Financial & Economic Literacy For Managers

This report delves into the significance of financial and economic literacy for managers, emphasizing its role in effective decision-making within competitive markets. It covers various topics including the impact of globalization, demand and supply dynamics, market structures, financial statements, and management accounting. The analysis is supported by examples from well-known organizations, highlighting the necessity for managers to possess a strong understanding of financial principles to navigate complex market conditions successfully.

Financial & Economic
Literacy For Managers

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1...................................................................................................................................4
a. Analysis of impact of globalisation on consumers and companies.........................................4
b. Explanation of the demands curve and shift in demand curve ...............................................4
c. Comparison and differences in between economies of scale and diseconomies of scale ......5
d. Analysis of the determinants of supply in retail sector ..........................................................5
e. Comparison and differences in between substitute and complementary goods .....................6
QUESTION 2...................................................................................................................................7
a. Analysis of the imperfect competition market structure ........................................................7
b. Explanation of the barriers to enter in the Monopoly market.................................................7
c. Analysis of the environmental policies of government to address market failure..................7
d. Explanation of the circular flow of income ............................................................................8
e. Analysis of the macroeconomic concept of unemployment ..................................................8
QUESTION 3...................................................................................................................................8
a. Examination of the four basic financial statements.................................................................8
b. Financial ratios on in financial statement................................................................................9
c. Analysis of the four phase of management accounting...........................................................9
d. Compare and contrast relevant and irrelevant cost...............................................................10
QUESTION 4.................................................................................................................................10
a. Analysis of the risk concept and return ................................................................................10
b. discussion on the concept of capital structure ......................................................................10
c. Calculation of amortization ..................................................................................................10
d. Savings of Gary.....................................................................................................................11
e. Two projects of cash flows....................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Organisations are working in the high competitive markets and success is based on the
decision makings of the managers and leaders (Gathergood, 2012). Financial and economical
decisions are having a huge importance in the business to make it successful so it is essential for
a company to recruit managers which are having expertise in it. Most of the organisations which
are working on the higher level and which are having a higher positions in the market so it is
essential for the companies to make effective decisions on the financial and economical issues.
The present report is based on the Tesco and NEXT PLC which are most recognizable
organisation of the UK, in the starting report in containing details on the globalisation and it
impact on the customers. It is essential for a company to manage equilibrium point in the
demands and supply by which they can maintain a profitable prices for their products and
services.
QUESTION 1
a. Analysis of impact of globalisation on consumers and companies
Internalisation is an essential for a company for the business expansion which impacts on
the organisation and as well as on the consumers which are connected with the company.
Globalisation enhance the scope of dealing which can help to the company to improve their
business by increasing their sales. As well as it provides a scope of new technology to develop
their products accordingly (Lusardi, Mitchell and Curto, 2010). Globalisation impacts on the
consumers and it provides a them a huge range of the products which they can purchase from the
international market. As well as it provides more options of companies by which a consumers
can buy a product which is suitable for them according to the quality and prices.
b. Explanation of the demands curve and shift in demand curve
Demand curves are based on the demands which a company have from the market, it
shows about the demanded products in the market. A demand curve is shows that demands are
lower in the higher prices as compare with the lower prices (Lusardi and Mitchell, 2011). So
basically demands are based on the prices so it is essential for a company to make their products
prices lower as compare to the other companies by which they can have higher demands.

Sources: Demand curve, 2017.
So the demands curves shows that demands has to be fulfilled by a company to manage their
effective prices either it can impact on the price ratio. So they have to manage effective pricing
by managing demands and supply of their products and services.
c. Comparison and differences in between economies of scale and diseconomies of scale
Economies of scale is based on the reduce cost on each level of increasing production it
can help to a company to manage cost effectiveness in their production. Most of the companies
are using the scale of economy to maintain their cost of production. Cost of production is
increased by increase in the units of production. As more units are produced by the company
they has increase their overhead on each unit (Hastings, Mitchell and Chyn, 2010). Economies of
scale is more effective for a company to make it successful. Both are having huge difference
regarding to their work economies of scale is emphasis to manage a standard cost in production
but on the other side diseconomies of scale is not having a control ion the cost.
d. Analysis of the determinants of supply in retail sector
Market determinants are factors which determine the sales and supply of the products.
Some of the determinants are here based on the retail sector which are:
Illustration 1: Demand curve, 2017.

