Financial and Economic Literacy for Managers: Concepts and Practices

This report delves into the critical aspects of financial and economic literacy essential for effective management. It begins by defining and explaining business economics, emphasizing the importance of consumer sovereignty in profit maximization. The report then examines the market structures of various companies like Tesco, McDonald's, and British Airways, along with their demand and supply dynamics, including the application of the Kinked Demand theory and the characteristics of monopolistic competition. A significant portion contrasts wealth maximization with profit maximization, highlighting the superiority of wealth maximization in terms of long-term value creation, risk assessment, and the time value of money. The report also includes calculations such as ratio analysis, present value, and net present value, providing practical insights into financial management. The report concludes by summarizing the key concepts and findings, offering a comprehensive overview of financial and economic principles relevant to managerial decision-making. The report also provides the UK government's economic policies.

Financial and Economies
Literacy For Managers

Table of Contents
INTRODUCTION...........................................................................................................................1
1.Explaining the concepts and practices of business economies with the pursuit of consistency
of profit maximization with the consumer sovereignty..............................................................1
2.Examining the market structure, demand and the supply theory of different companies........2
3.a. Difference between the wealth and the profit maximization................................................3
b. Superiority of wealth maximization over profit maximization...............................................5
4.Explaining the various concepts of the business economies....................................................5
5. Calculations.............................................................................................................................8
a. Ratio Analysis.........................................................................................................................8
b. Present Value..........................................................................................................................9
c. Net Present Value..................................................................................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial literacy is an understanding and the education of determining the spending of the
money and its savings. It also provides for the ability and skills of the managers to make
optimum use of the company's financial resources and to facilitate effective decision making.
This concept is applied individual as well as the organization. Through this the manager can
balance out the checkbook and income tax. It also helps the managers in formulating the budget
with making wise decisions in terms of the money. On the other hand, economic literacy refers to
the ability of the managers in using the basic concepts of the economy for making the decisions
in relation to the earnings, spending, saving and sharing the money. The present study is based
on the concept of financial and economies literacy. Furthermore, the study explains the consumer
sovereignty in terms of the profit maximization. The market structure and the demand-supply
theory of various companies is also described under the study. Contrast and superiority between
the wealth and profit maximization is also analyzed. Several policies that brings economic
prosperity to the UK government and the calculation of the financial ratios of Zenobia limited
with the computation of the net present value is present under the study.
1.Explaining the concepts and practices of business economies with the pursuit of consistency of
profit maximization with the consumer sovereignty.
Business economies refers to the economic principles that are applied to in the business
for analyzing the problems that are faced by the company. It facilitates the link between the
theory of economic and decision sciences in making the analysis for managerial decision-
making. Consumer sovereignty is the concept that states the preference of the consumer
influence the production of the products and the services (Garg and Singh, 2018). It depicts the
power of the consumers in relation to the products that need to be produced in the economy. It is
the idea that keeps in the center the customer preferences for the development of the product.
Consumer has the power of manipulating the demand and supply in the market. Due to the
privatization, consumer sovereignty operates in the free economy with very little or no
interference of the government. Consumer sovereignty works with the notion of maximizing the
profits by satisfying the needs and the desire of the customer. Through maximizing the
satisfaction of the customers, an enterprise can gain the opportunity for increasing its sales and
meeting the sales target which in turn results in attaining the objective of the profit maximization
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(Yang, Ishtiaq and Anwar, 2018). By developing the product as per the specifications of the
customer, organization can achieve the loyalty of the customers towards its products which helps
in improving the financial performance of the business. The consumers that are satisfied with the
products and services of the entity will recommend about its product to other customers as well
so that large customers can be attracted which leads to higher revenue and profit margin in the
business. Higher production is achieved when the consumer demands more products which also
result in the increased supply of the products to the customers. This helps the firm in reaching the
successful position in the overall market. In the free market, all the production factors are owned
by the individuals and decisions regarding the what, for whom and how to produce the products
are taken by the market forces interaction. Under this system it is assumed that the consumers are
logical and attempts for maximizing the utility that they gain from their own income. They
always try to maximize their profits as per the concept of the consumer sovereignty. As per the
assumptions made under this system, consumers has full freedom for purchasing the products
and the services that they wish across the globe (Grohmann and Menkhoff, 2017). It is
sometimes considered as the consumer votes in terms that they will spend more on those
products that they prefer to buy. More of those goods will be produced on which the consumers
has expressed or shown more preference or votes. Production, under this system is said for
responding the price signals which reflects those goods that need to be produced, and therefore,
consumer sovereignty prevails in the market on a global basis. This system implies that the
producers are the passive agents in the system of pricing, simply responding towards the wants
of the consumers. This concept plays a very crucial role in the organization for achieving its
goals and enable the firm in reaching the growing success consistently with the sustainability. As
the concept of Consumer sovereignty is adopted by the company in attaining higher profit
margins so that competitive edge can be reached against its rivalry.
