Financial and Economic Literacy for Managers: Detailed Report Analysis

This report provides a comprehensive analysis of financial and economic literacy for managers, covering key concepts and practical applications. The report begins with an introduction to the importance of financial understanding in the global economy, emphasizing the need for managers to grasp financial systems and markets. Task 1 delves into the market structure of companies like Apple, exploring oligopolistic and monopolistic structures, entry barriers, and the impact of globalization on business operations, including outsourcing and government policies. Task 2 focuses on the decision-making process within businesses, highlighting the use of financial statements (income statement, balance sheet, cash flow statement) and capital budgeting techniques (NPV, IRR) for informed financial decisions. Task 3 examines financial statement analysis through ratio calculations, providing examples from Apple Green PLC's balance sheet and income statement. The report also discusses government policies, including competition, fiscal, and supply-side policies, and their impact on economic growth, employment, and inflation. Overall, the report offers a practical guide to financial and economic literacy, equipping managers with the knowledge to navigate complex financial environments and make strategic decisions.

Financial and Economic
Literacy for managers

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
a) ............................................................................................................................................1
b).............................................................................................................................................2
c).............................................................................................................................................4
TASK 2............................................................................................................................................6
TASK 3............................................................................................................................................6
a).............................................................................................................................................6
b).............................................................................................................................................9
c)...........................................................................................................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In the global economy to achieve success it is needed that proper understanding of all
financial system and markets should be possessed by managers and this can be achieved with the
expansion of financial services (Jappelli, 2010). There are various aspects that are required to be
considered by finance and economic managers such as gaining knowledge regarding manner in
which consumers will respond in different markets, how the performance will be improve by
correct decisions and way in which operations are carried in capital market. All these will be
discussed in this report with the help of using various techniques that can be used for making
decisions.
TASK 1
a)
Apple is known for designing of best personal computers and along with this, there are
various other products that are provided by it. Ipad 2 is introduced which will describe that, what
is the mobile media's future in the world (Remund, 2010). The market structure of company is
different from others such as oligopoly and monopolistic. In this type of structure, there are very
less competitors as it is very difficult for other parties to enter into market and due to this market
position is maintained. There are entry barriers so it will be very costly to enter market. In
smartphone systems, Apple is the best firm and it can be said that there is oligopoly as there are
only three systems and so number of competitors are limited and they only keeps on binging new
advances feature in them so that they dominate whole market.
In case of computers there is monopolistic structure as in this competition is more. There
are some companies which also possess reliable stake in market and they all share market and
earn that much revenue which helps them to maintain their position with others.
In this company there are many innovations that take place and main factors that is helpful in this
is its organisation structure as by this opportunities are created by which growth is achieved. All
missions that are mentioned are accomplished due to this only and main features of its structure
are spoke and wheel hierarchy, product and function based grouping (Huston, 2010). With the
help of this strong control will be established but in this level of flexibility is very limited.
In the globalisation all economies are affected due to it. There are no restrictions that re
present now in trade. There are basically three factors that are considered in relation to
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globalisation which are technology, geography and government policies. Technology is what
will help it to maintain the quality of product. In the changing economy apple is using various
services such as outsourcing in which products are made by others according to its specification.
It is also considered that all activities are dispersed in various countries by way of various
methods. It can be done by setting new plant or by acquiring any other company. So by this
apple is able to spread its business in whole world. There are various policies that are made by
government and it is needed that all should be followed otherwise there will be negative impact
that will have to be born by company.
b)
As the price of any product is not constant and it keep in changing in the market which
will have an impact on demand of that good as it will either increase or decrease (Lusardi,
Mitchell and Curto, 2010). There is an inverse relation between price and demand which means
that if price will increase than demand will decrease and vice versa. There is shift in demand
curve also by which it will be ascertained that what all are the needs that are required to be met
so that demand is maintained. In the given case also prices of unleaded and diesel have fallen so
the demand will be increased. This is represented in the below given curve in which P1 and P2
represents price and Q1 and Q2 represents quantity.
