Financial Analysis Report: Amazon, UK Economy, and Fiscal Policy

This report provides a comprehensive financial analysis of Amazon's business model, market strategies, and global expansion, highlighting its revenue growth and market share within a competitive landscape. It then examines the UK economy, focusing on macroeconomic concepts, demand and supply dynamics, and the impact of price elasticity, as demonstrated by changes in agricultural output and commodity prices. The report further explores the UK's competition and fiscal policies, evaluating their roles in promoting economic prosperity, innovation, and stakeholder interests. It discusses the effects of government interventions, such as tax adjustments and supply-side policies, on inflation, unemployment, and overall economic growth. Finally, the report delves into the application of financial concepts by managers, including capital budgeting, financial planning, and control, to develop strategic goals, manage cash flows, and make informed investment decisions to maximize organizational value.

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Financial and Economic Literacy for Managers

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1.
Amazon.com is the widest online book store and giving a huge competition to all its competitors’
worldwide. But, it can be analyzed that in spite of its growth in a tremendous way the
organization has not recorded net profits till the year 2002 and also the profit was very small in
terms of the sales made by the organization. So, it can be analyzed that market share does not lead
towards profitability of the organization. The manner in which the industry is carrying out its
business will be helpful in determining market for the industry i.e. perfectly competitive or
monopolistic. These markets will help the organization to attain profits. This theory is termed as
paradigm of Structure- conduct-performance. The structure of the organization helps in
determining the behavior of the organizations in a particular industry and this will help in
examine the profitability that can be attained by the organization in that particular industry (Wang
and Campbell, 2010).
It can be analyzed that the organization which are carrying its operations in a perfectly
competitive market are not capable of charging the prices more than the price prevailing in the
market. Price can be put down by the competitors in such market equal to the marginal cost. The
only way to earn profits in such market is to make differentiation either in services or products.
The differentiation will help the organization to earn the profits. If the organization will
successfully achieve the differentiation than the firm will be able to have monopoly and thus the
organization can charged price according to it as there will be no competitors which can affect the
price. The market share of the organization depends upon the concentration of different
organizations in the market and the dominance of the firms in the market. With the help of
concept of structure conduct performances paradigm the organization make an analysis of the
markets which are profitable for it and thus this helps the organization to earn more revenue in
comparison to its competitors.
With the help of globalization Amazon earned about $107 billion sales in the year 2015 and in
comparison to 2103 the company earns revenue double to its competitors. Amazon has captured
online market around 46% and the share of the company grows at a faster pace with the help of

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globalization. The company also expands its business lines at a global level including auction
house, book publisher, and manufacturer of hardware and a wide network of logistic. The
company has double its sales on a yearly basis with the help of concept of globalization
(Moloney, 2010). Adoption of the structure-conduct-performance paradigm help the organization
to create entry barriers and use of control over data and the bargaining powers has also been
increased.
It can be analyzed that the concern of structures are very important in relation to the online
marketing as price plays a very important role. The business organization of Amazon is also
discussed. Amazon has made its dominance in the online platform and invests all its profits in an
aggressive basis in the organization again. This strategy of the organization helps it in standing
ahead of the competitors. The premise of the Amazon is to make a business model which helps
the company to grow. This approach will help the organization to weigh off the other competitors.
Amazon is focusing on being market leader and provides its various services to customers like
Amazon prime where delivery is being made in 1 to 2 days. With the help of concept of
globalization, the company has made worldwide customers and many of the customers choose
Amazon over its competitors around the world. The organization enables to make the business
strategies in terms of globalization in order to attract more customers (Whitmarsh and O'Neill,
2010).
2.
The UK is based on the market and operates under the institutional and the framework of the
policy carried in the country. The statement made by the department of environment and rural
affairs shows the concept of demand and supply in the country. The yearly indicator for output
has decreased 8.4% as compared to year 2014. The yearly index for inputs has decreased by 4.8%
in comparison to year 2014. The potency of the pound in comparison to the euro and also dollar
price in US has impacted on the index of the price in the world wide market and has impacted on
the prices in UK. In the year 2015, the pound has made its strength against the euro and the dollar
price in US which made the fall in price in the year 2015. The yearly crop product index was

