The report has been prepared to evaluate the various concepts of business economics in UK market. For this analysis, various articles, economic report and the newspapers have been read so that a conclusion could be made about the business performance and the economic factors of the country. Firstly, UK local high street store has been researched and it has been found that how the market is performing and one of the stores of the market has been evaluated. Further, demand and supply of UK housing market has been studied. In addition, the research has been conducted on various macro economical factors of the UK market. Further, the accounting concept and financial concept has been studied and it has been evaluated that how these techniques assist the management. Lastly, the financial concepts have been studied and the conclusion has been made.
High street store of UK is facing huge changes in current scenario. On an average 15 shops are getting close every day in UK local high street store. The guardian (2018) explains that the rate of closing stores is far higher than the rate of new stores. Though, the current scenario of the UK market explains that still huge competition is there among the stores. These stores are offering the homogenous product to the customers. For evaluating the UK local high streets stress briefly, a local store “FarmFoods”. This store offers the frozen foods to the UK customers. The store has around 300 franchises in UK market and it has speciality in offering the frozen and good quality food (About us, 2018). The store is serving in the market from last 60 years. Further, the store also offers chilled foods, groceries, bread, milk, vegetables, fresh fruits etc.
Through evaluating the market structure of the firm, it has been found that there is perfect competition in the retailing industry in UK market. Various other firms are also offering the homogenous products to the UK customers such as Tesco plc, Morrisons plc etc. The products of the “FarmFoods” and its competitive company are same and both the firma are offering its products through the supermarket chain. Anderson, (2014) has explained that perfect competition is the situation where buyers and seller are huge and both the parties are well informed about the products and the prices. Further, Guerrero, Cunningham and Urbano, (2015) has added that perfect competition makes it easy for the firm as the firm is not required to do promotions and the prices are also set by the firm. Though, it has been argued by Brooks (2015) that in perfect competition market, a firm could never make supernormal profits in short term as all the customers are aware about the products and the prices of the products.
Further, the growth strategy of “FarmFoods” has been discussed. “FarmFoods” is on growth stage now. It is required for the company to diversify its business to manage the growth and the performance of the company. Through the analysis on the firm and its operations, it has been evaluated that the company could adopt the product development strategy to enhance the growth of the company rather than declining the growth. Dalkir and Beaulieu, (2017) explains that proper product development makes it sure that the end product of the company would support the requirements of the customer while meeting all the required codes of particular product type. Further, it has been added by Bratton and Gold, (2017) that product development might involve the modification of firm’s existing products or formulation of new product which satisfies the needs and demands of the customers (The Herald, 2018).
It has also been argued by Finkler, Smith, Calabrese and Purtell, 2016) that product development involves with huge time and cost and it is also not required that the firm get success with the new product or modification in existing product. It also explains that the risk and the cost of the company enhances with the product development strategy. In case of “FarmFoods”, it has been analyzed that the company should altered into existing services and add on new services and products into its business such as customer care services and clothing products to enhance the customer base as well as the profit of the company. This strategy would make it easier for the company to evaluate the market and enhance the turnover of the firm. The research explains that the few changes and alternations would make it simple for the company to enjoy the growth.
Housing market of UK explains about various alternations and changes into the industry in last few years. The guardian (2014) explains that the housing index of UK market has been lower at a higher rate in last few years. Though, the current scenario of the UK market explains that still huge competition is there in the industry as well as the economy position of the country is also not good. The Housing industry index of UK market explains that the demand of the housing products is quite lower in the market but on the other hand, various suppliers are available in the market who is willing to sell their houses (Rentfrow, Jokela and Lamb, 2015). For evaluating the UK housing industry briefly, recent new articles and research has been evaluated and it has been found that the inflation rate and the lower investment in the country etc are the main reason behind lower demand of housing products.
Dassonneville and Hooghe, (2017) has explained that the demand and supply is one of the fundamental concepts of economics. Demand refers to the total quantity which is desired by the buyers whereas the supply is the total products which are available in the market for the purpose of sell. Relationship between demand and supply explains about the allocation of the resources. Through evaluating the market structure of the firm, it has been found that less resources are available in the market and due to it the demand of the products are quite lower. Various other macro economical factors are also affecting the demand and supply of housing products in the UK market. Titman, Keown and Martin, (2017) has explained that recent changes into the government, financial crisis, regulations changes etc have impacted on the demand and supply of housing index. Further, Brooks (2015) has added that the demand and supply of housing products could be better in UK market with the help of few changes into the economy of the country. Though, it has been argued by Renz et al, (2016) that the macro economical factors of the country are tough to change by the country.
