Financial and Economic Literacy for Managers: A Comprehensive Report

This report delves into essential financial and economic concepts vital for business managers. It begins by exploring economic concepts such as globalization, market equilibrium, price elasticity, and market structures, alongside macroeconomic policies and GDP growth. The report then transitions to financial concepts, including the analysis of financial statements (balance sheet, income statement, cash flow statement), financial ratios, and the importance of financial planning and control. A case study on Tesco's financial ratios for 2014 is included, providing practical application of the concepts. The report concludes with a summary of key findings, emphasizing the interrelation between financial and economic literacy for effective business management and decision-making.

FINANCIAL AND
ECONOMIC LITERACY
FOR MANAGERS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
A).................................................................................................................................................1
B).................................................................................................................................................1
C).................................................................................................................................................2
D).................................................................................................................................................2
E).................................................................................................................................................2
TASK 2............................................................................................................................................2
A).................................................................................................................................................2
B).................................................................................................................................................3
C).................................................................................................................................................3
D).................................................................................................................................................4
E).................................................................................................................................................4
TASK 3............................................................................................................................................5
A).................................................................................................................................................5
.....................................................................................................................................................8
B).................................................................................................................................................8
C)...............................................................................................................................................11
D)...............................................................................................................................................11
TASK 4..........................................................................................................................................12
A)...............................................................................................................................................12
B)...............................................................................................................................................13
C)...............................................................................................................................................13
D)...............................................................................................................................................13
E)...............................................................................................................................................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................14