Cost of production: Lower cost of production can make an advantage for a company to increase
their profits, factors like, cost of raw material, variable overheads and taxes are involved in it.
Technology: Development of technology can improve sales of production which emphasis on
the supply.
Market competition: Companies which are dealing in the retail sector can increase their supply
which can impact on the prices and as well as on the demands (Hastings, Madrian and
Skimmyhorn, 2013).
Expectation of the customers: Supply is based on the customers expectation, if a company
which is dealing in the retail sector has to provide better products as per the expectations of the
customers.
Sources: Determinants of supply, 2017.
e. Comparison and differences in between substitute and complementary goods
Many of the time customers has to use substitute and complementary products to fulfil
their needs. These both types of products are having a huge differences, substitute products are
relevant to the users products but it is not as the customers expectation (Lusardi and Mitchell,
2014). On the other side complementary goods are a price for the customers which is given by a
company on purchase. So the complementary product can be effective to provide better
customers satisfaction as compare to the substitute products. Both products are having a
Illustration 2: Determinants of supply, 2017.

difference regarding to the customers needs substitute products are having potential to fulfil the
customers expectations but complementary products are not having this ability to fulfil the needs
of the customers.
QUESTION 2
a. Analysis of the imperfect competition market structure
Imperfect competition is that type of market condition in which there are not all features
of the present market. In imperfect competition there are more number of buyers but less number
of sellers and it creates an oligopoly in which there are few sellers and also creates a monopoly
in the market and in this type of competition the products are sold to many customers and hence
it creates imperfect competition (Remund, 2010). It is a real market that has imperfection in the
products and services and hence the cost of product increases and there is also rise in marginal
cost of the product and by this process the demand can decrease and customer will shift to get
that product from other resources.
b. Explanation of the barriers to enter in the Monopoly market
Barriers that can be generated while entering into monopoly market is that the production
are done in large scale that creates a problem for the company that had entered into the
market,networks are also the main barrier as if there is no expansion in business it will effect the
company,Research and Development costs are so high that company couldn't pay the cost and
they have to bear losses as well, costs are so high that creates a huge barrier for the company and
also the pricing strategy that are the main barrier for the company. The example of monopoly
market is Microsoft, it is the single company that makes windows and operating system through
monopoly in the market and this will help the company to reduce the risks.
c. Analysis of the environmental policies of government to address market failure
Environmental policies that are used by government to address market failure as we take
an example of auto mobile industry, in this the government will generate a policy that the
industry can create pollution up to certain level and if the industry will exceed then government
have to take certain step to overcome the problems and hazards that are created in the
environment and hence by the government policies that are being generated there will be a huge
control and there will be positive impact in the environment (Jappelli, 2010). Government can
also create a policy of banning the products that are making the harm in environment so that the

environment remains clean and healthy. Government should generate many strategies to make
the environment eco friendly from harmful pollutions.
d. Explanation of the circular flow of income
Circular flow of income is the process in which there is flow of goods and services and
money that help the in building better relationship with agents and the flow of income will help
in knowing how much expenditure is done and how much money is received that creates a great
impact in creating an achievement in goals as well as mutual understanding between the
customers and suppliers (Huston, 2010). According to diagram the goods are provided to the
customer and in return money is taken and this cycle goes on hence this will help in generating
income from the customer and it helps in generating bond between customers and suppliers. If
this is done then it will help in the growth of the economy and the economy will generate
different resources that will be beneficial for customers and hence the demand will also increase.
e. Analysis of the macroeconomic concept of unemployment
Basically macroeconomic is a theory based on the unemployment and inflation of the
particular economic model. Unemployment is a factors which is related to the economy, because
human resources are related to the allocation of the resources so it is essential for a national
economy to allocate their human resources which are not working and participating to improve
national economy. In the year of 1983 UK is having a 11.1% unemployment which states that
their economic development is not appreciable during this period. But now in the year of 2014 it
has reduced and now it is only 6.1% which shows that they are using their people effectively.
QUESTION 3
a. Examination of the four basic financial statements
The four basic financial statements like balance sheet, income statement,statement of retain
earnings and cash flows and some of the details are given below:
Balance Sheet: It is the process which creates assets , liabilities and tells the capital of the
company that helps in knowing the how much income and expenditure is done by the company
at a particular year that will help in creating the financial aspect successful. In this there is
particulars and amount coloumn in which shows the how much equity and debt the company has
and they can invest or not.

Income Statement: It is the process that tells about the performance during the accounting year
and this will tell the basic summary about the expenses that had been generated.
Statement of retain earnings: It tells about how profit are divided and is generated in P/L
account that will show the profitability of the company during financial year.
Cash Flows: It is the process which tell the money that are transferred in and outside the
organization that will affect in creating the liquidity of the company. In this there are particulars
and amount that creates different cash flows of the company.
Purpose of making financial statements is that in P/L account it will help the company to know
the profit that had been incurred in the business and this will help in knowing the present
situation of business and will create a profitability in the company and work flow will go
smooth and systematically (Lusardi and Mitchell, 2011).
b. Financial ratios on in financial statement
Financial ratios can be helpful in determining the accuracy and efficiency of any
enterprise through the profitability ratios of the enterprise the managers can analyse its
profitability and through efficiency ratios it can analyse the efficiency of enterprise related with
whether the company is efficient enough to pay their debts and to utilize their assets in the
growth of entity. In the Next PLC five financial ratios which are to be calculated and they are:
Liquidity ratio: Current ratio/ Current liability
= 1616/886
= 1.82
Market value ratio: These ratios includes two types and that is price earning ratio and market to
book ratio.
Price earning ratio: Price per share/ Earning per share
= 0/2.09
= 0
Asset management ratio: It includes the inventory turnover ratio, fixed asset turnover ratio etc.
Inventory turnover ratio: COGS/Inventory
= 6.62
Fixed asset turnover ratio: 7.90
Debt management ratio:
Debt Equity ratio: Debt/ Equity