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recorded as 5.8% less in comparison to year 2104 because of the decreased prices for crops and
cereals (Lennartz et. al., 2012)
The area of wheat has made a fall by 5.4% and oats has made a fall by 4.4% and the barley area
has shown its increment by 1.9%. The macroeconomic concept in UK can be analyzed from the
area that pulses have made an increase in the year 2015 in order to fulfill the demand of the year
2015. The agriculture of peas has been increased according to the demand of the country. The
sector of ornamental in the country has showed a downfall of 1.5% and in the sector of retail
strong demand was stimulated which was fixed by the season production estimates. There were
poor weather conditions in the country discourage the growth of crop. Lower prices lead towards
14% in gross value. UK Department for Environment and Rural Affairs has the main purpose is
to find out the potential of the country towards food and agriculture and animals and other
hazards by maintaining elasticity of supply and demand. This will help in maintaining a healthy
environment and thus excellent delivery of value for the money in the country.
This statement shows the concept of demand and supply. The measure of the changes in the
quantity demanded with the changers in the prices of the product is termed as the elasticity of
demand. This can be calculated by dividing the change in the quantity with the change in the
price. There are various determinants which affect the same like inflation in the country has
affected the price of potatoes in the country. Price elasticity helps in making an estimation of the
changes in the price of the product over a period of time. Price elasticity can be determined
through the changes in prices on the basis of the total revenue on a particular product with making
consideration on the changes in the government policy. From this particular statement it can be
analyzed that the supply was restricted in order to maintain the stability in the country (Lahti,
2014). The potato index rises 3.2% between the months in March and February 2017 as compared
to the increase in month of March and February 2016.
3.
Competition policy implemented by the UK government in order to make the markets a better
place to work and in order to increase competition so that there will be economic prosperity in the
country. With the implementation of competition policy, the government ensures that there will

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be innovation in the technologies and it will also bring efficiency in the markets of the country.
This will also save and promote the interests of various stakeholders with the low prices. There
are various major pillars of the competition policies of UK. Firstly, it includes the eliminations of
the contracts in order to remove price fixation. Secondly, merger controls were implemented by
the government in order to make proper investigation for mergers and acquisitions. The impact of
competition policy in The UK can be analyzed from laws and penalties on the cases of price
fixation and collision and reduction in the import tariffs which leads towards cheap products in
the market of UK. Evidence can also be drawn that the government has made high penalties up to
10 percent of the total turnover and the executives who made breach can be imprisoned
(Tompkins et. al., 2010).
Fiscal policy is termed as the policy where government makes an adjustment in the level of the
expenditure so that monitoring can be done to the economy of the nation. Fiscal policy helps in
determining the government its budget in allocation of the resources and the income distribution
arising from various sectors of the country. The fiscal policies made by the government plays a
very important role in economic prosperity of the country.UK is considered as one of the global
economy in the world. The country is facing economic problems on a serious level (Habegger,
2010). The country is facing problems like unemployment and deficit in budget. With the help of
fiscal policy the government prevented recession and the inflation rate in the country and this lead
towards economic prosperity in the country.
Government in the country has increased tax rate and thus this helps in cut in the expenditure in
order to face the problem of inflation. This will also helps in reduction in the deficit of the budget
of the country and this will make the country economic stability. This will also help in reduction
in the demand on an aggregate basis and thus reduction in the inflation can be created (Mitchell
and Muysken, 2010). The reduction in tax will increase disposable income. This will help in
increase in the growth of economy and reduction in the employment.
Supply side policies help the government in UK to increase the productivity in order to make a
shift in the supply on the aggregate basis. This will help the government to make a shift in the
aggregate supply in the country and thus price level can be lowered. Supply side policies will help

