Financial and Economic Literacy for Managers: UK Policies and Toyota

This report delves into financial and economic literacy, exploring the growth strategy and globalization of Toyota. It examines the application of structured conduct-performance, and the impact of microeconomics concepts such as demand, supply, consumer behavior, and opportunity cost using an Air Cold P Ltd. case study. The report further analyzes the application of monetary and fiscal policies of the UK government, including environmental and supply-side policies. It also covers concepts for obtaining funds for business operations, including financial intermediation. The practical application of financial economics is presented through examples and calculations, offering a comprehensive overview of financial management principles and their real-world implications. The report aims to provide a thorough understanding of financial and economic concepts relevant to business operations and management decision-making, supported by examples from the automotive industry and governmental policies.

Financial and economic
literacy for managers

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
Application of Structured conduct performance, growth strategy and globalisation of Toyota
Car...............................................................................................................................................1
QUESTION 2...................................................................................................................................2
Application of different micro economics concepts related with a product..............................2
QUESTION 3...................................................................................................................................4
Application of monetary and fiscal policies of UK government................................................4
QUESTION 4...................................................................................................................................5
Application of different concepts for obtaining funds for business operations........................5
QUESTION 5...................................................................................................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
An organisation's main aim is to expansion and growth with attaining hike in its
profitability. This motive can be achieved by an enterprise through application various principles
of business and financial economics in entity. In the present report growth strategy of Toyota
Car and its globalisation is presented. With this economics effect on a business related with
demand, supply and consumer behaviour is discussed through hypothetical example. The effect
of monetary and fiscal decision of UK government on economy development of nation is given
in this report. T financial decision taken by a business with respect to how to generate the funds
for business operations and how to allocate them with investment of profits. The practical
approach of financial economy of a business is presented through calculation of financial ratios,
present value and net present value of various projects.
QUESTION 1
Application of Structured conduct performance, growth strategy and globalisation of Toyota
Car
It is very important for Toyota company to consider all the aspects which is required for
their successful business operation in industry. For this they have to study their structure-
conduct-performance paradigm, growth strategy and globalization effect on their company
(Talpur and et.al., 2016). These factors are explained below:
Structure-Conduct-Performance Paradigm
Structure, Conduct and Performance paradigm (SCP) is generally used by the company
as an analytical framework which is very helpful in identifying their market structure, market
conduct and market performance. In structure paradigm, it includes the behavior of the seller or
buyer in industry. It can also be affected by the product and technology which is available in the
market which can affect their business activity. In conduct paradigm, it includes factors in which
both buyer and seller behave with each other (Structure, conduct, performance paradigm, 2017).
It can be managed by the company by implementing various strategies which can help them in
improving the relationship between them. In performance paradigm, it is calculated by
comparing their results with other companies that are competing in the same industry. This
process will help them in improving their overall performance.
Growth Strategies
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It is very important for Toyota company to have effective growth strategies which can
help them in improving their business. The main strategy of this company is the implementation
of Toyota’s generic strategy and intensive growth strategies which helped them in competing in
the global market. Apart from this they have also implemented innovation in their products and
service which helped in attracting more customers. There generic strategy is a combination of
both cost leadership and differentiation. These growth strategies has played an important role in
the increasing their production rate (Toyota’s Generic Strategy & Intensive Growth Strategies,
2017). With cost leadership strategy they set their prices at minimum cost which can be easily
affordable by their customers as compared to their competitors. From differentiation strategy
they try to provide unique and different products to increase their competitive advantages.
Globalization Impact
Globalization has a huge impact on the automobile industry. Toyota company is also
affected with this process. This process has helped Toyota company to expand their business in
different countries as it gives them liberty to trade. As it is the largest car and vehicle
manufacturing company, it becomes difficult for them to cope up with globalization. They have
highly improved their tools and technology which is being used in the manufacturing process of
cars and vehicles (Ralston and et.al., 2015). There is a huge advantage of this process as well, as
it gives Toyota to increase their trade between countries which eventually increased their capital.
