Financial and Economic Literacy for Managers: Case Study and Analysis

This report delves into financial and economic literacy, examining environmental factors affecting businesses, particularly within Walmart's operations. It analyzes Walmart's performance, discussing factors like GDP growth, inflation, and currency exchange rates, and their impact on profitability. The report also explores demand and supply dynamics using examples from the London Underground and McDonald's. Additionally, it covers financial intermediaries like commercial and investment banks, and pooled investment funds. The report includes an analysis of Zenobia Plc's financial ratios, present value, and net present value calculations, providing a comprehensive overview of financial management concepts and their practical applications. The student's work is available on Desklib, a platform providing past papers and solved assignments.

Running head: FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Financial and Economic Literacy for Managers
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1FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Table of Contents
Assignment Question 1....................................................................................................................2
A) Environmental Factors that apply in the External and Internal Spheres of a Firm...........2
B) Performance of the Walmart Company............................................................................4
C) Demand and Supply..........................................................................................................6
Assignment Question 2....................................................................................................................7
Assignment Question 3....................................................................................................................8
A) Interpretation of Financial Ratios of Zenobia Plc.............................................................8
B) Present Value....................................................................................................................9
C) Net Present Value..............................................................................................................9
Reference...................................................................................................................................10
Appendix........................................................................................................................................13

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Assignment Question 1
A) Environmental Factors that apply in the External and Internal Spheres of a
Firm.
The business economic theory uses the quantitative methods and the relevant economic theories
for evaluating the various key factors that contributes in the creating a diversity in the
organizational structures. The key organizational structure in which the relationship of the firm
with the labor, product market and capital. Rising competition and within the era of the
globalization it is key for the management of the company to take managerial decision that will
make the business prospect of the company viable in the future (Ward and Begg 2016). The
business economics or the managerial economics deals with evaluating the various kinds of
business factors and tools that are used by the management of the company for the decision-
making. The key theory behind the business economic theory is the decision-making analysis
done by the management, which involves evaluating various kinds of choices and selecting the
possible outcome from the event (Stiglitz 2017).
Various internal and external factors directly influence the operations of the business
firm. The key factors, which play a significant role in the operations of the company, which
influence the workings of the company, should be analyzed and evaluated so that the company
evaluates and forecast for the same. The internal factors evaluated are the cost and production,
profit management and the capital management done by the company. The external factors
recognized were the Demand Analysis and the pricing decisions and the relevant policies and
practices.

3FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
External factors such as the demand analysis and the forecasting is dependent on the
general business condition and the macro economic conditions under which the company
operates. The forecast for the demand and the productivity level will help guide the company
about the expected demand from the market and the relevant scenario under which the business
conditions operates. The forecast will guide the company for making business strategies and
accordingly decide the work plan for the enlarging the profits of the company. The pricing
decisions and the relevant policies of the company with respect to the same is the other key
relevant external factor for the company. The pricing of the product is dependent on the business
conditions under which the company operates and other micro and macro-economic conditions
like the inflation rate, GDP growth rate and the demand and supply forces in the market are the
key factors that needs to be evaluated and analyzed. Internal factors such as the profit
management strategy followed by the company is the key factor, which affects the internal
business environment band, determines the long-term prospect for the company (Yellen 2017).
The operating margin trend and the relevancy strategy followed for the maintenance of the same
is the key approach, which should improve the prospect of the company in the long term. Cost
and the production analysis for the company is the other relevant key internal factor, which
might affect and influence the operations of the business. The Capital Management done by the
company in terms of the source of borrowing done by the company may play a significant role in
the company (Naudé 2014). The management of the company should consider an optimum level
of equity and debt for the company depending on the business conditions and the risks in the
company. The capital expenditure and investments determines the allocation capability of the
company and the efficient utilization of the capital of the company.

4FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
The internal and the external factors plays a significant role in the long-term
prospects of the company and the same influences the operations of the company. The various
factors recognized and evaluated needs to be forecasted and the implication of the same will be
crucial for the company.
B) Performance of the Walmart Company
The American multinational company operating in the retail area is a global retail company
operating globally via its chain of grocery and hypermarket chain. The macro concept that
influences the business decision process of the company is the global GDP growth rate; inflation
forecast, unemployment rate, interest rate and the movement of the currency exchange rate are
some of the important points that needs to be considered. The macro conditions can significantly
the operations of the company (Cucchiella, D’Adamo and Gastaldi 2015). The growth rate in the
global GDP growth rate will offer a favorable business conditions for the company and the
growth rate for the company simultaneously. The lower the inflation rate and the unemployment
rate will attract significant amount of revenue for the company. The volatility in the currency
exchange rate affect the company in the terms of recording and realizing the revenue amount and
the net profitability of the company gets significantly influenced if the volatility in the same
remains high (Borges et al. 2014).
The micro concept for the company are the profitability of the company and the revenue of
the company which will affect the decision making process of the company. The performance of
the company in the last five-year trend analysis has shown a slowdown in the business operations
for the company affecting the financial structure and the overall growth of the company (Strauh,
Lima and da Silva 2014). The operating margin for the company has declined from 5.9% in the
financial year 2013 to 4.1% in the year 2018. The profitability ratio for the company has

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significantly shown a fall down for the company and the same was due to fall in the revenue of
the company and the operating profit of the company. The Earning per Share of the company has
been positive in the trend period in the initial beginning year but the same was negative from the
year 2015 following the declining profitability of the company (Walmart.com 2018). The reason
for the falling profitability of the company has been due to unfavorable business conditions and
the macro economic conditions in the form of rising cost of sales and the operating expenses of
the company, which ultimately affected the net profit of the company. It is the business strategy
and the management outlay for the company, which will help them guide about the better
prospect of the company (Cynamon and Fazzari 2017). The management of the company should
make several forecast for the different factors analyzed and evaluated so that the business
conditions and the macro economic conditions for the company does not affect the operations of
the company. The utilization of the key assets of the company was not efficient, as the same has
shown a declining trend from the year 2013-2018.
Thus after analyzing the business conditions and the performance of the company it is key to
notice that the operating expense for the company is considerably very high and the increasing
cost of sales is degrading the profit margin for the company. The Walmart Company needs to
focus on the profitability ratio in order to create wealth for the stakeholders of the company. The
increase in the profitability ratio for the company will increase the wealth maximization and the
future prospect of the company, which will be better for the company in the end. The only factor,
which can offset the rising cost for the company, is to focus on increasing the revenue base for
the company and the optimum utilization of resources so that the profitability base for the
company increases. The declining EPS growth trend in the last five-year horizon may

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significantly hamper the growth and the business prospect for the company (Brea‐Solís,
Casadesus‐Masanell and Grifell‐Tatjé 2015).
C) Demand and Supply
There are various factors, which affect the demand and supply of an economy, and the same
is dependent on the macro economic conditions and the business factors under which the
company operates. The London Underground Company operating as a public rapid
transportation service provider in the UK covers almost major part of the country providing its
connectivity services and the demand for the same is dependent on the travelers and individuals
commuting daily. The business model of the company is heavily dependent on the
macroeconomic condition of the country where the key factors such as the employment role-
plays a crucial role in the prospect of the company. The development of the country and the
favorable business conditions such as controlled operating cost for the company and the
sustainability of the operating profit for the company is the key factor, which will help the
sustainability of the company in the long term (Bowen and Sosa 2014).
McDonalds the fast food company operating and serving the food and the beverage industry
is a fast food company. The business operations are not much affected by the macro economic
conditions but the business factor for the company plays an important role for the future
sustainability and the growth of the company (Iacoviello 2015). The operating cost for the
company and the income from the food chain units it holds are the primary key factors which
plays a significant role in the profitability of the company. The demand and supply function for
the company has been stable but there should be adequate business plans and strategies by the
companies for the sustainability of the same (Gambetti and Musso 2017).

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Thus, it is very crucial for the companies to evaluate the business operation and the various
other macro-economic conditions so that the same can be forecasted and the management of the
company can do the strategy for the improvement of the same (Sigala 2016).
Assignment Question 2
The financial intermediaries’ helps individuals and institutions in creating financial
transactions between the different parties involved in facilitating the same. The four common
financial intermediaries, which help facilitate the transfer of funds between the lenders and
borrowers, are the investment banks, pooled investment funds, commercial banks and stock
exchanges. Commercial Banks are the common financial institutions, which helps individuals
and the institutions in the daily banking needs from saving account, credit account facilities to
credit and long-term facilities. The primary function of the banks are accepting deposits, the
individual customers primarily use advancing loans. The secondary functions of the commercial
banks involve the agency services, general utility services, transfer of funds and the creation of
the credit facility for the institutional investors. It is the most common type of financial services
used by the individuals and institutions in the UK (Alberici and Querci 2016).
Investment Banks are the common financial institution used by the institutional services
for providing the banking operation in the field of the financial consultancy services and raising
capital for the firm. The investment banks provides various financial services to the institutional
investor by helping them in the field of mergers and acquisitions, restructuring of the debt and
providing services in the field of new issues of equity shares in the form of IPO. The investment
banks primarily help the borrowers and lenders create a common place for investments. The
primary earnings for the investment banking is by charging or creating a commission on the
services rendered (Fethi and Katircioglu 2015). The pooled investment funds involves creation

8FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
of a large sum of amount of money invested from the various investors for the purpose of the
investment in various kinds of asset class. The same will provide a diversification benefit for the
investors among the various asset class and the corresponding risk and return. The pooled
investment vehicle considers various economic and macro-economic conditions under which the
asset class operates so that the assessment of the investors profile along with the asset class could
be assessed. Stock Exchanges are the other common type of financial institutions where
stockbrokers, traders, institutional investors and individual’s traders buy sell securities such as
shares, bonds and other financial instruments. The stock exchanges provides facilities by
providing the issuance and the redemption of the securities. The primary source of income
generated from investing in the stocks in the form of capital gains and dividend received by the
company. The price of the stocks and the various financial instruments is affected by the demand
and supply functions and the other macro-economic and business factors, which play a
significant role in managing the same (Belke and Chortareas 2018).
The Financial intermediaries plays a vital role in developing a link between the lenders
and borrowers and simultaneously creating a link between the same. The financial intermediaries
provides the individual investors and the institutional investors a group of investible asset class.
Assignment Question 3
A) Interpretation of Financial Ratios of Zenobia Plc.
The financial ratio evaluation for the company shows the financial net position for the
company and the performance of the company. The current ratio for the company has been stable
around 1.2 times which shows that the liquidity position for the company has remained stable
and is quite healthy for meeting the current liabilities of the company (Vogel 2014). The Quick

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
ratio for the company has shown an improvement in the year 2017 to 2018 from 1.1 times to 1.2
times in the financial year 2017-18. However, the company should be focusing on increasing the
same so that the current liability of the company is meet efficiently and the operations of the
company remains stable. The debtor’s payment period for the company has remained stable in
both of the financial year 2017 & 2018, which was around 103 days. The company should be
able to reduce the debtor’s payment period so that the average collection from the debtors is
higher reducing the chance of bad debt for the company. The stock turnover ratio for the
company has been declining which shows that the company is taking on more days from
transferring the produced good in the form of sales, which may degrade the operational
efficiency of the company. The Stock turnover ratio for the company has increased from 14 days
to 165 days from the year 2017-18 (Uechi et al. 2015).
B) Present Value
The amount required for the annual cash flow of £1550 for three consecutive years requires
an investment of around £4321.88 in the savings account today.
Particulars Year 0 Year 1 Year 2 Year 3
Cash Flows 4650 1550 1550 1550
Int. Rate 3.75% 3.75% 3.75% 3.75%
Present Value 4321.8821 1493.976 1439.977 1387.929
C) Net Present Value
The net present value for the UK project has been consistently larger than the US project
where the NPV of UK project was around £149,168 and was £147,700 for the US project, which
shows that the selection of UK project will be beneficial. The UK project will help creation of

10FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
investor’s wealth maximization. The UK project would be chosen by the basis of higher Net
Present Value generated by the project. The NPV calculation incorporates the total cash outflow
and the net cash inflows by the project and the relevant return generated by the project.

11FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
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emerging markets and beyond.
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Strauh, F., Lima, N.C. and da Silva, C.L., 2014. Strategy Analysis of the Biggest World
Supermarkets With Open Capital and Which Act in the Brazilian Market. Chinese Business
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Brea‐Solís, H., Casadesus‐Masanell, R. and Grifell‐Tatjé, E., 2015. Business Model Evaluation:
Quantifying W almart's Sources of Advantage. Strategic Entrepreneurship Journal, 9(1), pp.12-
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Cucchiella, F., D’Adamo, I. and Gastaldi, M., 2015. Financial analysis for investment and policy
decisions in the renewable energy sector. Clean Technologies and Environmental Policy, 17(4),
pp.887-904.
Cynamon, B.Z. and Fazzari, S.M., 2017. Household income, demand, and saving: deriving
macro data with micro data concepts. Review of Income and Wealth, 63(1), pp.53-69.