International Financial Management in L'oreal Multinational Corporation

This report discusses the importance of international financial management in L'oreal multinational corporation, challenges faced in different international markets, financial management theories, dividend distribution policy, efficient market hypothesis theory, and methodologies for appraising projects.

INTERNATIONAL
FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
International Financial Management ..........................................................................................3
Importance of International Financial Management in L'oreal multinational corporation.........3
Challenges that may applied by L'oreal multinational corporation in different international
market..........................................................................................................................................4
International Financial Management Theories............................................................................5
Dividend Distribution Policy of the L'oreal multinational corporation......................................6
Efficient Market Hypothesis Theory in the regarding of L'oreal Multinational Corporation.....7
Examination of L'oreal Multinational Corporation Methodologies of Appraising the projects 7
CONCLUSION ...............................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
International financial management is also known as international finance because it
manages the finance in an international business environment. It is making money through the
exchange of foreign currency. It focuses on foreign direct investment and currency exchange
rates. In this report contains the importance of international financial management in reference of
the one business group situated in the UK that is L'oreal multinational corporation. Further in
this report contains financial management theories and challenges (Do and et.al, 2019).
TASK
International Financial Management
International financial management plays an important role in international companies
and countries. It helps organization to connect international dealings with overseas business
partners such as customers, suppliers and lenders. This activities are used by government
organization and non profit institutions. It increases the efficiency and effectiveness of the
organization. The objective of international financial management is not only the maximization
of shareholders but also stakeholders. It is the study of monetary interactions that transpire
between two or more countries.
Importance of International Financial Management in L'oreal multinational corporation
L'oreal multinational corporation is the world largest cosmetic company situated in
France, UK. It provides high quality services such as hair colour, skin care, perfume and sun
protection of their customers. In presently 150 countries are used L'oreal products. This group
creates cosmetic products adapted to the infinite diversity of its consumers. It manages the fund
of the corporation (Kinateder and et.al, 2021). The importance of international financial
management are as follow-
 It determines exchange rates of different currencies of nations and the relative worth of
each and every nation.
 It compares the inflation rates and helps investing in international debt securities.
 International financial reporting system compares financial statement between two
countries.
 It determines the economic status of various countries .
 It manages the capital to improve its financial performance.

 Revenue comes from international market can protect the company that is the demand of
domestic market as they still need overseas.
 It helps in opens up new opportunities in the different economies which could be
beneficial for the cosmetic item in enlarging its operational scale.
 It maintains sufficient funds for the organisation.
 It increases the profitability of organisation.
 It helps to determining a crucial area associated with business concern.
 The success of the business depends on financial planning and financial planning is
important in financial management (Matare and et.al, 2020).
 To provide the funds at minimum cost so that company can earn more profit.
 Financial management provides optimum capital structure that is maintain proper balance
of equity and debt, the investors can invest the company.
 It manages all cash inflows and cash outflows in an organisation.
 The most important role of financial management is to managing the capital and financial
managers determine the capital required in the business.
Challenges that may applied by L'oreal multinational corporation in different international
market.
There are many key challenges which is applied on L'oreal multinational corporation.
Corporation must require an advance strategy so that fulfil the customer need in dynamic
environment.
1. Big data- It focuses on greater variety, more velocity and increasing volumes, it is also
known as three Vs. The FMCG world helps weekly consumer sales, brand tracking,
consumers panels, shopper data from friendly and well compensated retailers. The
organisations buy the specific data and use it effectively to develop products, manage and
communicating effectively to consumers.
2. Social media- The information moves rapidly through social media, Facebook post and
YouTube video and can viral in hours. An organisation can not sell the unsaleable
product which is related to health concerns and less developed market as regulation had
not caught up (Moşteanu and et.al, 2020, August). Rules and regulation are taken time to
catch up but consumers takes information through google. The most famous brands use

the best strategy to reach in global market while the less famous brand communication
costs.
3. Online shopping- The value of online grocery market was almost doubled. It is very
difficult to manage the customer, in house processes and the deteriorating condition of
the perishable products. In peak time, the customer may suffer late delivery condition. To
purchase online cosmetic products customer pays many types of taxes such as excise
duty, sales tax and income tax. Therefore many types of cost affect in the online grocery
business. Theses taxes directly affect the price of the products , it creates bad reputation
for the business in the mind of customers.
4. Technology- It has biggest challenges in cosmetic industry. Formulators are not
understand which kind of technology and method used to formulate a specific type of
cosmetic. Formulators have facing some problems such as regulation, customer needs
and industry consolidation.
5. Rapidly changes in customer requirement- In dynamic environment, customer
requirements are rapidly changing continuously. Therefore FMCG industry should set a
policy which help industry in regular analyse the customer needs so that it would become
beneficial for the cosmetic industry (Oussii and et.al, 2020).
International Financial Management Theories
There are different types of management theories which are used to explain the global
finance to estimate the interest rate, swap rates, supply demand relationship and take financial
decision.
1. Interest rate parity- These theory helps to determine the interest rate between two
countries and difference should be equal to percentage difference between
forward exchange rate and spot exchange rate. In that theory there is no restriction
to moving money from one country to another.
2. Purchasing Power Parity- It is commonly used to compare the economic health of
countries across the world. This theory measures prices at different locations. The
prices are equal of the goods at every location if there is no transaction costs and
no trade barriers cost. In this theory the cost of shipping, insurance and spoilage
must be zero (Pinckney and et.al, 2019). It can be divide into two parts. Absolute
parity states that goods should have the same value if two currencies have been