2.Examining the market structure, demand and the supply theory of different companies.
Market structure of companies- Tesco, Mac Donald's and British Airways operates
under the oligopoly as a market structure as the supermarket, fast food restaurant and the airline
industries in UK fall under the category of oligopoly. Under this structure very few firms are
present and the market is shared between those firms. This market structure is considered as
highly concentrated as little firms dominate. These firms dominate the market and enjoys control
over price of its product. Interdependence on the competitors is high for these firms as very few
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sellers are present so any change made by the competitor has to be adopted by these firms for
remaining in the market and for creating healthy competition (Sherraden and Ansong, 2016).
These companies under the oligopoly market structure highly focuses on effective advertising of
their products on a continuous basis so that more customers can be attracted and large customer
base can be achieved by these enterprises. Intense competition is developed through the
advertising or promotional strategy. Under this market structure uniformity is not present among
the firms in relation to their size as some firms are operating on a large scale and some on small
scale. On the other hand, Hairdressers functions its business under monopolistic competition
market structure where large number of producers are present whose products are different from
each other and thus are not perfect substitute of each other (Hussain, Salia and Karim, 2018).
Under this the firm can charge premium price for gaining the wants and desire of the customers
towards the product as the buyer does not have the knowledge of the cheapest price for such
products because of the differentiation.
Demand and supply theory of the companies- As Tesco, Mac Donald's and British
Airways falls under the oligopoly market, the Kinked Demand theory is applied by these firms.
When the prices are high, the companies faces elastic market demand of their products as high
competition is present between the firms (Mabula and Ping, 2018). If the prices set are above the
equilibrium, then it means there are more chances of the customers to switch towards the lower
cost products. The demand for the product of these firms is said to be less elastic when lower
prices are charged. All the companies make decisions regarding the pricing on the basis of each
other. The demand of consumers for each firm's product will be less elastic in relation to the
price changes because every firm matches the change in the price of its rivalry. Supply curve of
these firms depends upon the customer demand as high demand leads to higher supply of the
products and lower demand results in lower supply of the goods of these organizations.
Hairdressers operating under the monopolistic competition market, the demand curve of this firm
is inelastic and they act as the price makers because highly differentiated products are produced
by such firms (Yang, Ishtiaq and Anwar, 2018). The supply curve of this industry also depends
on the demand conditions in the market. As such firms set the prices of their product on their
own so high supply will be resulted at the time of favorable market conditions and vice versa.
3.a. Difference between the wealth and the profit maximization.
Basis Wealth maximization Profit maximization
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Meaning The ability of an enterprise in
increasing the market value of
its stock for achieving the
wealth of their stakeholders is
known as the wealth
maximization.
The process of functioning the
business to attain greater
capability of the company in
earning larger profits is known
as the profit maximization.
Aim Wealth maximization
comprises a series of activities
that helps the firm in managing
its financial resources with the
objective of increasing the
value of the stakeholders.
Profit maximization comprises
activities of the enterprise so
that it can manage its financial
resources with the purpose of
gaining higher profitability in
the business.
Term It is considered as the long
term objective of the corporate
and includes several external
factors such as products,
market share, sales and
services etc.
