Solution
Akash answered on
May 26 2021
PROGRAMME TITLE: MICRO ECONOMICS
MODULE TITLE: ECONOMIC AND FINANCIAL MANAGEMENT
MODULE CODE: 216MANSC/216MANEL
TITLE: AN ANALYSIS AND EVALUATION OF FINANCIAL PERFORMANCE
STUDENT DETAILS: _________________
Executive Summary
The module is about to show the link between the business and the economic factors. In other words, it shows how the changes in the general economic parameters of the economy can have an impact on the business. It is generally said that business does not work in isolation. Both external and internal forces su
ound the organisation and have a substantial impact on the same. Internal forces being internal policies, management, employees and others, whereas the external parameters include government policies, competition, demand and supply, economic growth, inflation, liquidity in market and host of other factors. The aim of the assignment is to study the impact of these economic factors on the business.
Further, the assignment has also been ca
ied out to show the use the ratio analysis. It aims at analysis of the financials of the company in terms of liquidity, capital structure and operating effectiveness. Further, the objective of the study is to analyse the financial performance as well as the financial position of the company. The study aims to see and comment on the future of the company using these ratios. Hence, the study has been conducted. In addition, the study aims to analyse the market position of the company, profitability of the company and solvency. Ratio analysis is a very important tool for analysis of the financial statement. It gives us understanding of how the company is performing and what is the position of the company. Hence, in this case also study has been conducted to analyse the same.
Table of Contents
Executive Summary 2
Introduction 4
A. Analysis of Economic Factors and their Impact on Business 4
Impact of Macro Economic Factors on Business 4
Impact of Micro Economic Factors on Business 5
Performance of the Company 6
B. Calculation of Financial Ratio 7
C. Accounting Ratios and their Importance in Business 7
(i) Return on Capital Employed 7
(ii) Net Profit Margin 8
(iii) Cu
ent Ratio 8
(iv) Debtors Collection Ratio 9
(v) Creditors Payment Ratio 10
(vi) Efficiency Ratio 10
D. Recommendations 11
E. Conclusion 11
Reference List 13
Introduction
The progress and the growth of a country is measured by its economic indicators like GDP growth rate, inflation in the economy, customer behaviour, cu
ent account deficit, levels of personal disposable income and similar parameters. These have a very significant impact on the business be it any small or large, any sector manufacturing or service, be it on any form online or offline. Not every organisation feels the same effect of such factors. However, no organisation is abstained from effect of the above-mentioned concepts.
This assignment deals with analysing the impact of micro and macro-economic factors on an organisation. Ratio analysis of three years of J Sainsbury Super market has also been calculated for understanding the financial position of the organisation for last three years. The importance of accounting ratio has been discussed in detail along with recommendation for further increase of business.
A. Analysis of Economic Factors and their Impact on Business
Impact of Macro Economic Factors on Business
Macro-economic factors are those factors that affect the whole economy in general rather than affecting a certain population or segment of the economy. Some of these are
· Gross domestic product
· Rate of unemployment
· Phase of business cycle
· Rate of inflation
· Fiscal deficit
· Money Supply
The impact of these economic factors on the business can be outlined in simple example. For example- rate of unemployment in the country is very high. It means people are sitting idle and not having any income. In other words, consumption will decline leading to decrease in GDP of country (Xu, 2018). Further, the government in order to increase employment and production shall start spending more and sometimes more than its revenue. This shows that its revenue is leading to fiscal deficit, the effect of which is such that money supply in the economy will increase and will lead to increase in inflation and the prices of commodities. In other words, some will have positive impact on the business and some will have negative impact on the business.
Figure 1: Graph showing GDP growth rate of UK
Figure 2: Graph showing rate of Unemployment
Impact of Micro Economic Factors on Business
Micro economic factors are those factors, which have an impact on particular section or population of economy. These are
· Demand and Supply
· Pricing
· Customers and Investors
According to Monahan (2018), pricing, demand & supply and others are micro economic parameters because these affect the particular sector of economy or particular sector of people. Like demand for car will affect supply of car and its connected parts like tyres, tubes, oil, etc. In addition, the price of these materials will have impact. There shall have no impact directly on demand & supply of agricultural goods due to change in demand & supply of car. The graphs showing impact of micro economic factors on business are as follows:-
Figure 3: Impact of Increase in Supply with no Change in Demand
Explaining the curve in
ief:
· Price is inversely proportional to demand i.e. increase in price leads to decrease in demand
· Supply is directly proportional to demand i.e. increase in price leads to increase in supply
· If supply increases with increase in demand it means, supply curve moves forward leading to creation of new equili
ium
· If supply increases with increase in demand, it increases within the same curve.
Performance of the Company
J. Sainsbury Plc is the second largest retail supermarket of UK. The company sells from groceries, to clothes, to electrical and financial products also. The company also delivers groceries and other products online. The company’s Profit before tax have increased by 7.8% as compared to last year, but the earning per share is down by 31%. The company has reported a 6.9% growth in sale of groceries and only 1% increase in sale in supermarkets. This is mainly because the company sells goods at fair price, is high in integrity, does lots of social work; provide good quality products at lower prices.
B. Calculation of Financial Ratio
Particulars
31-12-2017
31-12-2018
31-12-2019
Return on Capital...