Environmental factors in business refer to the factors that affect the performance of a business organization. They are divided into internal environmental factors and external environmental factors. This report aims at comparing the internal and external factors that affect business. The report also aims at analyzing leading retail business companies and determining how the company has performed in the previous few years. After analyzing the performance of British Petroleum company, the report analyzes how internal environmental factors have influenced the performance of the business. The report also discusses how changes in demand and supply affect retail businesses such as supermarkets.
According to Microeconomic theory, there are six internal factors that affect the performance of a business. These factors are the elements that can be controlled by the management of the company. The business has control of these factors, and it can shape them to help the business achieve its objectives. Some of the internal factors that have an impact on the performance of a business include; suppliers, employees, distribution channels, investors and media and the general public.
Suppliers are a very important element of any business organization. It is important for both the service industry and in an industry dealing with goods. A business organization has control over who should supply them and who should not. The business can also control the quality of goods that it wants receives from suppliers (Sreenivasulu, 2017). Suppliers are very important for both manufacturing business and also for businesses reselling products. This is because supply affects the final goods and services produced and hence impacting on customer satisfaction. Therefore, a business organization should have maximum control of suppliers to ensure its interest are met, and its objectives are achieved.
Employees are also an internal element that can be controlled by the management of an organization. The business set qualifications for recruitment of employees. They are a very important factor in business since they determine the success or failure of a business. A business should ensure a highly productive workforce through motivation, continuous training and good remuneration (Stengel, 2011).
Customers are also another very crucial element of the internal business environment. A business firm can control the type of customers it wants. One of how a business firm can control customers is through target marketing. The management of a business firm can decide it wants children as its target consumers. Therefore, the business will produce goods and services consumed by children. Business can, therefore, control customers by understanding consumer behavior and producing goods and services that meet the needs of a specific group of customers.
The media and the general public affect the internal environment of a business organization, and it can be controlled from within the organization (Sreenivasulu, 2017). Negative publicity can affect the image of a business organization. Good publicity can also build a positive brand name and hence help the business to grow and increase profits. A business can control publicity by providing jobs, paying taxes and engaging in corporate social responsibility.
The external environmental factors are those elements that affect the performance of a business, but the management does not have control of these factors. They include;
Demographic factors. These include factors such as size, population density, age, gender, and occupation. A business cannot control this factors but can design its strategy to fit the prevailing conditions in the market.
Economic factors. These factors include consumer purchasing power and spending patterns. Other important economic factors that may affect the performance of business include GDP, GNI, import duty, and taxation.
Technological factors. New technological developments cannot be controlled by any business, and thus businesses have to keep adapting to changing technologies to remain relevant.
Socio-Cultural forces. These refer to beliefs, practices, traditions, and religion of the society in which the business is operating. Socio-cultural factors affect consumer preferences. It is impossible for any given organization to change these factors and hence businesses have adopted these factors to operate smoothly.
There have been rapid changes in the consumer retail industry in the recent past. Particularly, the oil retail industry has undergone many changes in the previous one decade. The global petroleum industry is highly restricted and controlled. Since the beginning of the year 2010, fuel prices were stable until the second half of the year 2014.By the end of the year 2014, oil prices had plummeted below $50 (Leinwand, Mainardi, & Kleiner, 2016)..This was due to increase in US shale oil production and decrease in demand for oil in Europe and China.
The prices for one barrel of crude oil averaged $105. This paper analyzes the financial statements of British Petroleum (BP Amoco Plc). BP is a British multinational oil and gas company headquartered in London, England. BP is the sixth largest oil and gas company by market capitalization(Niemeier, Zocchi & Catena, 2013). BP is also one of the top fifteen largest companies globally in terms of revenue. This report analyzes and discusses the financial performance of BP beginning the year 2012 with the objective of determining how aspects of business organization have impacted on the performance of the company.
In the 2013 financial year, the total revenues of the company stood at US $379,136million. The revenue for the year 2012 was $375,765. This means that revenue increased by 0.9%.In the following financial year of 2014, the revenue of BP decreased to $353,568. This means that the companies` revenue decreased by 6.7%. The decrease in revenue by the company can mainly be attributed to external environmental factors. The year 2014 witnessed a sharp decline in international prices for crude year. In June 2014, the price of crude oil per barrel was $58.80. The petroleum prices declined further to below $50 per barrel.
The following two years, BP reported a sharp decline in revenues at $22,894 million and $183,088million for the year 2015 and 2016 respectively. Apart from decline in oil prices, the company has been hugely affected by the costs of the Gulf of Mexico oil spill. The company has been struggling to reduce its expenses by reducing its workforce. In the year 2017,revenue increased to $240,208 million. This increase is attributed to increase in oil price in the international market and increase in earnings from other activities.
The gross margin for the year 2013 was 8.6% up from 7.0% in the previous year. In the year 2015, the gross margin percentage declined sharply to 2.2%. The decline in gross margin was due to the decline in revenues and increase in cost of goods sold. This means that during that year, crude oil prices were high and the price of refined products was also low. The gross margin percentage increased to 3.6% and 7.9% respectively in the year 2016 and 2017 respectively.