= 2.60
Profitability ratio:
Return on Asset: 28.68
Return on equity: 208.75
c. Analysis of the four phase of management accounting
Four phases of management accounting are as follows:
1. Planning: For every company planning is the most important aspect that helps to make
the business successful so in management accounting planning should be done that where
the expenses should be done .
2. Strategy: Strategy plays an important role in management accounting that will help in
creating the profitability in the business of the organization and hence will help in
creating increase in resources as well.
3. Directing: this is the most important aspect that helps the organization that they could
direct their employees regarding management accounting so that accounts of that year
will be proper.
4. Positioning: Positioning is the main aspect of accounting and where the things had to be
shown that person should know effeciently and effectively that will make the
management accounting clear .
d. Compare and contrast relevant and irrelevant cost
Relevant costs are that type of cost that are incurred in managerial aspect and it helps in
reducing the risks and these costs are relevant for the organization and decision making of the
organization becomes easy. In this calculations are required which will create the costs beneficial
for the company.Irrelevant costs are that type of costs that are not incurred in managerial aspect
and the risks couldn't be reduced easily and decision making is difficult for the company. In this
calculations are not required and doesn't create a costs that are beneficial for the company. Costs
are irrelevant that doesn't create decision making .

QUESTION 4
a. Analysis of the risk concept and return
Risks are those aspect in which the company can't invest money and if the company will
invest in any of resource it will create a huge problem and company have to face loss. Returns
are those that the profit company is getting and this will help in the growth of the company .
b. discussion on the concept of capital structure
It is restructuring of debt and equity of the company that help in generating funds and
helps in the growth of the company and by this process capital restructure will become
successful and the company will reach their objectives easily and it will help in the growth of the
employees as well.
c. Calculation of amortization
Year Amount Interest
1
2
3
8333
8333
8334
750
750
750
d. Savings of Gary
Through the above mentioned amortisation table it can be observed that gary can save a
lot of money through the above mentioned table it can be observed that gary needs to pay 8333
per year and he also needs to pay 750 as interest charge. Hence it can be said that he can save a
lot of money.
e. Two projects of cash flows
Project A
Year Discounting factor Instalments Present value
1
2
3
4
0.8928
0.7972
0.7117
0.6355
18000
18000
18000
18000
16070.4
14349.4
12810.6
11439.0

5 0.5674 18000 10213.2
64882.6
= $50,000 – 64882.6
= - 14882.6
Project B
Year Discounting factor Instalments Present value
1
2
3
4
5
0.8928
0.7972
0.7117
0.6355
0.5674
0
0
0
0
99500
0
0
0
0
56456.3
56456.3
= $50,000 – 56456.3
= - 6456.3
CONCLUSION
The above presented report has been concluded about the financial and economical
effectiveness of the managers which can help to them to make effective decision in different
types of market situations. International business is having an opportunity for a business to
improve their profits but it is essential for them to make a proper analysis of the international
economy and financial conditions of the market by which they can retain their profits. Financial
statement can be helpful for a company to analyse their positions according to the market. So it is
essential for the organisations to make a proper financial statements.

REFERENCES
Books and Journals
Gathergood, J., 2012. Self-control, financial literacy and consumer over-indebtedness. Journal of
Economic Psychology. 33(3). pp.590-602.
Hastings, J.S., Madrian, B.C. and Skimmyhorn, W.L., 2013. Financial literacy, financial
education, and economic outcomes. Annu. Rev. Econ.. 5(1). pp.347-373.
Hastings, J.S., Mitchell, O.S. and Chyn, E.T., 2010. Fees, framing, and financial literacy in the
choice of pension manager.
Huston, S.J., 2010. Measuring financial literacy. Journal of Consumer Affairs. 44(2). pp.296-
316.
Jappelli, T., 2010. Economic literacy: An international comparison. The Economic Journal.
120(548). pp.F429-F451.
Lusardi, A. and Mitchell, O.S., 2011. Financial literacy and retirement planning in the United
States (No. w17108). National Bureau of Economic Research.
Lusardi, A. and Mitchell, O.S., 2011. Financial literacy around the world: an overview (No.
w17107). National Bureau of Economic Research.
Lusardi, A. and Mitchell, O.S., 2014. The economic importance of financial literacy: Theory and
evidence. Journal of Economic Literature. 52(1). pp.5-44.
Lusardi, A., Mitchell, O.S. and Curto, V., 2010. Financial literacy among the young. Journal of
consumer affairs. 44(2). pp.358-380.
Remund, D.L., 2010. Financial literacy explicated: The case for a clearer definition in an
increasingly complex economy. Journal of Consumer Affairs. 44(2). pp.276-295.
Online
Demand curves. 2017. [Online]. Available Through:
<http://www.economicsonline.co.uk/Competitive_markets/Demand_curves.html>.
[Accessed on 17th April 2017].
The Determinants of Supply. 2014. [Online]. Available Through:
<https://www.thoughtco.com/the-determinants-of-supply-1147939>. [Accessed on 17th
April 2017].