INTRODUCTION
For every manager of a business entity it is compulsory to know about financial and
economic terms. The present report describes the financial and economic concepts which
managers must be know to run the business. The first and second part of the report shows about
the economic concepts which are used in business such as globalization, market equilibrium,
price elasticity, market structure, competition policy, gross domestic product growth rate etc. The
third and fourth part is about the financial concepts such as financial statements, financial ratios
to measure financial performance, financial planning and control, investment appraisal technique
etc. At the end of report summary is provided.
TASK 1
A)
Globalization is the term which is used by firms to enhance its products and services in
another market. Globalization is a process under which a company is expanded its products and
services in international market and try to provide its goods and services across the globe
(Lusardi and Mitchell, 2014). Globalization of business refers to the change in business
enterprises from a firm which associated with a particular and a single country and wants to
operate in another country.
B)
Every company try to grow in industry and market, for this it adopts and use some
strategies. The growth strategies of firms are given as below: Market Penetration: Market penetration is a strategy where company expand its product
range in same market. Market Expansion: Another strategy is market expansion in which a firm increase it
markets and provide services in other markets with same products. Product Expansion: In the strategy of growth strategies the firm expand its product line
and add new features in goods and services to increase sales in existing market where it
operates (Fernandes, Lynch and Netemeyer, 2014).
 Diversification: Diversification is a strategy to grow business where the firm expand its
product line in new market. Here product and market both are new for firm.
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C)
To balance between supply and demand is very necessary which lead to market
equilibrium. In the market there are two situations are occurs such as shortage and surplus.
Surplus is a situation where supply is higher than demand. To come out with this situation and
price of goods and services are lower, by which consumers will increase and products are sold
out which lead to market equilibrium. On the other hand shortage will occur when demand is
higher than supply (Anheier, 2014). In response of this production is increases and price of
goods are also increased which lead to market equilibrium. Thus, such these ways a shortage and
a surplus will eventually lead to market equilibrium.
D)
Economics is a concept which helpful to every organization as well as country.
Economics is useful for allocating resources effectively and increase the production capacity of
the firm. People are never satisfy with its sufficient resources and resources are always scared in
order to individual needs and wants, government etc. Economics is concept which make proper
relationships among scare means and individual's needs and wants.
E)
Price elasticity of demand is refers to percentage change in quantity and price of goods
and services (Babiarz and Robb, 2014). In the price elasticity of demand price of goods and
services is higher in comparison to percentage change in quantity demand.
Formula of Price elasticity of demand is:
Example of Price elasticity of demand is:
Price Elasticity = (-35%) / (40%) = -0.87
Thus, it can be said that for every percentage point that product's prices increase, the quantity of
goods purchased decreased by approx 87% point.
TASK 2
A)
Oligopoly market structure is similar to monopoly market. In this market the small firms
and small organizations have the larger majority of market share in the industry or market
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(Gibson, McKenzie and Zia, 2014). It is the market where small number of firms which cover its
area and provide goods and services.
B)
Macroeconomic policy implemented in economy with help to two tools such as fiscal
policy and monetary policy. Both the tools are used to stabilize and grow the economy.
Macroeconomic policy have some objectives, one of them is to maintain low inflation rate in
economy. Low inflation rate means the prices are low of goods and services and consumers are
high. Low inflation rate will lead to increase sales and revenue of the business entities (Ali,
Rahman and Bakar, 2015). Importance of maintain low inflation rate is to increase GDP rate of
the economy.
Three key objectives of macroeconomic policy are such as follows:
1. Maintain low inflation rate
2. Maintain low unemployment in economy or full employment
3. Maintain balance of payments (i.e. avoid deficit of current account).
C)
Competition policy is that which promote competition among all competitors. In this the
firms bit its rivalry firms in order to increase sales and revenue as well as profit level of the firm.
In UK all the business organizations adopt competition policy for increase sales and profit
(Eling, Pradhan and Schmit, 2014). The policies are such as:
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 Low Price: In this strategy the firms are charge low price of its goods and services in
comparison to its competitors products or its substitute products which are also available
in the market.
 Merger Policy: The firms adopt merger policy also where firm merge with other
company which operates in same industry. By this the competitors reduce in market.
D)
GDP refers to Gross domestic products which produced within a country in a specific
time or within a year. The rate varied year to year in economy.
UK GDP growth rate between year 1980 to 2016:
Illustration 1: UK GDP growth rate
(Source: Blaug, 2014)
From the above chart it can be interpreted in order to business cycle phases that there are
GDP growth is fluctuated in the UK from year 1980 to 2016. From the year 1980 to approximate
1990 business cycle phase is of recovery where the growth rate is growing (Blaug, 2014). After
that situation is of recession where growth goes down continuously and then increase up to year
1994. In the UK growth rate is almost stable from year 1994 to year 2006. After than growth rate
is declined and business cycle phase is trough and then start to recover after that not any major
changes up to year 2016.
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E)
Automatic and discretionary fiscal policy is regulated by the government of UK. Under
this policy the government try to balance between market and unemployment rate. In policy
government make strategies to increase expenditure of the public which lead to increase
employment rate. In the financial year 2016, UK government changes the budget. The changes
are it reduces taxation policy and increase public expenditure which helps to equalize market in
order to reducing the unemployment rate (Goel and Khanna, 2014). The government make the
budget on the basis of reducing taxes and increasing the public expenditure of UK.
TASK 3
A)
Financial statements are measure financial performance of the firm. The basic four
financial statements are such as balance sheet, income statement, cash flow statement and
statement of changes in shareholders equity. Format and purpose of financial statements are such
as:
1. Balance Sheet:
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Balance sheet is used to express assets and liabilities of the firm. Main purpose of balance
sheet is to know financial position of firm relating to assets and liabilities.
2. Income Statement:
Income statement is prepared for the purpose of know the financial conditions such as
profit and loss on the basis of all revenue, income and expenses in the business.
3. Cash Flow Statement:
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Cash flow statement is that where cash inflows and cash outflows are recorded. Purpose
of cash flow statement is to derive cash outflows and inflows and on the basis of this net cash
identified.
4. Statement of Changes in Shareholders Equity:
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Purpose of prepare statement of changes in shareholders equity is to determine value of
total shareholder's equity in the firm.
B)
Financial ratios of Tesco company for the year 2014:
Liquidity Ratio 2014
current assets 15572
current liabilities 21399
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current ratio 0.73
current assets 15572
stock 3576
prepaid expenses 388
current liabilities 21399
quick ratio 0.54
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Market value ratio 2014
Net income 2631
equity 14715
Return on Equity 0.18
MPS 330.5
EPS 0.36
PE ratio 918.06
 Profitability Ratios: Profitability ratios are indicates financial performance of the Tesco
company. The ratios are measures performance in terms of profit of the firm. Profits are
such as gross profit, net profit and operating profit. With these profits with base of sales
the profitability ratios are calculated. In the financial year 2014, the Tesco Plc company's
profitability ratios are not better which shows that the company is not performing better
in the industry. Its performance is poor in terms of profit. Liquidity Ratio: The ratios are express financial performance of the firm. The ratios are
indicates company's ability to meet its short term obligations with help its current assets
and current liabilities (Chinen and Endo, 2014). The ratios include current ratio and quick
ratio. In the year 2014, current ratio and quick ratio of the firm are 0.73 and 0.54
respectively. The ideal ratio are 2:1 and 1:1 of current and quick ratio respectively. It
shows that the company's financial performance is poor in comparison to standard ratio.
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