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the government to make a reduction in the cost push inflation and this will help in making the
economy more efficient. These policies will also help in reduction in the unemployment in the
country and thus an increase in the economic growth can be made in the country with the help of
supply side policies. These policies will also help in making the organizations of the country
more productive as more export can be made. Supply side policies in the country helps in
increasing the effectiveness and efficiency in the country but it can actual growth rate cannot be
identified. After formulation of supply side policies in the year 1980s, the government thought
that it will make a economic growth in fast pace (Whitmarsh and Köhler, 2010). The Lawson
boom in the eighty proves that the growth rate in the country did not make any serious changes.
4.
The managers make application of the concepts of the financial statements, capital budgeting and
financial control in order to develop and make strategic goals for long time period. Managers use
the concept of capital budgeting in order to make identification of the suitable projects for the
business. Mangers use the concept of financial planning and control in order to make estimation
for the cash flows for future. It also helps the managers to invest in the project which will create
more value for the organization. The concept of financial planning and control will help the
managers to move the information in an appropriate manner for the decision making in the
organization. These concepts also help the managers in defining a budget for all the expenditures
in the organization. Managers will be able to make an analysis of the trends of the organizations,
its resources and different competencies. This will also help the managers for effective
management of the cash and current assets and current liabilities. Managers can take financial
decisions which can minimize the cost of capital and those decisions which can make a reduction
in the potential risks. With the help of financial planning and control the managers can evaluate
market growth and share and thus estimation on the return on investments can also be analyzed
(Steinmueller, 2010). The concepts of financial management help the managers to take the
decisions for the growth of the organization in the long term.
It can be analyzed that in the year 2009, the organization ExxonMobil which is the largest oil
organization in the world makes an announcement of make acquisition of XTO Resources which

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is the largest gas companies in the country U.S. The decision of acquisition by managers of the
organization was based on the concept of capital budgeting after making an identification that this
investment decision will help the organization to grow and focus.
5.
Financial instruments and risk and return are keys for companies in order to seek long-term
corporate investment, to keep going modernization, growth, prosperity and creation of value.
Firms in UK apply the concepts of financial intermediation to have risk-return profile in
comparison to its competitors. The evidence can be drawn from Deloitte established in the
country. These days the organizations in the country are using the concept of financial
instruments in order to obtain finance for carrying its business rather than taking loan from banks.
Bank lending was considered as the most source of external finance but with the help of concept
of financial intermediation the companies in UK are getting finance on its own. Debt
securitization and covered bonds are helpful for the firms in order to obtain finance (Kumbirai,
2010).
The concept of financial intermediation is not quite new. From years, it has been a subject of
study at both the micro level and macro level in the country. At the macro-level, the significance
of financial intermediation cannot be over-emphasized. New financial concepts in the country
make a positive growth in terms of economy stability as there is improvement in the lending. By
issue of debts and equity and various types of bonds, organizations in UK are raising finance for
carrying out its operations. Different types of financial instruments are prevailing in the market by
the firms in the country. The concept of financial instruments and risk and return are applied by
the organization in order to make huge profits and to stand ahead of competitors as it will lead
towards increase in goodwill of the organization.
In the recent years with the help of the concept of financial instruments and risk and return, it
becomes easy for the firms to offer hybrid tools in order to fulfill the needs of funds. The major
source is equity finance where the company grab long term investments and to bring the growth
opportunities for the organization. These concepts will also help the organizations to make an
investment of its profit in the right direction in order to earn huge revenue in long time duration.

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Evidence can be drawn from Amazon who uses this concept in order to stand ahead of its
competitors (Bennouna et. al., 2010).
6.
(A) Financial ratios of Tesco and Morrisons for the year 2016
Analysis of Liquidity Ratio
Name of the
ratio
Formula Tesco 2016
(£m)
Morissons
2016
(£m)
Current
ratio
current assets
current liabilities
14,592
19,714
=0.740
1316
2755
=0.477
Current assets 14592 1316
Current liabilities 19,714 2755
Acid Test
ratio
current asset −inventories
current liabilities
14592−2430
19,714
=.616
1316−616
2755
=.254
Current assets 14592 1316
Inventory 19714 616
Analysis of Profitability Ratio
Name of the
ratio
Formula Tesco 2016
(£m)
Morissons 2016
(£m)
Net profit
margin
net profit
sales revenue ×100 129
54,433 ×100
=0.264%
222
16122 ×100
= 1.377%