Demand curve
supply is the another side of this case in which the producers view is presented. In this there is
direct relation between price and supply which means that if price will increase than supply will
also increase because at that price producers will be able to earn more incomes and vice versa.
An example is presented below on basis of assumption for better understanding of it.
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Per litre price Quantity supplied
116.2 55
116.9 65
117.8 98
118.5 105
Supply Curve
Equilibrium is the situation where demand and supply curve meets each other which
means that quantity that will be supplied and demanded will be equal (Gathergood, 2012). The
situation of shortage and surplus will not arise in this as surplus is when supply is more and
shortage is when demand is more.
There are various types of goods that are present in the market which are described below :
 Normal goods: These are those goods whose demand is dependent on the income of the
consumers which means that if income will increase than demand will also increase and
vice versa.
 Substitute goods: These are those goods that can be used in place of the product that was
being used which means that they are similar type of goods with almost same features. In
this there is direct relation between the price and the demand of the substitute goods. It
can be said that if the price of certain product will rise than the demand of the substitute
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will also increase. In the given case as the price of diesel is more than unleaded so the
demand of that will increase.
 Complementary goods: These are those goods that are used with one another and can
never be used separately. If demand of one good will increase than demand of other will
also be increased and vice versa. An example of this can be petrol and car.
 Giffen goods: These are those goods on which the law of demand does not apply or it
can be said that if price increase than the demand will also increase with that.
All these were the parts of microeconomics but other than this there is another concept
also that is used which is macroeconomics in which the behaviour of whole industry is taken into
consideration and not only single company. In this national income is forecasted and various
factors such as gross national product, price and balance of payment is included. There are
various other aspects which are also covered in this and they include the monetary and fiscal
policies, identification of investment and consumption limits and economic growth.
c)
With the growing economy responsibility of the government also increases as now there
will be requirement of creation of more job opportunities and helping organisation to grow
further (Monticone, 2010). For this purpose it will be required that various policies are
formulated and they are being explained here under :
 Competition policy : In the market sometimes the situation of monopoly arises and in
that case it is required by government to intervene and make such policies that will
reduce it and by this consumers will be protected. EU competition policy was equated
with the help of competition Act 1998. the main aim of these policies are that there
should be proper competition that should be ensured among the suppliers, in order to
promote the dynamic efficiency in the several markets there should be proper innovations
in technology that should be made and also the interest of the consumers will be
protected. The regulators are appointed by government and the main among them is the
competition and market authority whose main function is to see whether the market is
working in appropriate manner or not. Outcomes of this will be used by producers and
consumers. Some of the competition policies are de-regulation which is formulated in
order to decrease the monopoly and for that mergers will be prevented as by them
monopoly is created. Another policy is privatisation which is related to transfer of
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ownership (Jappelli and Padula, 2013). In all these policies there are two main aspects
that are investigated which are collusive behaviour in which agreements are made in
which prices are fixed and by it consumers are required to pay higher prices and another
one is abuse of market power in which the companies having greater market share are
evaluated. In this producers sell their product at lower prices so that rival are thrown out
of the market and they can maintain their position.
 Fiscal policy: These are those policies that are created by the government by which level
of economic activity and aggregate demand are affected as in this amount of tax and the
amount that is spend is changed by the them. Aggregate demand is the expenditure that is
required to be made in the market. The main aim of these policies is to change the
economic growth level in the time of recession and maintain the inflation rate at low
level. There are two types of it which are expansionary and deflationary policy (UK
National Debt, 2016). The debt position of UK is presented below:
 Supply side policy: In this all the manner by which productive capacity can be enhanced
in economy is considered. The benefits that are made in making market are emphasized
by economists. In order to overcome the market failure, government intervention is
required in them. The main advantages of them are that by this the rate of unemployment
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is reduced, inflation is also controlled (Disney and Gathergood, 2013). Also there is
increase in trade and balance of payment and leads to improvement of economic growth.
Some of the policies are privatisation, deregulation, reducing taxes, increasing training
and education.
By following all these policies problems that arise with increased in economy will be
dealt with and also it will lead to creation of employment.
