A Critical Analysis and Evaluation of Zara's Finance Management

This report critically analyzes Zara's international financial management, discussing policies, theories, and challenges faced in the global market. It evaluates the importance of international financial management, including exchange rates and inflation, and examines challenges such as foreign laws, currency fluctuations, and communication difficulties. The report also delves into Zara's dividend distribution policy, applying Walter's Model theory and the efficient market hypothesis. Furthermore, it assesses various appraisal methods, including economic, market, and financial analysis, and considers the pecking order theory. The report concludes by highlighting the impact of fiscal and monetary policies and the significance of managing political risks in international operations. Desklib offers this assignment solution along with a wide range of study resources for students.

Critically analyse and evaluate
the importance of Zara

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY ..................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................1

INTRODUCTION
International financial management (IMF) is refers to the management of finance in the
business environment which is related to making money and trading with the help of exchanging
the foreign exchange (Müllner, 2017). The report is based on Zara, also critically analysis the
policies and theories used by the organisation. Further, evaluate the multi corporation methods
for appraising the projects.
MAIN BODY
International financial management are help for calculating the exchange rates on the
basis of various currencies of nation that are also worth of each and every nation. This is also
helps for comparison of inflation rates which are getting the idea that is related to investment in
international debt securities. On other hand, it has been criticized for overreaching and not doing
so much also there are eagerly failing for assisting the national policies. Since, Japan, US and
great Britain are features prominently in the IMF policies which are accused for making the tool
free-market country. Beside this, free-market are support for being too interventionist. In
addition to this, there are help for providing loan to member nations so, this is the important
function that has the ability of providing loans for member nations when it needs to bailout (Li,
and Wu, 2019). Also, the IMF can be attached in the condition of loan which are including
prescribed economic policies which are help to borrowing the government comply. IMF helps to
fills the deficit gaps for the balance of payment.
There are different challenges that are faced by Zara in the different international finance
market such as foreign laws and regulation. The international accounting is a challenge that are
crucial for the international business there are different liability of cooperation tax In
international market. Also the tax rate are affected in order to exporting the product and services
of Zara, the accounting strategy is refers to the key of maximising the revenue. Zara has retail
business and there are customer all over the world so to export and import of product are costlier
while trading abroad. Another challenge is related to the currency rates that are fluctuate that
creates problems in the international market (Khattak, 2020). This are unpredictable for the
organisation and it may possess loss overs business. Moreover, major fluctuation are impacted
seriously when the suppliers are paying in the different currency that may change the tax rates
and decreases the margin of profit. For mitigating the risk there is unpredictable currency rates
which can be setting forward for contracting and also agreeing on future sales and advance price.

The communication difficulties are also the biggest challenge because cross culture are affected
in order to use different languages. When the client country has the different language all the
laws and regulations are different in order to processed the demands.
Zara is most successful fashion brand of the world, also there are so many factors which
are contributed in order to make successful organisation. The dividend policy of multinational
firm is related to free cash flow There are certain limits that are centrally restricted the funds in
order to pay to shareholder (Tignino, 2019). It has been critically analysed that there are different
types of policies followed by Zara for the dividend distribution. These policies are listed under
the London Stock exchange. Dividend distribution policy are helps for establishing the principle
in order to ascertain amount which can be distribute for equity shareholder that is related to strike
the payment for retained earning in order to address the future needs of company. According to
the Walter's Model theory it has been analysed that this model is shows the relationship
between Zara's rate of return (internal) and cost of capital by determining all the dividend policy
which are helps to maximise the wealth of shareholder. This model is assuming that there are
some of the opportunities related to investment are managed by retained earning where there is
no external debtor equity for financing. Also, the situation of Zara is critical because there are so
many dividend policies are changed due to pandemic and that is it has decreases the investment
occurrence. The policy chosen by Zara is stable dividend policy in order to rising per share also,
dividend lag behind the earning which are maintained the low level (Jeon and Wu, 2020). When
the production were lost for several month which are during industrial dispute. Moreover, cited
firm is assuming to target at the long-term by payout the percentage for smoothing the peak.
The efficient market hypothesis theory (EMH) is stated that the share price will reflect all
the related information also it is stocks the trade at the market value while exchanging. It has
been argued that there are pointless research which are undervalued the stocks in order to predict
the trend in the market of Zara with the help of technical analysis. The market efficiency are
refers to reflecting the all the information which are available information. According to this
theory there are all the related information about Zara are immediately reflected stock prices that
can help an investor to generate the returns that are selected from randomly stock price. Beside
this, the market are irrational when the stock market are panics due to throwaway prices. Also,
there are the argument which are failed for some times due to irrational stocks that can be make
the money which are overvalued at the time of exuberance (Andersen, Basile and Orth, 2019).