It is majorly concerned with
the short term perspective and
restricted to analysis of
accounting for the financial
year.
Risk It anticipates the risk and
determines the concept of time
value of money in relation to
the business environment of
operating activity.
It avoids the risk and ignores
the concept of time value of
money.
Concern It is majorly concerned with
long-term growth and fetching
maximum use of the market
capture for reaching the
leadership position in the
market.
It is majorly concerned with
growing survival of the
enterprise in the present
competitive environment.
motive It acts as the versatile motive It has been recommended
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of the organization and
recommends about the
operational efficiency of the
corporate. This helps in
maintaining the satisfaction of
all the stakeholders of the
business.
traditionally that the apparent
motive of every organization is
to earn profits (Hussain, Salia
and Karim, 2018). It is
important for the survival,
growth and the success of
company.
b. Superiority of wealth maximization over profit maximization.
Profit maximization is considered as the primary objective but not as the inclusive goal
because it does not involve maximizing the wealth of the stockholders (Mabula and Ping, 2018).
Evaluating earning per share is more important than the total profits. Wealth maximization is
superior as it is based on cash flow and not on accounting profits. It is superior as it values the
time period of the expected returns. As the distant flows are not certain, wealth maximization
helps in converting them into the comparable values with the base periods and facilitates better
comparison between the financial projects of the enterprise. In profit maximization, the value of
the money does not change or remains same while wealth maximization leads to increase in the
market value of the company's shares and aimed at providing the potential returns to its
shareholders. Wealth maximization considers the criteria of risk and the uncertainty while
evaluating the discounting rate. The rate of discounting states both risk and the time factor. The
more the presence of the uncertainty, greater the value of discounting rate and vice versa.
4.Explaining the various concepts of the business economies.
Business economies depends on various factors in the economy that includes the Environmental
policies, Fiscal policy, monetary and supply side policy. All of these factors has highly
contributed towards the economic prosperity and the desire of the UK government.
Environmental policy- The law relating to the environment in the united kingdom are
majorly concerned with the prevention and protection of the environment. It is an international
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and the European issue because of the existence of the water and the air pollution in the issue of
cross border and the climatic changes by the man. This policy outlines the priority actions of the
parliament in delivering the sustainable environment. This policy states about the integration into
the planning of the business and making decisions in context of the improvements in the
environment and sustainability (Saeedi and Hamedi, 2018). It ensures that sustainability is not
segregated from the core business strategies and helps the enterprise in forming the balanced
strategy for achieving the objectives and the goals of the parliament. By this the government of
the UK has lead to the economic prosperity. Environmental policy includes the reviewing,
controlling and the understanding of the environmental influences that arises from the activities
of the government.
Supply side policy- This policy is mainly concerned with the micro economic factors that
are aimed at making the market and the industries in operating its functions more effectively and
efficiently. It contributes towards the faster underlying growth rate of the real national outcome.
The government of the UK feels that improved performance of supply side is very essential for
achieving the stable growth without getting affected by the rise in the inflation. The objectives of
the supply side policy focuses on the incentives, technology, flexibility, enterprise, mobility and
the efficiency. This policy helps in improving the skills of the employees for achieving the
quality work by providing them incentives on the basis of their performance. It enables the
organization in increasing the productivity of the capital and the labor (Baker and et.al., 2019).
For reducing the unemployment rate this policy facilitates increased geographical and the
occupational mobility of the labor. Supply side policy promotes healthy competition and
encourage faster pace of innovation for improving the competitiveness of the firm. It improves
the rate of trend of the real GDP growth which brings economic prosperity in the UK
government. By this policy many start-up business has lead to expansion which in turn leads to
the development of the economy.
Fiscal policy- This policy includes the changes occurred in the taxation level and the
spending of the government for influencing the economic growth rate. Expansionary type of
fiscal policy is utilized for encouraging the aggregate demand and for boosting the economic
growth rate of the country (Le, Q., Ho and Mai, 2019). The fiscal policy has contributed to the
UK government in achieving various objectives as follows-
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 Price Stability- With fiscal policy, structural rigidities and bottlenecks are removed
which causes the imbalance in several segments of the economy. Moreover, it strengthens
the physical control of the important commodities, subsidies, protecting and granting
concessions in the overall economy.
