Financial and Economic Literacy for Managers: A Detailed Analysis

This report provides a comprehensive analysis of financial and economic literacy for managers, focusing on the operational frameworks of businesses in a global context. It examines market structures, specifically the oligopolistic market in the UK, and analyzes Tesco's growth strategy, considering competition and economic conditions. The report delves into demand and supply dynamics, the UK housing market, and the Bank of England's monetary policies, including quantitative easing. Key macroeconomic indicators such as GDP growth, inflation, and unemployment rates in the UK are assessed over the past five years. Furthermore, the application of leverage, current asset management, financial analysis, ratio analysis of Tesco, present value calculations, and capital budgeting are discussed. The report integrates economic concepts with practical financial strategies to provide a detailed understanding of business economics and financial management.

Running head: FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Financial and Economic Literacy for Managers
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Table of Contents
1. Business economic concepts of market structure, small and medium enterprises, multinational
corporations and growth strategy of Tesco Plc:..............................................................................2
2. Business economics concepts of demand and supply and the monetary policy of the Bank of
England to the UK Housing Market:...............................................................................................4
3. Key macroeconomic indicators and trend in these indicators in UK for the past five years:......8
4. Application of leverage and current asset management in decision-making for the managers:12
5. Financial analysis, present value and capital budgeting:...........................................................13
a. Ratio analysis of Tesco Plc for the years 2015 and 2016:.....................................................13
b. Present value:.........................................................................................................................15
c. Investment appraisal:.............................................................................................................15
References:....................................................................................................................................17

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
1. Business economic concepts of market structure, small and medium enterprises,
multinational corporations and growth strategy of Tesco Plc:
Introduction:
In the contemporary global economic and corporate scenario, with the businesses
becoming more complex, integrated, expanding and inclusive, almost in all types of industries,
the operational framework of the businesses is becoming far more competitive and subjected to
the variations of the various exogenous as well as endogenous factors (Jonesand Sloman 2017).
Of the different aspects, there also remain different economic factors which affect the operational
framework of the companies and based on which the business decisions and strategies are made
by the contemporary commercial organizations in the global framework. These factors include
the market structure in which the concerned company is operating, the demand and supply
situations existing in the industry, level of competitions faced by the firm, nature of the
commodity or service which the company is providing as well as the economic strategies taken
by the firm as well as by its competitors, in order to achieve the general targets of profit
maximization and increased cost efficiency (Frankand Cartwright2013).
Keeping this into consideration, the concerned report tries to analyse the business
scenario and economic implications on the operational framework of Tesco, the largest
supermarket operating primarily in the United Kingdom, with stores in many countries across
Europe and Asia. The company is not only one of the largest grocery and merchandise retailers
in Europe but is the third largest one in the global supermarket industry in terms of profit and
ninth largest in the form of revenues (Tesco.com, 2018). With average annual revenue of nearly
56 million pounds and global employee strength of more than 476,000, the company enjoys

3FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
immense global clientele as well as a robust supply chain consisting of long term relations with
the different suppliers across the globe.
Structure of market and economic conditions in which Tesco operates in UK:
In the United Kingdom, however, Tesco operates in an oligopolistic market structure. In
the theoretical framework of economics, Oligopoly is known as the market structure where there
is presence of several suppliers (not more than twenty as per convention) and many buyers,
which in turn gives each of the sellers considerably high share of market power and decision-
making abilities regarding their products aa well as their prices. However, though the products
sold by the suppliers are differentiated, the decisions regarding pricing and production of each
producer is dependent on the actions and decisions taken by other producers in the same industry
(Dunne et al. 2013).
Keeping this into consideration, it can be asserted that the supermarket industry of the
UK is mostly of oligopolistic in nature. This is because, in spite of the presence of many supply
side providers in the market, the market is primarily dominated by few large supply side players,
each of which enjoy considerable market share in the supermarket industry, which can be shown
with the help of the following figure:

4FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 1: Share of the different supply side players in the supermarket industry of the UK
(Source: Schiraldi, Smith and Takahashi 2012)
As is evident from the above figure, there are few dominant suppliers in the supermarket
industry of the country and although Tesco enjoys largest share in the market, it still faces
considerable competition from the other players including Asda, Morrisons and Sainsburys and
the new ones including the Aldi and Lidl, who have been consistently making their place in the
market through improved technologies and extreme cost efficiencies, thereby creating a situation
of price war in the already oligopolistic market.
Strategy Framework of Tesco:
Tesco has responded to the immense price war situation in the market, by reducing their
price levels considerably, taking advantage of the economies of scale which the company has
acquired over the years of its operations. The company also has launched a “Price Promise
Scheme” according to which the customers are entitled to get their money back if they get the
products cheaper than Tesco (Nordic.businessinsider.com, 2018). Apart from that, the company
has also implemented various cost reducing and efficiency improving policies, which have
together helped in increasing the revenue of the company, as can be seen from its increasing
profits in the last few years.
2. Business economics concepts of demand and supply and the monetary policy of the Bank
of England to the UK Housing Market:
Introduction:
The economy of a country and its scope of progress and development largely depends on
the efficient working of the demand and supply forces in different sectors of the economy as well

5FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
as on the policy framework and regulatory or monitoring mechanisms taken by the governing
authorities of the economy to maintain a balance between the demand and supply forces
(Mankiw2014). The balance is required to be maintained between these two forces in order to
maintain equilibrium in the market, as any discrepancy between the same may lead to excess
supply or demand in the market, both of which may have negative implications on the overall
economy as well as on the residents of the concerned country, individually.
UK Housing Market
Housing or residential properties are seen as a lucrative and an alternative form of
investment in any economy. In this context, the housing market of the United Kingdom has faced
considerable dynamics over the years, with the average price levels varying considerably with
time, being subjected to various crisis and turmoil, which can be showed as follows:
Figure 2: Housing Price Index of UK (2007-2016)
(Source: Tradingeconomics.com 2018)
As can be seen from the above figure, the price of housing in the country fell
considerably in 2008, owing to the initiation of the Global Financial Crisis, which led to a burst
of the investment bubble in the housing market of several countries, specifically including the

6FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
USA and the UK. However, with time the price of the housings has rose considerably and in the
current period the housing market of the country has been facing severe unaffordability issues,
much of which can be attributed to the comparatively lesser increase in the supply of the
housings than the demand for the same (Ngaiand Tenreyro 2014).
Another factor affecting the decrease in the affordability of the residents of the country is
the considerable fall in the real wage of the people in the country:
Figure 3: Ratio of house prices to average income in UK
(Source: Stewart 2018)
Policies taken by the Bank of England
To tackle the situation the Bank of England has resorted to a policy of quantitative
easing, thereby lowering the rate of interests, which in turn makes borrowing easy. The
government has also launched policies, especially for those who are willing to have their first
homes in the country(Stewart, 2018). These policies include that of Help to Buy and Schemes of
Shared Ownerships. These monetary and financial aid providing policies, though has helped to

7FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
some extent in addressing the affordability issues in the short run, however, has resulted in
increasing the demand for housing in the country considerably, the effect of which can be seen as
follows:
Figure 4: Increase in demand due to quantitative easing by Bank of England
(Source: Frank and Cartwright 2013)
As is evident from the above figure, due to the quantitative easing policy, the demand has
increased considerably in the housing sector of the country, which by increasing the price levels
even more, can have negative implications on the economy in the long run as a whole, provided
the supply of housings are not increased at the same pace as that of demand.
Conclusion:
The policies taken by the Banks of England in the contemporary period, have
considerable implications on the demand and supply side dynamics in the housing market of the

8FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
country. Quantitative Easing policy is expected to increase the demand for housings even more,
which, in the absence of adequate supply, can contribute in creating excess demand in the
economy, which in turn, can lead to increase in the prices in the housing market of the United
Kingdom.
3. Key macroeconomic indicators and trend in these indicators in UK for the past five
years:
Introduction
The word “Macro-economy” in the theoretical framework of economics refers to the
overall economic traits and activities of broad region or a country as a whole. The progress and
economic growth of a country, in this context, can be analysed and interpreted by observing the
macroeconomic trends prevailing in the economy, which in turn are measured cardinally with the
help of several macroeconomic variables which primarily include the Gross Domestic Product
and its growth rate, the rate of unemployment, inflation and similar indicators (Burda and
Wyplosz 2013). Together, the dynamics in these variables show the overall economic
performance of the country.
Macroeconomic Performance of United Kingdom
In this context, the working of the economy of the United Kingdom in the last five years
can be seen with the help of the macroeconomic indicators, which are as follows:

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 4: GDP Growth Rate of UK over the lase five years
(Source: Tradingeconomics.com 2018)
The Gross Domestic Product of a country and its growth rate shows the economic
progress of the country as a whole. As is evident from the above figure, the GDP Growth Rate of
the country has been subjected to considerable fluctuations in the last five years, with the trend
however showing a moderate decreasing pattern. However, in the last couple of years it has
shown increase to some extent.
Figure 5: Rate of Inflation of the UK over the last few years

10FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
(Source: Tradingeconomics.com 2018)
The rate of inflation of an economy shows the average level of prices prevailing in the
economy. In this context, the rate of inflation of the UK, which remained considerably in 2013,
reduced considerably post 2013 and the fall continued till 2016. However, owing to the recent
economic policies and fluctuations faced by the economy the rate of inflation has increased
considerably post 2016. However, though the increase has been noticeable, the rate is at a
moderate level of 3%.
Another macroeconomic indicator of welfare of an economy is the level of
unemployment prevailing in the country, as the same is linked with the economic stability and
welfare of the residents of the country.
Figure 6: Rate of unemployment of UK over the last five years
(Source: Tradingeconomics.com 2018)

11FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
The unemployment in the country has considerably decreased over the last few years,
which can be seen from the falling rate of the same in the last five years. This may be directly
linked with the increase in the overall price levels in the economy as these two variables are
inversely related.
Figure 7: Rate of Interest in UK over the last few years
(Source: Tradingeconomics.com 2018)
The country has maintained an interest rate of 0.5%, over the last few years, with an
exceptional fall in 2017. The rate has however been restored in the current period.
Conclusion
From the above discussion it can be seen that the economy of the United Kingdom has
not shown striking improvement or visible deterioration in the last five years. While the
economy has been seen to perform considerably well in some sectors, several other
macroeconomic indicators of the country has shown deterioration to some extent.