There a greater ease in the transportation of their goods and services across nation. Due to
globalization there is a huge increase in the competition as well. Customer service and
satisfaction rate has also impacted on their business. As part of its globalization efforts, the
company focused more on increasing the production of auto mobiles.
QUESTION 2
Application of different micro economics concepts related with a product
Here example of a manufacturing company is taken which is engaged in production of
Air conditioners. The name of the company is taken as Air cold P Ltd.
Demand: demand in micro economics concepts means willingness and desire of a
consumer to purchase a particular product by paying the price of that good. When all factors of
economic condition are constant an increase in price will reduce the demand and a decrease in
price will inflate demand of a product. Demand for a product is also determined by certain other
factors such as seasonal requirement, essentiality of product, tastes and preferences of consumer,
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price of related goods and distribution of income in society. For the company Air Cold P Ltd it
can be stated the demand of sire conditions ill increase summer season. The flow of demand for
sir conditioner will be as follows:
With the ned of springs the demand for air conditioner will stater and in summer demand
will be on its peak as this is main season for using them. With the end of this season the demand
will see a downfall and with starting of winters there will be on demand for air conditioner in
market. In this demand is governed by essentiality of product with a change in season or
environmental condition.
Supply: this can be described as total quantity of a particular product available for
consumers in market. This can also be defined as quantity of a good or service which a producer
is willing to will be able to supply in a market at a given price in a given time period. When
supply of a product goes up the prices reduces and when supply diminishes the price of product
shoots up (Cohen, Prayag and Moital, 2014). This means with low supply prices gets a hike and
with high supply prices touches bottom. Supply and demand are directly connected with each
other. When there is demand there will be a supply with no demand there is no supply.
For Air old air-conditioner the highest supply will be in summer and lowest in winters.
This can be stated that when demand is high supply will also rise with a fall in demand supply
will also diminish.
Consumer behaviour: this can be explained as the desire that people seek for acquiring
as good or service that will satisfy their need and wants. Consumer behaviour can also be
defined as utility (satisfaction) a consumer gets after consumption of a unit of product and that
governs his/ her behaviour to buy more of that product. To study this first demand, supply and
consumer equilibrium is required to be understood. We have already studies demand and supply
above, Consumer equilibrium means where a consumer gets maximum, satisfaction with
consumption of a given product. For air conditioner the demand and supply are high in summer
and this will be the season where consumer will get maximum satisfaction be using air
conditioner while spending a limited amount from income.
Opportunity cost: this is also known as alternative cost for a consumer. This is value
foregone by a consumer while making a decision of choosing between two alternatives for a
single product. This determines basic relationship between scarcity and choice. This is a
situation where buyer is face with two option and he/she has to select one the value of other
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product which buyer forgo is called as opportunity cost for that product. For AC the opportunity
cost will be the other option buyer has forgone over AC.
QUESTION 3
Application of monetary and fiscal policies of UK government
Environmental policy: these are policies formulated by UK government as sustainability
and environmental improvement that shall be incorporated in business planning and decision
making process (Bhattarai and Trzeciakiewicz, 2017). It is mandatory for an organisation to
integrate it, to ensure that sustainability is not away from main goal of business and it a part of
overall strategy of enterprise. The policies/targets which are incorporated by UK parliament to
be achieved by 2020-2021:
1. to reduce carbon emission by 34%
2. to reduce consumption of water by 50%
3. to reduce waste generated weight's by 30%
4. to recycle waste generated weight's by 75%
Programmes launched by UK parliament for environmental development:
 Save public money
 Cut out waste
 Show leadership
This was a program initiated by The department for Energy and Climate Change
(DECC), which estimated that a cost effective investment in energy efficiency can save
electricity worth lighting 22 power stations. Since 2008-09, the prices for energy in country have
increased by 25% and this measures are necessary to take on order to reduce energy waste.
This policy is focused on achieving the goal by year 2020-2021, and as for now this
initiative is doing good in reducing waste and recycling of the waste generated through the
activities undertaken for production of electricity.