Further, technical and fundamental analysis that are waste for the time which is not correct just
because of accidents which are happened due to bad drivers. Both the analyst are different and
have own perception regarding the work.
There are different types of methods of appraisal such as economic, market, financial
analysis that are included level of capacity utilization, anticipated expenses etc. According to
pecking order theory the cost of debt are lower than cost of equity because of tax that can be
deducted from interest debt. Also, there are the option of using the finance of the organisation
with equity and debt. The debt are refers to the loans that are related from outside sources when
the firm's owner invest capital in business. On the basis of financial analysis there are working
and fixed capital which are need to purchase of tangible and non-tangible asset are such as land
and building, machinery etc. Zara has high value of fixed asset in order to operate the
organisations at global level.
Commercial appraisal is about to increment provided to employees so that it can motivate
the employees and help to increasing the productivity of the business (Kells, S., 2020). It has
been criticised that there are economy which cannot maintain the exchange rate simultaneously.
Also, there are free capital movement which are independent the monetary policy. This theory is
help to show the appropriate use of monetary, trade and fiscal policies which are achieving for
macro economic objectives. There are some assumption which are seen under this model,
spotting and forwarding the exchange rates that are identical and expecting indefinitely. Also,
fixed rate for wages are related to unemployed resources that are returned to scale thus the price
level are constant at the time of supply the domestic output that is elastic. Beside this, the
balance of payment are fluctuated because of capital flows. The domestic fiscal and monetary
policies are changed due to some factors such as GDP. Zara reduces the local interest rate
because it has increases its cost and that is why there are consumers who are likely to buy
product at low price. Also, the fixed exchange rates are announced by central bank that are
prepared by domestic currency. The net payment are related to zero which can be exchanged and
operate accordingly (Oboladze and Otinashvili, 2019).
The central bank are operated in foreign exchange market for maintain the specific
exchange rate. The pressure is devalue for the domestic exchange currency because there are
local authority which are likely to buy at current exchange rate. According the political risk there
are different types of measure which are faced by organisation there are change in tax rate are

affect the market value of the product because at the global level it is important to maintain the
risks. On other hand, there are different types of appraisal used to influence the employees of
Zara, it is resulted in positive as well as negative manner because there are employees who are
get distracted because of appraisal of sub-ordinate.
CONCLUSION
It has been concluded that there are different types of functions are followed by
international finance management such as related to fiscal and monetary policies that are
fluctuated the rates. The report discussed the different theories that are used by the Zara, with the
help of relevant dividend distribution policy. Also, explained the challenges which are faced by
international financial management at the time of operations. Further, evaluated the cooperation
methods that can be analysis the appraising method of employees.

REFERENCES
Books and journals
Andersen, O.W., Basile, I. and Orth, M., 2019. Blended Finance Evaluation: Governance and
Methodological Challenges.
Jeon, B.N. and Wu, J., 2020. Emerging Market Finance: New Challenges and Opportunities.
Emerald Publishing Limited.
Kells, S., 2020. Impacts of COVID-19 on corporate governance and assurance, international
finance and economics, and non-fiction book publishing: some personal
reflections. Journal of Accounting & Organizational Change.
Khattak, M.S., 2020. Does access to domestic finance and international finance contribute to
sustainable development goals? Implications for policymakers. Journal of Public
Affairs. 20(2). p.e2024.
Li, M.Y. and Wu, T.C., 2017. Creating an EMI program in international finance and business
management. In English as a Medium of Instruction in Higher Education (pp. 21-38).
Springer, Singapore.
Müllner, J., 2017. International project finance: Review and implications for international
finance and international business. Management Review Quarterly. 67(2). pp.97-133.
Oboladze, D. and Otinashvili, R., 2019. Challenges and prospects of evaluation of programs in
public finance management in Georgia. Вісник Київського національного
університету імені Тараса Шевченка. Економіка. (1). pp.54-60.
Tignino, M., 2019. Human Rights Standards in International Finance and Development: the
Challenges Ahead. In The Practice of Independent Accountability Mechanisms
(IAMs) (pp. 105-133). Brill Nijhoff.