 Full employment- the primary objective of fiscal policy in developing economy of the
UK is for achieving and maintaining the full employment in the economy.
 Optimum resource allocation- Fiscal measures involves taxation and the programmes
of public expenditure greatly influences the resource allocation in several occupations
and the sectors. Tax exemptions and concessions might assist very much in attracting the
resources towards favored industries.
 Economic stability- Fiscal measures promotes economic stability to a larger extent in the
phase of short-run cyclical fluctuations in the international market. For fulfilling the
purpose of the economic stability, fiscal policy has incorporated flexibility in the
budgetary system. By this, the expenditure and the income of the government
automatically facilitate compensatory effect in the rise or the fall of nation's income.
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5. Calculations
a. Ratio Analysis
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b. Present Value
c. Net Present Value
Year /
Time
period
Cash
inflow
(project A)
Cash inflow
project B
PV factorr @
5.88%
Present value of
Cash flows of
(project A)
Discounted Cash
flows of (project B
DCF)
1 0 60000 0.944 0.00 56667.93
2 0 30000 0.892 0.00 26760.45
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3 0 25000 0.842 0.00 21061.93
4 0 20000 0.796 0.00 15913.81
5 175000 40500 0.752 131512.91 30435.84
TDCF 131512.91 150839.97
less: II 175000 175000
NPV -43487.09 -24160.03
CONCLUSION
From the above report it is concluded that consumer sovereignty is the essential aspect
that every organization must consider for gaining higher profitability in the market. Different
companies and the industries operate in under different kinds of market structure such as tesco,
Mac Donald's and British Airways functions under oligopoly market while Hairdressers works
under the Monopolistic competition. The demand and supply theory of the company highly
depends on the market structure of the industry. It is also summarized that corporate must
operate its business with the aim of wealth maximization and not only profit maximization which
leads to strengthening the value of the organization across the globe. Various policies such as
fiscal, supply side and environmental plays an essential role in the to the UK government in
seeking the economic prosperity worldwide.
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REFERENCES
Books and journals
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behavioral biases. Managerial Finance. 45(1). pp.124-146.
Garg, N. and Singh, S., 2018. Financial literacy among youth. International journaL of sociaL
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Grohmann, A. and Menkhoff, L., 2017. Financial literacy promotes financial inclusion in both
poor and rich countries. DIW Economic Bulletin. 7(41). pp.399-407.
Hussain, J., Salia, S. and Karim, A., 2018. Is knowledge that powerful? Financial literacy and
access to finance: An analysis of enterprises in the UK. Journal of Small Business and
Enterprise Development. 25(6). pp.985-1003.
Hussain, J., Salia, S. and Karim, A., 2018. Is knowledge that powerful? Financial literacy and
access to finance: An analysis of enterprises in the UK. Journal of Small Business and
Enterprise Development. 25(6). pp.985-1003.
Le, Q., Ho, H. and Mai, N., 2019. The impact of financial inclusion on income inequality in
transition economies. Management Science Letters. 9(5). pp.661-672.
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E-Education, E-Business and E-Technology(pp. 145-152). ACM.
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and Performance in Developing Economies. INTERNATIONAL JOURNAL OF
ADVANCED COMPUTER SCIENCE AND APPLICATIONS. 9(6). pp.74-82.
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Sherraden, M. S. and Ansong, D., 2016. Financial literacy to financial capability: Building
financial stability and security. In International Handbook of Financial Literacy (pp. 83-
96). Springer, Singapore.
Yang, S., Ishtiaq, M. and Anwar, M., 2018. Enterprise Risk Management Practices and Firm
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Financial Literacy. Journal of Risk and Financial Management. 11(3). p.35.
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Yang, S., Ishtiaq, M. and Anwar, M., 2018. Enterprise Risk Management Practices and Firm
Performance, the Mediating Role of Competitive Advantage and the Moderating Role of
Financial Literacy. Journal of Risk and Financial Management. 11(3). p.35.
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