Fiscal policy: the fiscal policy means changes-in level of taxation and amount spent by
government to influence the rare of economic growth. The expansionary fiscal policy is used to
excite aggregate demand and boost economic growth rate. This policy focuses on increasing
spending power and lowering taxes which will lead to increment in government borrowings, this
is used in times of recession. The deflationary fiscal policy is used to reduce the demand with
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reducing inflationary pressure. This is operated as reduction in spending power and increment
in taxes which will lead to reduction on governmental borrowings.
Supply side policies: post war UK implemented new supply side policies to challenge
the after war consequences through free market reforms. Supply side reforms in UK are:
Financial deregulation: building societies were deregulated and permissions are given to
convert into profit making banks (Palley, 2015). The liquidity ratios were also regulated which
resulted in growth of financial instruments.
Privatization: this includes selling off state owned assets to private sector. This was
aimed at creation of property owning democracy.
Deregulation: this was done to make state owned monopolies up for competition. This
brought a change in telephone and electricity industries.
Competitive trading: in the public sector industry who were enjoying monopolies were
opened for private companies to present bids in public industry to run services for a particular
time slot.
Income tax cuts: the tax rates were reduced over time and this was from 83% to 40%
and with coming years this was also reduced to make an expansionary fiscal policy.
Reducing power of trade unions: this was done to make tit tough for going on strikes as
they would lead to loss of production. The contribution of trade unions have reduces by 70%
since 1970s.
Laissez-faire attitude to industry: A support was offered to declining industries such as
coal and steel companies. This also curbed the unemployment as with development of industry
employment opportunities also raised.
Interpretation: from the above explanation of economic concept related with above
policies this can be interpreted that UK government is has applied policies for betterment of
environment by reduction emission of wastage and recycling it along with this fiscal policies wee
applied so that income power of citizens increases and tax burden is reduced on them. This lead
to economic development of UK.
QUESTION 4
Application of different concepts for obtaining funds for business operations
Financial intermediation: this is an activity which is an organisation incurs liability on
its own account with a purpose of acquisition of financial assets with engagement in financial
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transaction in the market place. This is a process in which companies seek help of financial
intermediaries and they realise thee debt funds from such intermediates. These institutions are
involved in process of taking debts from business and pay them a lump sum amount for that
debt. In return those institutes owe all those debts and they realise them with their resources.
With financial intermediation the firm realises their debt on time and they need not to involve in
process of debt realisation, this process reduced the risk of a huge bed-debts.
Financial instruments: these are the instrument which are created when an international
trade transaction is undertaken. Such instruments are not contract but these are agreement
between the parties to secure the position of currency against the market changes (Mertens and
Ravn, 2014). Section 11 and 12 of Accounting Standards FRS 102 the financial instruments are
transferable securities, money market instruments and units in collective investment
undertaking. The foreign exchange instruments are options futures, swap and forward rate
agreements. This agreement are entered into to secure the transaction between two parties against
the ups and down in the currency exchange rates. The other instruments are derivative
instrument for transfer of credit risk, climactic risk, fright rates, emission allowances, inflation
rates, telecommunication bandwidth, commodity storage capacity, transmission and
transportation capacity.
Risk and returns to obtain financing: in the current scenario risk related with finance
have increased in UK. The risk related with generation of finance in a nation is directly related
with economy of that growth. With a developed economy one can easily raise fundus from other
nations but for developing and non developed countries it is difficult to attract the investors and
invest fund in organisation of that nation. The challenges faced by investors of a nation includes
a higher risk related with credits, a lower potential returns, longer time horizon, a slower and
hard path to scale, lesser opportunities for exits and high costs related with transaction. These
are the risk related with finance and return in internation trade engagements, as they are more
open to risk change in currency valuation over period of completion of trade transaction.
