IFM: Examining H&M's Global Finance, Dividend & Appraisal Methods

This report provides an analysis of international financial management (IFM) with a focus on H&M, a multinational clothing company based in Stockholm. It highlights the importance of IFM, including navigating international authorities, understanding import/export values, and determining investme...Read More

International
Financial
Management

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Explaining the importance of international financial management........................................1
Elaborating the challenges faced by the H&M in international financial market..................2
Discussion related to dividend distribution policy of H&M and the argument they made
against dividend distribution:.................................................................................................3
Efficient market hypothesis in the context of business of H&M:..........................................3
Various appraisal techniques used by H&M in carrying out the financial analysis:..............3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
International financial management also known as international finance. It refers to the
managing of finance on the international basis. It is different from the financial management
because it involves various factors such as currency, political situations, imperfect market and
various opportunities (Angel, Menéndez-Plans and Orgaz-Guerrero, 2018). The globalisation and
liberalisation would help various industries and business to raise funds from various sources
available in the market that helps the finance managers too to ensure liquidity in the business.
This report contains the importance of international financial management. The multinational
company chosen for this report is H&M. It is located in Stockholm. It is a clothing company
which deals in men, women, teenager and children segment. This project also includes the
dividend distribution policy adopted by the H&M. The concept of efficient market hypothesis of
the company is also described. There are various techniques for investment appraisal projects are
used by the H&M is also discussed in the following report.
MAIN BODY
Explaining the importance of international financial management.
According to Julia Kagan (2020), the term international financial management refers to the
planning, organising, controlling and directing of financial funds in the international market. It is
the management of funds in worldwide environment of business. These are monetary transaction
which occur between two or more countries. The significance of the international financial
management in the context of H&M has been mentioned under:
 There are various international authorities such as international monetary policy, world
bank etc. which helps to solve the conflicts arise between various organisation, similar to
that international financial management assists in solving the disputes of different
corporations.
 The different organisations are required to understand the value of import and export in
each country. These factors are determined by the inflation rates of each country. With
the help of international financial management, the H&M is able to study the inflation
rate and take the further decisions accordingly.
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 Another importance of international financial management is that it aids in deciding the
investors that the amount of investment is need to be done, how investment will be done
and when is the correct time for investment. H&M select the source of investment
whether it is Foreign direct investment or foreign institutional investment. The company
study the economic, political and market conditions of international market. (CuAdrAdo-
BAllesteros and et.al.,2019)
 The foreign currency rate is an exchange rate at which transaction has been taken place
internationally between two or more countries and such management helps in
determining thy exchange rates between two currencies to carry out the transactions.
Elaborating the challenges faced by the H&M in international financial market.
H&M is a Swedish clothing brand which operates in various parts of the world. Its
operations are diversified into many countries. The strategy adopted by the H&M is fast fashion.
It is defined as a low price product with stylish texture which takes less time to move from
designing stage to the outlets. The H&M is focussing on reducing the time taken to reach the
retail outlets. For achieving success in this strategy, it uses a diversified model like outsourcing
the units of production. The major issue faced by the H&M is its competitors. Zara, forever21,
Gap and Uniqlo are some of the existing rivalries of H&M. The competitors are moving with a
fast pace and framing new strategies to cope with the dynamic needs of the market. The new
trends in the fashion industry creates problem for the organisation. It has to continuously monitor
the dynamic needs of the customer. There are various impatient shoppers who demand instant
deliveries which require the enterprise to employ more staff (Finger,Gavious, and Manos, 2018) .
The situation of global pandemic demands the operations to be shift towards online platform. It
requires engaging more technical staff to handle the website for optimising the function
regarding order placement in a smooth way. The business is requiring to disclose all the
operational and financial strategies to its stakeholders which helps in raising the funds in the
organisation. However, attracting funds also require versatile approach in fulfilling the needs in
the international market as well.
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Discussion related to dividend distribution policy of H&M and the argument they made against
dividend distribution:
In financial management, there are three main decisions such as investing, financing and