Further, the monetary policy of Bank of England has been discussed. This bank is the central bank of UK. This bank manages and takes all the decisions of the country related to monetary. Anderson, (2014) has explained into his study that monetary policies are manages by the central bank of a country to manage the liquid position of the country to make economy growth. Liquidity depends on the money which is supplied by the bank in the market. It includes cash, cheque, credit and various other money market instruments such as mutual fund. Titman, Keown and Martin, (2017) explains that the main motive of Bank of England is to manage the inflation rate. The inflation rate of UK is getting lower and it explains that the bank is supplying less money in the market. Due to the less inflation rate, the demand of the housing product has been lower. Further, it has been added by the guardian (2018) that the Bank of England has reduced the housing loan % to manage the demand and supply of the housing products.
Through the analysis on housing industry of UK, it has been found that the demand and supply of UK housing industry is still not good. Huge losses have been faced by the housing industry in last few years. The inflation rate has made huge impact on the performance of the company and further, monetary policies of UK are also not in the favour of the housing industry of UK.
Economical indicators are the part of economical data which usually is used by the analysts to analyze and interpret the future investment possibilities to evaluated and make a conclusion about the economy position of a country. Macro economical factors indicate about the various factors of the country which directly make an impact over the investment, GDP, CPI, PPP etc of the country. Economical indicators are the key data which explains about an economy’s direction. Basically, GNP, unemployment rate, interest rates, monetary policies etc are the main economical indicators of a country.
Renz and Herman (2016) have explained that the macro economical indicators are one of the fundamental concepts of economics. Economical indicators refer to a combination of various factors which judges the economical position of a company. Though, it has been added by Bekaert and Hodrick, (2017) that if an analyst does not interpret the economic indicators in a proper way that the conclusion could lead to the analyst towards huge loss. Relationship between economical indicators explains about the position of the country and the investment into the company. Through evaluating the macro economical indicators of UK, it has been found that the economical position of the company has been changed a lot. The macro economical factors which have been changed on a huge level in last 5 years are GDP, inflation rate, employment rate, Balance of trade etc. trading economy (2018) has explained that recent changes into the government, financial crisis, regulations changes etc have impacted on the economy of the country lot. Further, The Herald (2018) has added that the economical factors of the country have been changed due to the changes in the other country and their economical position as well. Though, it has been argued by Mirror (2018) that in the macro economical factors changes are announced by the government and few private agencies periodically.
The GDP of UK has been evaluated and it has been analyzed that the GDP rate of the country was higher in 2015-2016 but the current position of GDP explains about lower changes. It explains that the economical position of the country is not well. Through the analysis on GDP, it has been found that service revenue has been lower and due to which the GDP of the country has been hampered.
Further, the employment rate of UK has been evaluated and it has been analyzed that the employment rate of the country is changing rapidly in last 5 years. It depicts that the labour of UK is paid a good amount against their work. It explains that the economical position of the country is quite well. Through the analysis on employment rate, it has been found that inflation rate is impacting on employment rate.
Further, the Balance of trade of UK has been evaluated and it has been analyzed that the balance of trade of the country is changing rapidly in last 5 years. Through, the figure 3 explains about the negative amount and explains that the revenue amount is lower than the payment amount. It explains that the economical position of the country is not well. Through the analysis on balance of trade, it has been found that export and import is impacting on balance of trade.
Thus, through the analysis on the employment indicators and trend of the indicators, it has been found that various changes have occurred into the economical position of the country in last 5 years.
Managers of an organization are the people who take the charge of certain task pr certain subset of an organization. Basically, a manager is the one who has some people to report him about the organization, its changes etc. an organization has various managers on different level such as top level manager, department managers etc. Department managers are responsible for their particular department, changes in the department, issues in the department etc. For instance, financial manager handles all the financial activity of the business (Dalkir and Beaulieu, 2017). He evaluates all the financial factor and aspect of the company and assists the company to make decision about investment into new project, raise the funds through different sources, cost of the company, profitability level, solvency level, debt management level, asset management level etc.
Financial managers evaluate the financial factors and make decisions about the financial position of the company with the help of various techniques such as current account management and concepts leverage (Bratton and Gold, 2017). Concepts leverage explains about the debt of a company which is taken by the company to purchase new assets, inventory, invest into new projects etc. Leverage technique evaluates the financial risk and operational risk of an organization and on the basis of that risk, it describes the financial position of a company (Barr and McClellan, 2018). It explains that the operational risk and financial risk of an organization must be in control. It makes it easy for the company to diversify as well as it attracts the investors to invest into the company more. Leverage analysis is of 3 types which are operating leverage, financial leverage and combined leverage. Operating leverage takes the concern of total turnover and the operating profit of the company and explains about the operating risk of the company whereas financial leverage takes the concern of EBIT, EBT and interest rate.