QUESTION 5
Calculation of ratio, present value and net present value
a) Calculation of financial ratios of Morrisons
Financial Ratio Ratio 2015 2016
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1 Liquidity ratio Current ratio 0.50 0.48
2 Market value ratio Earning per share Nil Nil
3 Asset management ratio Fixed asses turnover ratio 2.12 2.24
4 Debt management ratio Debt equity ratio 0.70 0.53
5 profitability ratio Return on capital employed -9.76% 5.18%
Interpretation: from above financial ratio of Morrisons, it can be interpreted that
Morrisons is not in a good liquidity position as for both year current ratio is nor near standard
ratio of 2:1. company do not earned any divined for its shareholders (Schuknecht, 2018). There is
no major improvement in foxed asset turnover ratio yet debt ratio had been reduced by 0.17
which reflect a decrease in debt borrowing. The return on capital employed had become positive
in 2016 from negative in 2015. this shows that company is taking controlling measures to make a
grip over its financial position.
b) Calculation current of present value
Present value
Year Amount Discounting rate@6.5 Present value
1 750 0.93 704.22
2 750 0.88 661.24
3 750 0.82 620.88
total present value 1986.35
c) Calculation of net present value
Project A
Year Cash flow Discounting factor @7.25 PV
0 -60000
1 35000 0.932 32634.032
2 25625 0.86 22277.64
3 6000 0.81 4863.61
4 13000 0.75 9825.48
5 35000 0.70 24665.023
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Total PV 94265.804
less: initial
investment -60000
NPV 34265.80
Project B
Year Cash flow Discounting factor @7.25 PV
0 -60000
1 0 0.93 0
2 0 0.86 0
3 0 0.81 0
4 0 0.75 0
5 100500 0.7047149677 70823.85
Total PV 70823.85
less: initial
investment -60000
NPV 10823.85
Interpretation: since project A is giving higher NVP of 34265.8 as compared to NPV of project
B of 10823.85., it shall be selected over project B.
CONCLUSION
From the above report it can be concluded that for an organisation it is very important to
understand the economic structure of the nation so that it can apply same in business
environment and develop its growth strategy. With this criteria related with consumers of an
organisation are also detailed in form of demand and supply and consumer behaviour and
opportunity cost. The policies adopted by UK government in area of environment and finance
leads to protection of environment and economic growth of nation. A firm can generate funds
from different sources such as debt and equity and the profits can be invested in different sectors
such shares, mutual funds and properties. The last section of this report is related with
presentation of various financial ratios an organisation can use to evaluate its financial
performance.
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REFERENCES
Books and Journals
Ralston, P.M. and et.al., 2015. A structure–conduct–performance perspective of how strategic
supply chain integration affects firm performance. Journal of Supply Chain Management,
51(2), pp.47-64.
Talpur, A.B. and et.al., 2016. Structure conduct performance (scp) paradigm in pakistan banking
sector: A conceptual framework and performance of the first woman bank under scp
model. The Women-Annual Research Journal of Gender Studies, 8(8).
Biswas, A. and Roy, M., 2015. Green products: an exploratory study on the consumer behaviour
in emerging economies of the East. Journal of Cleaner Production. 87. pp.463-468.
Cohen, S. A., Prayag, G. and Moital, M., 2014. Consumer behaviour in tourism: Concepts,
influences and opportunities. Current issues in Tourism. 17(10). pp.872-909.
Bhattarai, K. and Trzeciakiewicz, D., 2017. Macroeconomic impacts of fiscal policy shocks in
the UK: A DSGE analysis. Economic Modelling. 61. pp.321-338.
Palley, T. I., 2015. Money, fiscal policy, and interest rates: A critique of Modern Monetary
Theory. Review of Political Economy. 27(1). pp.1-23.
Mertens, K. R. and Ravn, M. O., 2014. Fiscal policy in an expectations-driven liquidity trap. The
Review of Economic Studies. 81(4). pp.1637-1667.
Schuknecht, L., 2018. The Supply of Safe Assets and Fiscal Policy. Intereconomics, 53(2),
pp.94-100.
Online
Toyota’s Generic Strategy & Intensive Growth Strategies. 2017. [Online]. Available through:
<http://panmore.com/toyota-generic-strategy-intensive-growth-strategies>
Structure, conduct, performance paradigm. 2017. [Online]. Available through:
<http://policonomics.com/structure-conduct-performance-paradigm/.
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