Analyzing Financial Performance and Strategic Decisions in Business

The assignment delves into the critical aspects of assessing financial performance and making informed strategic decisions in the business realm. It involves evaluating financial indicators, understanding their implications on profitability, and analyzing how strategic choices shape long-term growth. Students will explore theories related to competition, market dynamics, and economic policies that impact decision-making processes within firms. The essay also addresses risk management practices and investment strategies essential for maximizing returns while minimizing potential downsides. Through this assignment, learners will gain insights into the complexities of business operations, enabling them to develop a nuanced understanding of effective financial stewardship in various organizational contexts.

Running head: FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Financial and Economic Literacy for Managers
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Table of Contents
Answer to Question 1:.....................................................................................................................2
Answer to Question 2:.....................................................................................................................2
Answer to Question 3:.....................................................................................................................2
Answer to Question 4:.....................................................................................................................2
Answer to Question 5:.....................................................................................................................2
Answer to Question 6:.....................................................................................................................2
Answer to Part A:........................................................................................................................2
Answer to Part B:.........................................................................................................................2
Answer to Part C:.........................................................................................................................2
References:......................................................................................................................................3

2FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer to Question 1:
The Structure, Conduct and Performance Paradigm:
The Structure, Conduct and Performance Paradigm is one of the most useful analytical
tool for interpreting and analyzing the relationship between the market structure, the conduct in
the market and the performance of the market of an economy. In contemporary global economy,
it is important to evaluate the performance of the industries, to analyze the performance of the
same industry in the economy and in this context, this paradigm becomes considerably effective
in evaluation and control of the concerned business and its management (Jell 2012).
The report, with reference to the above discussion, tries to evaluate the structure, conduct
and the performance of the global corporate giant, Amazon, in the following sections.
Structure
Though perfect competition, as a theory, exists in the economic concepts, however, this
concept is hypothetical and in reality perfectly competitive market does not exist. In reality, the
operations of a market depends on several factors, like the demand and the supply
concentrations, the differentiation of the product in the concerned market and the barriers present
in entry in the market and exit from the market. The structure of a market is also attributed to the
nature of the product and the production mechanisms, along with the technologies involved
(Rothaermel 2015).
Amazon is one of the largest and predominant global online retailer, with most of the
commodities being sold online as well as in the local markets. The objective of the enterprise is
to increase the convenience of the customers, in terms of the overall way of living and

3FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
entertainment. Though, in the contemporary period, with the entry of some other companies in
this industry, Amazon operates in oligopolistic market structure, however, it has its own brand
recognition. The enterprise has considerable price decisive powers for its goods and services
(Varia and Mathew 2014).
Amazon engages in aggressive minimising pricing strategy to increase their clientele, one
such example being the selling approaches they take during the holidays special occasions, with
the concerned products being mainly gift products. Amazon, with time, has been facing
increased competition in the global framework and their competitors are no longer restricted to
Goldman Sachs, Wal-Mart and others. However, the company enjoys a huge comparative
advantage, especially in terms of electronic products, due to the robust pricing strategies of the
company and the quality of products sold by them (Carvalho 2015).
Conduct
The enterprise has an efficient operational framework of strategy designing, investment
behaviour, research and development and promotional activities. It also indulges in collusions as
and when required. In the economy of the USA, the consumers have access to more information
regarding markets and the companies. In addition to this, increased number of competitors and
low cost of switching make competition more adverse. This is because the customers can choose
from a wide range of substitutes (Ralston et al. 2015).
Performance
To gauge the performance of organization and their profitability, the product quality, price,
allocation efficiency and other parameters. Amazon, as a global enterprise, in 2016, earned $136
million in net sales and the company saw a growth of 25% in sales in 2016 from 2015. There has

4FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
been an effective growth of 300% in the company in one year, with the numbers increasing from
596 million USD to 2.37 billion USD (Bikker and van Leuvensteijn 2014).
Effects of Globalization on Amazon
In the contemporary globally integrated market structures, around 37% of the revenue of
the company comes from the international markets (2014). The growth, however, has declined in
the recent few years, with the global sales of the company rising only 3% in 2016, while that in
the North America alone increased by 22%.
Figure 1: Revenue growth of Amazon (2003-2014)
(Source: Crane and Matten 2016)
Over the years, the company has improvised to a considerable extent and has expanded
the goods and services offered in the global market, thereby increasing the sales of the country
and staying ahead of its competitors (Gupta and Rodriguez 2013).

5FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer to Question 2:
The concept of market dynamics, in terms of economics, is determined in terms of the
demand and supply forces and also in terms of the economic elements like elasticity of demand
of the goods and services. There overall macroeconomic indicators of an economy reflect the
economic welfare of a country in a generalized framework. Taking reference to these concepts
and economic indicators, the report tries to analyze the movements in the potato price index in
UK (Richards, Allender and Hamilton 2012).
In economics, the equilibrium in a market (place of transaction between sellers and
buyers) occurs at the point of mutual agreement of demand and supply forces. While the
willingness of the buyers are reflected by the demand, the willingness of the sellers and the
goods available are shown by the supply side in the market. The equilibrium in the market is said
to be stable, when after any deviation from the equilibrium, due to changes in price or quantity,
the market forces restore back the equilibrium (Rader 2014).
If the supply of a commodity increases in an economy, the demand for the same
remaining the same, the supply curve shifts upwards, with the price decreasing and the quantity
demanded increasing.
The potato price index of UK, as can be seen, increased by 27% in March 2017,
compared to that of the same in 2016. This can be mostly attributed to the limited confidence of
the potato growers, which restricts the yields of potato, thereby decreasing their supply, which in
turn increases the price, which can be shown with the help of the following diagram:

6FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 2: Limiting supply of potato on the demand, supply and the equilibrium
(Source: As created by the author)
As can be seen from the above diagram, with the decrease in the supply of potato and the
inward shift of the supply curve, the price of potato rises and the quantity demanded falls.
The degree of responsiveness of the demand of any commodity to the changes in the
prices, however, depends on the elasticity of the same. The commodities, for which a small
change in price leads to more than proportionate change in the demand of the same, are
considered to relatively elastic. These goods include luxury commodities and services especially.
However, for necessary commodities, changes in prices do not alter the demand for the
commodities to the same extent. These goods are relatively less elastic.

7FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Potato, as a commodity, falls under the domain of necessary commodities, as it is one of
the most widely consumed foods in almost every corner of the world, including UK. Thus, a
change in the price of potato does not alter the demand for the same considerably. Due to this,
with the increase in price, initially the revenues of the sellers increase. However, demand of
potato can be inelastic in short run, but if the prices stay high in the long run, people alter their
consumption pattern, thereby making the demand more elastic. This can be seen from the price
index of potato in UK in 2016, which rose by almost 9.6% in February and March. However,
with time and decrease in the demand, the price index in 2017 only rose by a much lower rate
(3.2%).
Inflation, in economics, can be defined as the gradual increase in the overall price level of
the economy and it is measured by the percentage rise in the price indices in an economy. The
potato price index, in this context, is seen to be rising gradually with the index being 27% higher
in 2017. However, the rate of price increase is found to be lower in 2017 than that in 2016
(Eichhorn and Voeller 2012).
Thus, from the above discussion, it can be seen that the potato price index in UK has
gone up, much of which can be attributed to the limited confidence of the suppliers and a
resulting reduction in the yields of potato. However, the increase in the price being reducing with
time, the impact of the change in the long run elasticity of demand is probably visible in this
aspect. The consistent rise in the price of potato, therefore, indicates towards the presence of
inflation in the economy (Fisher and Shell 2014).

8FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Answer to Question 3:
Competitive Policies
Competitive policies are primary components of the policy frameworks of the governing
authorities of any country, as these policies are often used by the regulating bodies in the
economy, to reduce the existence and dominance of distortions and inequalities in the markets, in
the forms of monopoly and unequal distribution of market powers. Presence of such distortions
often leads to reduction in overall welfare in the market, thereby leading to market failures in
many instances (Whish and Bailey 2015).
Keeping this issue in context, the government of UK brought forth the “Competition Act”
in 1998, in order to bring the policy framework of the country at par with that of the European
Union. The governing body, under this act, keeps strict vigilance on the abuse of monopolistic
behaviour, which they do by examining the collusive patterns of the enterprises and the unfair
usage of the market power of the enterprises. The responsibility is bestowed upon the Office of
Fair Trade (OFT) in UK (Koop and Lodge 2014).
Collusive activities, in general are used by enterprises to achieve higher revenue at the
expense of the welfare of the consumers. These activities being illegal in UK, the OFT monitors
and investigates these issues regularly. Conversely, the distribution of market power is also an
issue of economic concern and in UK if there is more than 40% of market power is with any
particular enterprise, then it falls under the investigations of the OFT. These are done in order to
restrict unfair practices involving predatory pricing, collusions, paying power amounts to the
supply side dealers.

9FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Healthy mergers, which add to the welfare of the economy as a whole, are recommended
by the OFT. The competition policies in the country can be seen in the regulations in the
markets, like those of grocery and similar genres, which helps in preventing the unfair practices
and the influence of the big supermarkets. Examples of successful mergers are also there, which
are accepted by the government, when the mergers promote a healthy competitive environment
and an overall increased prosperity of the country as a whole (Khan 2012).
Fiscal Policy Framework
The fiscal policy framework of a country takes into account the taxation and government
expenditures of a country, which affects the aggregate demand side dynamics of the economy.
The fiscal policy framework of the UK has been designed with the objective of keeping the
inflation at low levels, the targeted rate being 2%.

10FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Figure 2: UK Budget Deficit (2002-2015)
(Source: Elson 2012)
The fiscal policy framework of UK has adopted expansionary policies in 2009. Post the
global recession of 2009, to facilitate spending of the consumers, the VAT has been reduced by
the government, which in its turn has increased the borrowing on part of the government. The
reduced tax revenue also contributes to the same. The budget deficit under the new coalition
government (2010) was extremely large which in turn forced the same to curtail their borrowing
and expenditures, which contributed to lower economic growth in the coming years (2011-2012)
(Hansen 2013).

11FINANCIAL AND ECONOMIC LITERACY FOR MANAGERS
Supply side policy
The supply side policies of any government are designed to improve the productivity of
an economy in general and its future prospects. In UK, these policies are mainly targeted to
minimize the unemployment in the nations, which include the following:
 Less impact of trade union
 Flexible labour markets with abolishment of 48 hours working weeks
 Training and skill development for the unemployed
Thus, from the above discussion it can be seen that the economic policies, which include the
competition policies, fiscal and supply side policies and others are crucial for the governing
authorities to ensure sustainable growth and long term development of the economy of the
country (Canto, Joines and Laffer 2014).
Answer to Question 4:
Decision making in any organizations, is one of the most crucial responsibilities of the
managers, which are taken on the basis of the tools like the financial statements, payroll
dynamics, cash flow and the capital expenditures of the organization, which in turn helps in more
extensive financial reporting and efficient decision making. Proper analyzing of these attributes
help in preventing inefficiency, misappropriation or embezzlement of the employees of a
company. It also helps in better consolidation of the departments and efficiency in the operations
of the company, thereby contributing to their long run sustainability and profitability (Goetsch
and Davis 2014).