It explains about the financial risk situated with the company. On the other hand, combined risk explains about the operating and financial risk both (Finkler et al, 2016).
For instance, following information is of an organization:
Fixed cost = $ 100000
Variable cost = $ 300000
Sales = $ 500000
Long term loans = $ 400000 at 10% interest rate
So, the leverage of the company would be:
= (500000-300000)/ 100000
=2
= (500000-300000-100000)/ (500000-300000-100000-40000)
= 1.67
= 2*1.67 = 3.34
Leverage calculations express that the position of the company is better.
Further, the accounting concept of the company has been evaluated and it has been found that accounting concept takes the concern of the financial statement of the company and evaluates about the different level of the company (Titman, Keown and Martin, 2017). For instance, following is the detail about the capital land plc of the company.
|
Description |
Formula |
CapitaLand Limited |
||
|
Profitability |
||||
|
Net margin |
Net profit/revenues |
28.64% |
31.39% |
44.84% |
|
Return on equity |
Net profit/Equity |
6.19% |
5.99% |
7.58% |
|
Liquidity |
||||
|
Current ratio |
Current assets/current liabilities |
1.52 |
1.82 |
1.65 |
|
Quick Ratio |
Current assets-Inventory/current liabilities |
0.90 |
0.82 |
0.56 |
|
Efficiency |
||||
|
Receivables collection period |
Receivables/ Total sales*365 |
129.20 |
109.15 |
89.55 |
|
Payables collection period |
Payables/ Cost of sales*365 |
467.99 |
451.31 |
440.64 |
|
Asset turnover ratio |
Total sales/ Total assets |
0.11 |
0.10 |
0.09 |
|
Solvency |
||||
|
Debt to Equity Ratio |
Debt/ Equity |
0.88 |
0.89 |
0.90 |
|
Debt to assets |
Debt/ Total assets |
0.47 |
0.47 |
0.47 |
Morrison plc’s financial rations have been calculated to evaluate the financial position of the company. Net margin ratio of the comapny explains about the profitability ratio of the company. Through the calculations, it has been found that the profitability position of the company has been improved. Further, current ratio of the comapny explains about the liquidity ratio of the company. Through the calculations, it has been found that the short term debt obligation of the company is required to be improve.
More, earnings per share of the comapny explain about the market value ratio of the company. Through the calculations, it has been found that the market value position of the company has been improved. In addition, fixed asset turnover ratio of the comapny explains about the asset management ratio of the company. Through the calculations, it has been found that the company is managing the assets in a proper way. Lastly, debt to asset ratio has been evaluated and it has been found that capital structure of the company is quite better.
|
Description |
Formula |
MORRISON plc |
|
|
Profitability |
|||
|
Net margin |
Net profit/revenues |
1.38% |
-4.53% |
|
Liquidity |
|||
|
Current ratio |
Current assets/current liabilities |
0.48 |
0.50 |
|
Market value ratio |
|||
|
earnings per share |
Net income – preference dividend / weighted average outstanding shares |
0.10 |
(0.33) |
|
Asset managamnet ratio |
|||
|
Fixed Asset turnover |
Sales/ Net fixedassets |
2.02 |
2.09 |
|
Debt management ratio |
|||
|
Debt to assets |
Debt/ Total assets |
0.60 |
0.61 |
(Morningstar, 2018)
|
Annual interest rate |
4.50% |
|||
|
Years |
3 |
|||
|
Yearly investment |
-650 |
|||
|
Present value of amount |
£ 1,328.16 |
|||
|
EMI No. |
Opening balance loan |
EMI |
Interest |
Closing balance loan |
|
1 |
1,328.16 |
59.77 |
1,387.93 |
|
|
2 |
1,387.93 |
650.00 |
62.46 |
800.38 |
|
3 |
800.38 |
650.00 |
36.02 |
186.40 |
|
4 |
186.40 |
650.00 |
8.39 |
Alice has to pay £ 1,328.16 right now to get £ 650 per year for 3 years.
|
Calculation of Net present value (Project A) |
|||
|
Year |
Project A |
PV Factor |
Present value |
|
0 |
$ -50,000.00 |
1 |
-£ 50,000.00 |
|
1 |
$ 26,000.00 |
0.899 |
£ 23,370.79 |
|
2 |
$ 17,625.00 |
0.808 |
£ 14,240.63 |
|
3 |
$ 15,000.00 |
0.726 |
£ 10,894.10 |
|
4 |
$ 10,000.00 |
0.653 |
£ 6,528.30 |
|
5 |
$ 32,000.00 |
0.587 |
£ 18,778.02 |
|
NPV= (cash outflow- cash inflow) |
£ 23,811.83 |
|
Calculation of Net present value (Project B) |
|||
|
Year |
Project B |
PV Factor |
Present value |
|
0 |
$ -50,000.00 |
1 |
-£ 50,000.00 |
|
1 |
$ – |
0.899 |
£ – |
|
2 |
$ – |
0.808 |
£ – |
|
3 |
$ – |
0.726 |
£ – |
|
4 |
$ – |
0.653 |
£ – |
|
5 |
$ 99,500.00 |
0.587 |
£ 58,387.92 |
|
NPV= (cash outflow- cash inflow) |
£ 8,387.92 |
Project A should be accepted by the investor due to high returns.