exchanged. This theory does not include transportation costs, inflation rates
consumer spending and tariffs. The another part of purchasing power parity is
relative parity. Under this theory explain the relationship between price inflation
and currency exchange rates.
3. Fisher effect- This theory determine the relationship between nominal rates, real
rates and inflation. Nominal rates have not been adjusted for inflation then it is
called nominal. It determines which amount of money is growing. Real rates have
been adjusted for inflation. It indicates the rate of purchasing power is growing.
4. International Fisher effect- It is also known as real interest rates. This theory
states that if the higher interest rate in the country then inflation will have at
higher rate. Difference between return and inflation rates are equal between the
domestic country and a foreign country (Tran, 2019).
Dividend Distribution Policy of the L'oreal multinational corporation
This policy can be defined as the amounts can be distributed to equity shareholders. The
company's dividend payout will be determined based on available financial resources. The
company can follow different types of different policy they are as follow-
1.Regular dividend policy- Under this policy the company pays regular dividend to its
stakeholder. This type of policy company can adopted only if the company has stable earnings
and steady cash flow. It crates the market value of shares which increases the company goodwill.
2.Stable dividend policy- In this policy company pays a fixed percentage of profit to its
shareholders yearly. It is a risky policy because the dividend amount changes with the level of
profit.
3.Irregular dividend policy- In this policy the company has no right to pay dividend to the
shareholders. The Board of directors will decide the dividend rate on the basis of earned profit.
4.No dividend policy- The company does not pay the pay to the shareholders. The company will
retain the earnings and reinvest into the business.
The L'oreal multinational corporation applies stable dividend policy. The company pays
0.5% of the profit for the shareholders. The company pays dividend on the basis of pay out ratio
which is based in diluted net profit excluding non recurring items, after controlling interest. The
share price of the company on 14th July 2022 is Euro 333.15.

Efficient Market Hypothesis Theory in the regarding of L'oreal Multinational Corporation
It is also known as efficient market theory. It determines the share prices show all
information. The stock trade at the fair market value, so that investors do not evaluate to
purchase or sell shares in order to generate surplus income. This theory assumes that the
investors are not capacity to performing well.
L'oreal shows the efficiency is related with the stock prices. The changing of share price
with the effect of changing in operational efficiency. Efficient market theory helps to controlling
and mentoring in its share price (Zhang, 2019, June).
Examination of L'oreal Multinational Corporation Methodologies of Appraising the projects
It defines the relationship between cost and benefits of different aspects of project. Before
allocation of resources for the best projects the enterprise needs to appraise different projects. It
controls the cost and concentrate the risky areas. There are different methods which assist the
business group they are as follow-
1. Economic analysis- To evaluate the economic appraisal the following factors are
included such as social development, industrial development and maximization the
growth of employment. It is very important factor for the FMCG industry because all the
government policy is taken into account for consideration.
2. Financial Analysis- It includes the requirement of working capital and fixed capital.
L'oreal corporation must examine the significant factors regarding finance that is
requirement of working capital to operate day to day activity and fixed capital need for
capital asset.

CONCLUSION
In the above report International finance management plays a vital role in the business for
generating revenue, manage and controlling the activities of L'oreal corporation. With the help of
different theories the L'oreal group assist the inflation rates, exchange rates and market interest
rates. Further stable dividend policy applies of the business group. The share price of L'oreal
contains all the information and affect its value. The methodologies are helped business group to
assist the factors which are needed to the continue of business.

REFERENCES
Books and Journals
Do and et.al, 2019. Macroeconomic effects of aggregate accounting conservatism: A cross‐
country analysis. Journal of International Financial Management & Accounting, 30(1).
pp.83-107.
Kinateder and et.al, 2021. Does boardroom gender diversity decrease credit risk in the financial
sector? Worldwide evidence. Journal of International Financial Markets, Institutions and
Money, 73. pp.101347.
Matare and et.al, 2020. Financial management practices and growth of msmes of Tanzania.
MUDRA: Journal of Finance and Accounting, 7(1). pp.30-44.
Moşteanu and et.al, 2020, August. Disaster Management, Digitalization and Financial Resources:
Key factors to keep the organization ongoing. In Proceedings of the 2020 4th International
Conference on Cloud and Big Data Computing. (pp. 118-122).
Oussii and et.al, 2020. The impact of audit committee financial expertise on de facto use of
IFRS: does external auditor’s size matter? Corporate Governance: The International
Journal of Business in Society.
Pinckney and et.al, 2019. Kenya’s introduction of microcomputers to improve budgeting and
financial management in the Ministry of Agriculture. In Microcomputers in Public Policy
(pp. 67-93). Routledge.
Tran, Q.T., 2019. Economic policy uncertainty and corporate risk-taking: International evidence.
Journal of Multinational Financial Management, 52. pp.100605.
Zhang, Y., 2019, June. The combination of the university financial management system and the
computer multimedia technologies. In International Conference on Applications and
Techniques in Cyber Security and Intelligence (pp. 1105-1111). Springer, Cham.