The net income of BP in the year 2013 was $23,451million, the net income decreased in the year 2014 to $3,780million. In the year 2015,BP announced a record loss of $-6,883 million. The loss was due to increased in expenses of the company while the revenues of the company increased at the same time. In the year 2016, the net income of the company was $-4,095 million. The loss reduced because the company cut its expenses by reducing its number of employees. In the year 2017, BP spent $5.2Billion on the Gulf of Mexico oil spill compared to $6.9 billion in the year 2016.This contributed to increase in net income of the company.BP returned back to profit making in 2017 when it recorded a net profit of $8288 million.
One of the internal factors that impacts on the performance of BP is that the company is vertically integrated. BP engages in production, refinery and retail of its products. This helps the company in minimizing costs since it owns its own oil rigs and gas fields and hence its operations are not hugely affected by changes in prices of raw materials.
In the year 2017,BP made several oil discoveries. The company reported a reserve replacement rate of 143%for the year ending 2017. The company also opened a lubricant blending facility in China. In addition to this, BP has been expanding continuously by acquiring stakes in other companies. This has helped the company to diversify risk and to increase its revenue streams.
This decline in prices was due to excess supply in the market. There was some political stability in countries like Libya and this resulted to increased production. International demand for oil was also at a record low.
BP has also been very thorough with its execution. The company has a lot of control over its suppliers and hence ensuring that they get goods at the best price in the market. In addition to this, the company has a very strong management team which makes it easier for the company to execute its policies and hence influencing the performance of the company. The company has also experienced various accidents over the past few years. These accidents have greatly affected the earnings of the company.
Change in demand and supply affect markets equilibrium for goods market. Equilibrium is the price at which quantity demanded by consumers is equal to the quantity supplied by suppliers of goods (Dart & Lewis, 2017). A change in either demand or supply will result in a change in equilibrium price and quantity. For example an increase in the supply of sugar in the country will result in a corresponding decrease in price. For example, assuming the equilibrium price for sugar is $0.8 per kilogram, and the equilibrium quantity is 5units.
An increase in supply will cause a reduction in equilibrium price and an increase in equilibrium quantity. Initially, an increase in supply will result in excess supply. After some time, the prices of sugar will fall and the quantity demanded will increase. Increase in supply will cause the supply curve to shift to the left. This will, therefore, mean that the equilibrium price and quantity will reduce over time. The equilibrium price may reduce from $0.8to $0.7 and the equilibrium quantity may reduce from 5 units to 4 units.
A decrease in the supply of sugar at ASDA supermarket will create excess demand at the initial stage. The price of the commodity remains the same initially. Overtime, excess demand will cause the price of sugar to rise to for example$1.1. The increase in demand will cause the demand curve to shift to the left-hand side. When the demand curve shifts to the left, it means that the equilibrium price and quantity will increase. The equilibrium price may change from $1 to $1.1, and the equilibrium quantity may change from 5 units to 7 units.
A decrease in demand of a product leads to a decrease in price. For example, if the equilibrium price of pizza at MacDonalds was $3 and the equilibrium quantity was two units. A decrease in demand will result in the demand curve shifting to the left. This means that the equilibrium quantity and price for pizza will decrease. The equilibrium price may shift from $3 to $2.8 while the equilibrium quantity decreases to 1unit.
This is because, suppliers may decide to hold their commodities waiting for prices to increase so that they can get better profits (Dombret & Ebner, 2012). For example, if the demand of pizza increases at a particular period. The suppliers of the raw materials used to make pizza will hold their stocks and wait for demand to increase further so that they can raise their prices. The decrease in demand will cause the supply curve to shift to the right-hand side. This results in an increase in equilibrium price and quantity of pizza. If the demand and supply of pizza at MacDonald’s change in the opposite direction, the change in equilibrium price can be determined but it’s not possible to determine the equilibrium output at this point.
A financial intermediary is an institution or individual that serves as a middleman among different parties and helps to facilitate financial transactions (Gerken, Mishkin & Eakins, 2015). Some of the types of financial intermediaries in the UK include; commercial banks, investment banks, stockbrokers, pooled investments and stock markets. It is very critical that managers are aware of financial intermediaries. This is because of the many benefits that business gets from transacting with the intermediaries.
Commercial banks are banks that provide services such as accepting deposits, providing business loans and offering basic investment products. Examples of commercial banks in the UK include HSBC Holding, Barclays PLC, and Standard Chartered PLC. Commercial banks play a huge role in supporting retail businesses in the UK. Commercial banks receive deposits from retail businesses. Retail businesses deal with huge amounts of cash because millions of transactions happen in the retail outlets on a daily basis (Couto, Plansky & Caglar, 2017).
The commercial banks receive the cash and bank it for the retail businesses and hence easing the burden of handling cash. The commercial banks also help in making payments to suppliers and also receiving money on behalf of the company. For example, If a retail chain like Tesla has an account with a commercial bank like Standard Bank, the retailer will deposit cash with the bank and carry out many other transactions through the bank. Commercial banks also offer loans to retail businesses.