Conclusion:
To conclude, UK local high street store faces huge changes, though new strategies could help the economy and the market to grow again. Further, demand and supply of UK housing market explained that the demand of the housing product is quite lower than the supply. In addition, the macro economical factors of the UK market depicts about numerous changes. Further, the accounting concept and financial concept has been studied and it has been evaluated that managers are required to use various financial techniques to make decision. Lastly, the financial concepts of Morrison explain that the position of the company has been better in current year rather than last year.
References:
About us. 2018. FarmFoods. [Online]. Available at: https://www.farmfoods.co.uk/about-us.php [Accessed on 5th March 2018].
Anderson, V., 2014. Alternative Economic Indicators (Routledge Revivals). Routledge.
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher education. John Wiley & Sons.
Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge University Press.
Bratton, J. and Gold, J., 2017. Human resource management: theory and practice. Palgrave.
Brooks, R., 2015. Financial management: core concepts. Pearson.
Dalkir, K. and Beaulieu, M., 2017. Knowledge management in theory and practice. MIT press.
Dassonneville, R. and Hooghe, M., 2017. Economic indicators and electoral volatility: Economic effects on electoral volatility in Western Europe, 1950–2013. Comparative European Politics, 15(6), pp.919-943.
Finkler, S.A., Smith, D.L., Calabrese, T.D. and Purtell, R.M., 2016. Financial management for public, health, and not-for-profit organizations. CQ Press.
Guerrero, M., Cunningham, J.A. and Urbano, D., 2015. Economic impact of entrepreneurial universities’ activities: An exploratory study of the United Kingdom. Research Policy, 44(3), pp.748-764.
Mirror. 2018. Hell on high street as closure of Britain’s high street stores could leave vulnerable communities in crisis. [Online]. Available at: https://www.mirror.co.uk/news/uk-news/closure-britains-high-street-stores-11843184 [Accessed on 5th March 2018].
Morningstar. 2018. Morrisons plc. [Online]. Available at: https://financials.morningstar.com/ratios/r.html?t=MRWSF [Accessed on 5th March 2018].
ONS. 2018. Balance of payments. [Online]. Available at: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments [Accessed on 5th March 2018].
Rentfrow, P.J., Jokela, M. and Lamb, M.E., 2015. Regional personality differences in Great Britain. PLoS One, 10(3), p.e 122.
Renz, D.O. and Herman, R.D. eds., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John Wiley & Sons.
The guardian. 2018. Britain’s high streets under strain as 15 shops close every day. [Online]. Available at: https://www.theguardian.com/business/2016/oct/25/britains-high-streets-under-strain-as-15-shops-close-every-day [Accessed on 5th March 2018].
The Guardian. 2018. Farmfoods shocks industry by becoming fastest-growing grocer. [Online]. Available at: https://www.theguardian.com/business/2014/feb/17/farmfoods-scotland-fastest-growing-grocer [Accessed on 5th March 2018].
The Guardian. 2018. UK housing market. [Online]. Available at: https://www.theguardian.com/business/2018/feb/08/uk-housing-market-gets-off-to-subdued-start-in-2018-estate-agents-say [Accessed on 5th March 2018].
The Guardian. 2018. UK inflation rate. [Online]. Available at: https://www.theguardian.com/uk-news/economics-blog/2016/nov/15/new-uk-inflation-measure-office-for-national-statistics-cpih [Accessed on 5th March 2018].
The Herald. 2018. Tough competition blamed as Farmfoods profits slump. [Online]. Available at: https://www.heraldscotland.com/business_hq/13164074.Tough_competition_blamed_as_Farmfoods_profits_slump/ [Accessed on 5th March 2018].
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.
Trading economies. 2018. Employment rate. [Online]. Available at: https://tradingeconomics.com/united-kingdom/employment-rate/survey [Accessed on 5th March 2018].
Trading economies. 2018. GDP growth. [Online]. Available at: https://tradingeconomics.com/united-kingdom/gdp-growth [Accessed on 5th March 2018].
Trading economies. 2018. Inflation rate. [Online]. Available at: https://tradingeconomics.com/united-kingdom/inflation-cpi [Accessed on 5th March 2018].
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