dividend decision. The dividend decision relates to determining the amount of dividend
distributed to the shareholders of the organisation. In modern approach, the organisations work
on the concept of wealth maximisation which means capturing the large market share by
improving the level of dividend distribution (Hossain, Uddinand Kabir, 2018). It is declared by
the board of directors which is completely taxable. It determines the amount of division between
the shareholder payment and retained earnings. There are two types of dividend: Interim and
final. The interim dividend is paid in middle of the financial year. The final dividend is
distributed at the end of the financial year.
In context of H&M, the proposed dividend consists 98% of the profit after tax. The
dividend will be paid in the form of cash by breaking into two equal instalments. The main
concern of the BOD is to provide the shareholders with good amount of return which eventually
improves the growth of the business. The dividend decisions of the business are taken by keeping
in the mind the capital structure of the business. The dividend payout for the year 2021 is
86.23%. There was no dividend paid in the year 2020. In the year 2019, the proposed divided
was 9.75 per share.
Efficient market hypothesis in the context of business of H&M:
Efficient market hypothesis is also known as efficient market theory. This model reflects that
share prices signifies all the information related to the enterprise. There are three types of EMH
such as weak form EMH, semi strong form EMH and strong form EMH. In case of weak form,
fundamental analysis of securities provides information for taking return higher than the market
averages because it does not predict future prices of the security. In semi strong form, technical
and fundamental analysis both fails to provide advantage (Mendonça and Pitta, 2018). If the
prices of the share are too high, better it is the working. In case of EMH, the share prices will
fluctuate regularly. It makes difficulty for the buyer because prices are versatile and it stops the
another person from purchasing it.
Various appraisal techniques used by H&M in carrying out the financial analysis:
There is a description of the different methods used by the H&M for appraising of project
managers of the business.
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1. Financial analysis: One of the crucial element for the entrepreneurs is business finance.
For every organisation, it is necessary to acquire the funds from the various sources and it
helps in the buying of raw materials which helps in transformation of finished goods
(Yilmaz, 2021) The activities of H&M shows that it is capable of meeting the needs of
large market segment but some external factors adversely affect the working of the
organisation. There are many conditions such as scarcity of resources, due to which
production level declined.
2. Economic analysis: In this method, it estimates the cost of various factors. The H&M
follows the budgetary control which helps in determining the cost of each product. It
helps to analyse the areas where extra expenses or cost is incurred. For the future
performance, it helps in minimising the unnecessary cost.
3. Market analysis: In case of market analysis, it identifies the target market where the seller
is going to sell its products. It also identifies the potential customers and select the niche
market. In case of H&M, it produces clothes for every age group which creates a tough
task for the organisation to satisfy each age group.
4. Technical feasibility: It is a practice in which the organisation conduct feasibility study
before starting the actual work (Zaremba and et.al., 2021). It helps H&M to study the
viability and accessibility of the product or service before actually commercialising it.
CONCLUSION
From the above report, it can be concluded that international markets require more funds
and also involve huge risk as well. This report has taken into account the H&M company. It has
different strategies which helps to capture the large market share and improves the level of
profitability. The different techniques for appraising the projects helps in attaining the
organisational goals.
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REFERENCES
Books and Journals
Angel, K., Menéndez-Plans, C. and Orgaz-Guerrero, N., 2018. Risk management: Comparative
analysis of systematic risk and effect of the financial crisis on US tourism industry:
Panel data research. International Journal of Contemporary Hospitality Management.
Arthur, N., Chen, H. and Tang, Q., 2019. Corporate ownership concentration and financial
reporting quality: international evidence. Journal of Financial Reporting and
Accounting.
CuAdrAdo-BAllesteros, B., and et.al.,2019. Does financial health influence the re-election of
local governments? Journal of Public Budgeting, Accounting & Financial Management.
Finger, M., Gavious, I. and Manos, R., 2018. Environmental risk management and financial
performance in the banking industry: A cross-country comparison. Journal of
International Financial Markets, Institutions and Money, 52, pp.240-261.
Hossain, M.S., Uddin, M.H. and Kabir, S.H., 2018. Sukuk as a financial asset: a
review. Academy of Accounting and Financial Studies Journal, 22, pp.1-18.
Julia Kagan 2020, [Online available through]<
https://www.investopedia.com/terms/i/international-finance.asp>
Mendonça, M.L. and Pitta, F.T., 2018. International financial capital and the Brazilian land
market. Latin American Perspectives, 45(5), pp.88-101.
Yilmaz, I., 2021. Sustainability and financial performance relationship: international
evidence. World Journal of Entrepreneurship, Management and Sustainable
Development.
Zaremba, A., and et.al., 2021. The quest for multidimensional financial immunity to the COVID-
19 pandemic: Evidence from international stock markets. Journal of International
Financial Markets, Institutions and Money, 71, p.101284.
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