and
demand will be intersecting each other and will meet at a certain point. The problem of shortage
is faced when the demand is more and the issue of surplus will be borne in case of higher supply
and they both will be eliminated in case of equilibrium as in this, demand and supply will be at
an optimum level. The products which are provided can be categorised in various types and they
are explained as below:
1. Substitute goods: There are various products which are of similar type and have the
quality due to which they can be used in place of each other and they are known as
substitute goods. They can be replaced as there is direct relation established between
demand and price of good . With the rise in price of a product, demand of the good which
will be its substitute will be rising. The price of diesel is higher so demand of unleaded
will be improving.
2. Normal goods: The goods which will be affected by purchasing power of consumers are
normal goods. It means that if consumers will be earning more then, they will be able to
purchase more and by that, the demand will be increased.
3. Giffen goods: When the relation in between price and demand becomes positive then in
that situation, goods will be giffen as with the decline in price, demand will also be
decreasing.
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4. Complementary goods: There are some products which can be used in the combined
manner and will be of no use if taken separately. Due to this fact, they will be moving in
the same direction which means that their demand will be increasing or decreasing
simultaneously.
Microeconomics will be covering all of them and then, in addition to this, other aspects
will be included in macroeconomics. In this, consideration will be provided to whole sector and
not to some particular organisation (Klapper, Lusardi and Panos, 2013). The income of nation
will be estimated in this and for that, various other factors are considered which will be balance
of payment, price and gross national product. Further, other factors included will be
identification of the investment, policies in relation to finance and economic growth.
c)
Growth which is going on in the economy will lead to increase in government’s
responsibility as now, in order to enhance the organisation it will be required that further
opportunities shall be made in respect of jobs. The different policies which will be required to be
made and used are provided below:
 Competition policy: This is the situation in which the market will be facing the
monopoly and so it will be required that the policies shall be formulated by the
government which will be helpful in safeguarding the interest of consumers. By using the
competition act 1998 certain EU competition policies were equated and they were made
with the intention to ensure the appropriate competition among the various suppliers. In
the changing environment there are various technologies which are present and shall be
used so that innovations can be made with the used of them which will help in achieving
efficiency. With the help of this the interest of the customers will also be saved (Altman,
2012). The government will be appointing many regulators who will be responsible to
analyse that whether proper working is carried out in the market or not. Consumers and
producers will be using the findings of the analysis so that steps can be taken to improve
the position. The main factor due to which monopoly is established is the merger which
takes place and they will be avoided with the use of the deregulation policy which is one
of the many policies present in respect of competition. privatisation is the concept in
which the transfer of ownership will be included. The main aspects which will be
included in the policies will be abuse of market power under which the evaluation will be
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carried out of those organisations which are holding greater market share. This will be
done as they use the technique of selling their products at lower price and this will result
in exit of the others from the market. The another one is collusive behaviour which will
have to be examined as under it agreement is made so consumers will be required to pay
the prices according to the preset standards which are higher so they need to be
investigated in the proper manner.
 Fiscal policy: The government will be making them by which the affect will be made on
the aggregate demand and economic activity as the amount which will be spend on the
tax will be amended (Lusardi, Mitchell and Curto, 2010). With the help of these policies
the economic growth level will be changed in the situation of recession as that that will
help in inflation control which will be carried to lower rate. The policies in this will be
classified in two sections which are deflationary and expansionary policy.
 Supply side policy: The main point which is considered under them is the manner to be
used by which production capacity of the business can be improved. The government will
be required to interfere in this case as by that the failure which has taken place in the
market will be removed. The inflation will be controlled and reduction will be achieved
in the unemployment rate with the use of it. The growth will be achieved in the economy
by the improvement in balance of payment. Training facility, tax reduction and
privatisation are some of the aspects to be covered under this.
So these are some of the ways by which the issues which are arising in the economy will
be eliminated in the most appropriate manner.
TASK 2
In order to make important decisions, various studies will have to be carried out by the
managers and in this, preparation of financial statements will have to be done by which making
of decisions will be made possible (Knoll and Houts, 2012). In this, the cash, assets and
liabilities related decisions will be made as they will be including the balance sheet as well as
income and cash flow statements.
A plan will have to be made in this under which the manner in which activities shall be
performed will be specified and that will be used in decision making. For the development of
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business, investment and finance related decisions will be made and for that IRR and net present
value will be the techniques to be used.
TASK 3
a)
Ratios are used in the determination of performance of company and for that, financial
statements are made and all the ratios will be used to take relevant decisions (Remund, 2010).
Transactions of business are recorded in ledger and trial balance and they will be the one by
which required information will be collected. The ratios in relation to Tesco Plc are calculated
below with the help of the statements provided.
Balance sheet
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2014 2015
Total Assets 50164 44214
Total liabilities 35442 37143
Stockholder equity 14722 7071
Number of shares 5485 5500
Book value per share 2.68 1.29
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Sales turnover 63557 56004.38
Total Assets 50164 44214
Asset turnover ratio 1.27 1.27
Total debt 35442 37143
Total equity 14722 7071
debt to equity ratio 2.41 5.25
Current ratio 0.73 0.6
ROE 12.8 5.83
 Book value per share: By this, the value of company is determined and this will be
considered to be positive if it is more. In the given case, value is decreasing from 2.68 to
1.29 so it can be said that company needs to increase its value.
 Asset turnover ratio: In this, the management of assets is analysed and so, this is asset
management ratio. If there will be increase in the ratio then it will be considered as good
otherwise not. This is coming at the same level which means company has not invested
any amount in assets in the current year.
 Debt equity ratio: This shows the level of debt which is present in company in relation
to equity and it shall be maintained at lower level (Jappelli and Padula, 2013). The
position of company is declining as ratio is increasing which shows company is not able
to manage its funds.
 Current ratio: By this, the amount of assets maintained in comparison to liabilities is
identified and will be considered good if will be around 2. The need is there to invest in
current assets as it is declining which is not good.
 Return on equity: The return which is earned by business in respect of equity will be
determined and as returns will be high, they will be showing the positive improvement. It
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is declining at higher rate which shows that company is not able to utilise its funds in an
effective manner.
b)
Business will be earning cash in the future which will have to be converted in present
value and for that the technique which is used is called discounting (Monticone, 2010). By this,
the project will be evaluated as it will be determined that whether the amount earned will be
good or not.
Calculation of present value of inflows:
INFLOWS YEAR PV@8%
P.V of
Inflows
700 1 0.9259 648.1481
700 2 0.85733 600.1371
700 3 0.7938 555.6825
TOTAL
INFLOWS 1803.96
c)
For the evaluation of proposal, NPV will be used in which the difference among present
value of inflows and outflows will be calculated and if it is positive then it will be considered
(Van Rooij, Lusardi and Alessie, 2011).
Calculation of Net present value :
Year Project A Project B PV@ 10.25% PV of Project A P.V of project B
0 -50000 -50000 1 -50000 -50000
1 17000 0 0.8888 15111.11 0
2 17000 0 0.7901 13432.098 0
3 17000 0 0.7023 11939.643 0
4 17000 0 0.6242 10613.016 0
5 17000 99500 0.5549289573 9433.7922 55215.431
NPV 10529.6618 5215.4312
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