Investment banks also play a very important role in the growth of retail business in the UK. Investment banks provide asset management services to companies in the retail sector. Retail companies with many assets such as Tesla may need the services of investment banks to help them in managing their wealth. This helps the retail company to concentrate on its core mandate of offering quality goods and services to the final consumer (Krafft & Mantrala, 2010). Investment banks provide other services such as underwriting new stock issues and offering financial advice to retail businesses.
Stock markets are very important to retail businesses in the UK. One of the benefits of the stock market is that it provides retail businesses with a chance to go public. By going public, the retail business can access huge capital for expansion of the business. This capital can help the retailers to expand to other regions and also to invest in other profitable ventures.
Insurance companies are another important financial intermediary for retail businesses in the UK. Insurance companies help in providing cover for businesses against losses. An Insurance company like AIG may cover Tesla against losses resulting from fire, terrorism activities or theft. Insurance companies, therefore, help retail businesses spread risk and hence the likelihood of loss is reduced (Veseth, 2015) With insurance, business efficiency is increased. This is because the company can operate freely without fear of losses since the future is more certain. In addition to this, Insurance helps retail businesses in the UK to care for the welfare of its employees. The retail businesses can obtain life insurance, accident and pension benefits for its employees through Insurance companies.
The current ratio indicates the ability of the business to meet its financial obligations when due. Zenobia plc had a current ratio of 1.2 for both the year 2017 and 2018. This, therefore, means that the current assets of the company are 1.2 times than the current liabilities. The business can therefore meet its obligation.
The quick ratio of 1.1 means that the company can meet its current obligations without depending too heavily on the inventory
Debtor’s payment period of 103 days means that the companies` debtors take an average of 103 days to pay their debts to the company.
Inventory turnover period of 14 days means that the takes 14 days for Zenobia to sell all its stocks.
To improve performance, Zenobia needs to invest more in marketing to increase sales.
B)
Present value=CF/(1+r)n
PV=1,500/(1+0.34)3
=1,500/2.41=$622.41
It means that Zara should invest $622.41 to earn $1500 at the end of 3 years at an interest rate of 34%.
C)
GreenFord project
NPV=150,000+(30,000/1.067)+25,625/1.0672+26,000/1.0673+30,000/1.674+75,000/1.0675
=-150,000+28116+22478+21487+23077+54348= $-21981
GreenWich project
NSV=$175,000+60,000/1.067+30,000/1.0672+25,000/1.0673+20,000/1.0674+40500/1.0675
-175,000+56232+26316+20661+15,385+29,348=$-27058
From the analysis of both projects, it is clear that both projects will have a negative net present value. Greenford has a net value of $-21981 while Greenwich has a present value of -$27058. I would, therefore, advise Tobe to invest in Greenford project.
References
Couto, V., Plansky, J., & Caglar, D. (2017). Fit For Growth: A Guide To Strategic Cost Cutting, Restructuring, And Renewal. Https://Apps.Uqo.Ca/Loginsigparb/Loginpourressources.Aspx?Url=Http://Www.Books24x7.Com/Marc.Asp?Bookid=120261. pp.163-170,pp 188-192
Dart, M., & Lewis, R. (2017). Retail’s Seismic Shift How To Shift Faster, Respond Better, And Win Customer Loyalty.pp 68-77,pp 111
Dombret, A., & Ebner, A. (2012). Default Of Systemically Important Financial Intermediaries: Short?Term Stability Versus Incentive Compatibility? German Economic Review. Https://Nls.Ldls.Org.Uk/Welcome.Html?Ark:/81055/Vdc_100024493499.0x000025.
Gerken, W., Mishkin, F. S., & Eakins, S. G. (2015). Study Guide For Financial Markets And Institutions, Eight Edition – Frederic S. Mishkin, Stanley G. Eakins:pp103-116
Krafft, M., & Mantrala, M. K. (2010). Retailing In The 21st Century: Current And Future Trends. Heidelberg, Springer: pp 158
Leinwand, P., Mainardi, C., & Kleiner, A. (2016). Strategy That Works: How Winning Companies Close The Strategy-To-Execution Gap. Boston, Ma, Harvard Business Review Press:pp 128-149
Niemeier, S., Zocchi, A., & Catena, M. (2013). Reshaping Retail: Why Technology Is Transforming The Industry And How To Win In The New Consumer-Driven World. Http://Www.Books24x7.Com/Marc.Asp?Bookid=56368.
Stengel, D. N. (2011). Managerial Economics: Concepts And Principles. [New York, N.Y.] (222 East 46th Street, New York, Ny 10017), Business Expert Press. Http://Portal.Igpublish.Com/Iglibrary/Search/Bepb0000115.Html.
Sreenivasulu, M. (2017). Trends In Retail Marketing In India. [S.l.], Anchor Academic Publishin.pp 17-34, pp, 71-83
Veseth, M. (2015). Introductory Microeconomics. Saint Louis, Elsevier Science. Http://Qut.Eblib.Com.Au/Patron/Fullrecord.Aspx?p=1876948.
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