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Net Profit 129 222
Sales Revenue 54,433 16122
Gross profit
margin
gross profit
sales revenue ×100 2,854
54,433 ×100
=5.2453%
617
16122 ×100
=3.827%
Gross profit 2,854 617
Sales Revenue 54,433 16122
Analysis of Market Performance ratio
Name of the
ratio
Formula Tesco 2016
(£m)
Morissons
2016
(£m)
Earnings
per share
earningsavailable
no . of equity s h ares
=1.70 = 9.51
Analysis of Capital Structure ratio
Name of the
ratio
Formula Tesco 2016
(£m)
Morissons 2016 (£m)
Debt to equity
ratio
total liabilities
total equity ×100 35288
8616 ×100
=409.563
5551
3756 ×100
=147.79%
Total liabilities 35288 5551
Total equity 8616 3756
Equity ratio total equity
total assets × 100 8616
43904 ×100
=19.624%
3756
9307 × 100
=40.35%
Total equity 8616 3756

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Total assets 43904 9307
Analysis of Efficiency Ratio
Name of the
ratio
Formula Tesco 2016 (£m) Morissons
2016
(£m)
Inventory
turnover
ratio
inventory
costofsales × 365 19714
51629 × 365
=139days
616
15505 ×365
=15days
Inventory 19714 616
Cost of sales 51,629 15505
From the above analysis, it can be concluded that Morrisons has a better financial structure and
stability in terms of Tesco as it has net profit ratio of 1.377% which is quite high from Tesco.
Morrisons also has Inventory turnover ratio of 15 days which shows its solvency. Morrsions also
has a stability in its capital structure with proportionate in debts and equity in comparison to
Tesco.
(B) Future Value of Uneven Cash Flow Streams
Note: each cash flow is treated as a lump sum amount and compounded for the appropriate
number of periods.
FVt = PV ( 1+ r )t
FV3 = $400(1.055)2 + $300(1.055)1 + $250 = $400(1.1130) + $300(1.055) + $250 = $1011.7
(C)Calculation of Net Present Value:
Net present value is the difference between the initial investment and present value of future cash
flows of a project. If NPV is positive, the project is accepted, if not, then it is rejected. NPV can
be calculated as follows:
Project A Project B
Year Discount Factor Cash Present Cash Present

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(10.25%) Flows(In$) Value(In$) Flows(In $) Value(In$)
1 0.907 25,000 22675 0 0
2 0.822 15625 12843.75 0 0
3 0.746 5000 3730 0 0
4 0.676 12000 8112 0 0
5 0.614 32000 19648 99500 61093
67008.75 61093
NPV = Present value of cash inflows – Initial Investment
For project A:
NPV = $67008.75 − $50,000
NPV = $ 17008.75
For Project B:
NPV =$ 61093 − $50,000
NPV = $11093
Since, NPV of both the projects are positive, both projects can be accepted. But, priority should
be given to project as it has highest NPV (Hall and Millard, 2010).

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Bennouna, K., Meredith, G.G. and Marchant, T. (2010) Improved capital budgeting decision
making: evidence from Canada. Management decision, 48(2), pp.225-247.
Habegger, B. (2010) Strategic foresight in public policy: Reviewing the experiences of the UK,
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Hall, J. and Millard, S. (2010) Capital budgeting practices used by selected listed South African
firms, South African Journal of Economic and Management Sciences, 13(1), pp.85-97.
Kumbirai, M. (2010) A financial ratio analysis of commercial bank performance in South
Africa, African Review of Economics and Finance, 2(1), pp.30-53.
Lahti, A. (2014) International Trade, Entrepreneurship, and Monopolistic Competition: German
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Moloney, N. (2010) Regulating the retail markets: Law, policy, and the financial crisis, Current
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Steinmueller, W.E. (2010) Economics of technology policy, Handbook of the Economics of
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