TASK 2
In every business there are various decisions that are required to be made by the mangers
and for that they are required to carry out many functions and studies. Various financial
statements are prepared with the help of which decisions will be made. It includes income
statement, balance sheet and cash flow statements by which all decisions in relation to cash,
assets and other income and expenses that are required to be made will be done.
For this purpose it will be needed that proper plan should be formulated in context with
financial aspect. In that plan all the actions that are required to be taken will be specified that will
be helpful in process of making decisions (Altman, 2012). There are various decisions such as
acquiring of finances and than their investment in most profitable project so that overall growth
of business can be ensured. For this there are certain capital budgeting techniques such as net
present value, payback period. IRR can be used to decide where to invest.
TASK 3
a)
In every business financial statements are prepared which includes balance sheet, income
statements and cash flow statement (Knoll and Houts, 2012). On the basis of them various ratios
will be calculated by which health of he organisation will be determined by which various
decisions can be made. In preparation of them data will be collected from the journals, ledgers
and the trial balance that is made with the recording of all transactions that are undertaken by
company (Morning Star, 2016). In this all this is provided in relation to apple green plc which
are provided below :
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Balance sheet of company.
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Income statement of company:
On the basis of them various ratios are calculated which are as follows :
2013 2014
ROE % 28.77 46.36
Current
Ratio 0.48 0.36
Book value
per share 44.99 53.16
Total asset
turnover
6.146 5.511
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ratio
Debt equity
ratio
1.939 2.332
 Return on equity: This is profitability ratio which is calculated and in this return is
calculated on the basis of equity (Carlin and Robinson, 2012). This is good when it is
more. In the above calculations it is shown that it has increase from 2013 to 2014 so it is
good.
 Current ratio: In this ratio current asset are compared with current liabilities. The ideal
ratio is 2:1. in both years ratio is less so the company is required to increase its
investment in current ratios.
 Book value per share: This ratio represent the market value and this is good if it is at
high level as by that the value of the company will be increased. It has increased in
comparison to the last year so the company is working in the efficient manner.
 Total asset turnover ratio: This is asset management ratio in which it is identified that
whether the proper assets are maintained by the company or not (Ansong and Gyensare,
2012). It should always be considered good when it is increased but in this case it has
decreased which is not good.
 Debt equity ratio: It shows debt position of the company and should be low. In this it is
increasing which is bad and company should take steps to reduce its debt balance.
b)
Discounting is the technique in which present value is calculated in respect of the future
cash flows that will be earned by the company (Klapper, Lusardi and Panos, 2013). By this it
will be identified that what will be position of it if all theses amounts are earned today and
whether the project will be beneficial or not.
Calculation of present value of inflows :
INFLOWS YEAR PV@8%
P.V of
Inflows
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700 1 0.9259 648.1481
700 2 0.85733 600.1371
700 3 0.7938 555.6825
TOTAL
INFLOWS 1803.967
c)
Net present value is the technique that is used in making investment decision. In this the
present value of all the future inflows is calculated and then from that the initial outflow is
deducted by which NPV will be calculated and if it comes out to be positive that project will be
accepted otherwise not (Van Rooij, Lusardi and Alessie, 2011). If there are two projects which
are having same outflows than in that case project with higher NPV is selected. All this is shown
in problem provided below :
Calculation of Net present value :
Year Project A Project B PV@ 10.25% PV of Project A P.V of project B
0 -50000 -50000 1 -50000 -50000
1 17000 0 0.8888 15111.11 0
2 17000 0 0.7901 13432.098 0
3 17000 0 0.7023 11939.643 0
4 17000 0 0.6242 10613.016 0
5 17000 99500 0.5549289573 9433.7922 55215.431
NPV 10529.6618 5215.4312
In the above mentioned solution the NPV of project A is greater than project B so it will
be selected and investment will be made in this.
CONCLUSION
From the above mentioned report it can be concluded that in any business managers are
required to have knowledge regarding all financial and economic aspects. With the help of them
he will be able to take appropriate decisions that will be helpful for company. It has also been
noticed that in order to make investment various techniques are there that can be used and that is
shown with the help of practical question.
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