Global Financial Crisis, Money Market And Business Risk Management

Overview of Global Financial Crisis

This report has deep study on the global financial crisis which reflects how global and domestic risk could be forecasted and mitigated. In this report, money market and capital market have been disused and it has been provided that how their less effective business functioning has resulted into global financial crises. After that, top down analysis and bottom up analysis have been used. These analyses used by Evan and Partner to make investment decision. The fundamental analysis and top down analysis have been used to gauge the true performance of company for making investment decision. Global financial crises have been evaluated which reflects that commercial banking and financial institutions were not only sector which were negatively influenced by global financial crises. 

The money market is described as international financial market which is used for short term borrowing, providing money to lenders and value creation activities for investors. Money market and capital market have been used by organizations for short term and long term liquid for international financial system. The main impact of global financial crises could be seen on the downward value of short term obligations such as commercial paper, treasury bills, and securities are bought and sold in market (Webster, 2014).

Global financial crises 2007- 2009 resulted into sluggish market conditions around the globe and it was observed due the downward slope of growth domestic product rate of UK, china, India and USA.  This Global financial crisis 2007- 2009 was happened due to increasing effect of non-performing assets of financial institutions and banks. The depression of 1930 was overcome by the collective efforts of government of all economy on international level. However, Global financial crisis of 2007- 2009 resulted into failure of multinational companies, increasing negative effect of nonperforming assets and increasing sluggish economic condition. It was observed that Global financial crisis of 2007- 2009 was aroused due to financial institutions and banks that had loss of more than trillion of U.S dollars. In addition to this, Money market is highly influenced by the downward slope of index market capitalization (Gotze, Northcott and Schuster 2015).

The main reason of Global financial crisis of 2007- 2009 was aroused due to failure of several international financial institutions. After collecting the required information it was observed that there were shown downward slope in developing countries growth and downward slope of their gross domestic product that increased foods prices and knock- on- effect from the failure of industry operations of various multinational companies. Global financial crisis was the major concern which decreases the GDP of several countries such as Australia, India, Russia, China and USA. It was analyzed that Global financial crises of 2007-2009, India faced downfall in its rupee value which aroused due to negative balance of trade. The GDP rate of Australia was also went down to 3% due to less amount of overall production in country (ConstantinC?runtu, &MihaelaLoredanaL?p?du?i, 2012). It is evaluated that there were several countries which entered into taking procedure of liberalization and privatization process. This process open up various commodity market and allowed various foreign institutional investors to make investment in international business.  Foreign institutions and banks also prepared various rules and regulations to curb nonperforming assets in their accounts to increase their banking efficiency (Cui, & Li 2014).

Impact of Global Financial Crisis on Money Market

Business risk management could be described as management of uncertainty of business on the global level. This Business risk management has been adopted by multinational companies with a view to manage overall cost of productions and estimation of future data. For instance, management of multinational companies has been decreasing overall cost of productions by estimating the required amount of demand.  However, India, Britain, Japan and other countries have been affected by turmoil of industry growth rate in various sectors such as Automotive, airline, foods and beverage and Airline. It could be defined with the example that Ford, Hyundai, Toyota reported 55%, 20% and 35% has fall down in their turnover respectively. These companies have been coming up with business risk management plan to overcome depressing effect of Global financial crises. There are other organizations who have used this risk management plan e.g. Rio Tinto, Woolworths, Wesfarmers (Lee and Epstein, 2012).

.Disasters recovery planning process is a subset of process engaged with a view to recover business and resumption of discontinued business.

Approval from authority- Higher authority will give approval to recover affected business

Preparation of planning committee- A proper implementation plan would be implemented by the planning committee.

Arrangement of resources- management plan should arrange required amount of resources to make effective level of disaster recovery plan.

Team organization- This would be employees who would be engaged in disaster recovery business operation.

Assessment of risk involved- All the business team member would be indulged in planning of uncertain factors of business.

Testing and rehearsal team- This team will prepare follow up actions and shortcoming of present disaster recovery plan.  

Preparedness- Team members engaged in disaster recovery responses process would prepare a complete level of action plan.

Responses- Organizations and government that suffered from global financial crisis should measure losses that have occurred and responsive plan which could be used to overcome its effects.

Mitigation- In this process, all the resources and efforts would be used to make effective level of management plan so that all the uncertain factors could be managed in determined approach. 

In this part financial analysis has been prepared on the business functioning of selected company. The fundamental analysis has been used to evaluate the performance of Tesco Plc (Mumbai, 2013).

Why Evan and partners would use Bottom up and Top down analysis in investing decisions

This fundamental analysis consisted with Bottom up and Top down analysis analyses use to determine the future value outcomes of Tesco plc in context with market conditions.  The used by Evan and partnersinclude two approaches such as top down analysis and bottom up (Jiang, & Kim, 2013).

Importance of Business Risk Management

Bottom up analysis put emphasis upon the performance of Tesco Plc. In this all the external and internal factors of organization have been organized. There are several ratios which are used to analyze the trend of Tesco plc (Stickney, et al. 2009).

This ratio establishes the relation between market price of company’s share and earnings per share. Price earnings ratio of Tesco plc is 53.85 in 2016 which divulge that company has good amount of earning for its shareholders in contest with market price (Webster, A. 2014).

This ratio provides that how well company has been paying its dividend to its shareholders. Nonetheless, in 2016, company did not pay any amount of dividend to its shareholders and plugged back all its profits for the long term value creation for the shareholders (Bragg, 2012).

This ratio reflects how well company has been managing its cash and its cash blockage. It is computed that Tesco Plc has gradually increased its efficiency to manage its receivable turnover ratio. Nonetheless, Creditor turnover ratio of Tesco Plc has also effectively managed to block less amount of capital. This practice of company would reduce the overall cost of capital  (Weygandt, Kimmel and Kieso, 2010).

Debt equity ratio- This ratio establish relation between debt and equity of company. However, company has reduced its interest coverage ratio which is not good indicator and increase financial risk in determined approach  (Ehrhardt and Brigham, 2013).

This ratio provides that Tesco Plc has decreased its overall profit throughout the time. Return on capital employed of company is very low which is not enough to cover overall cost of capital. Nonetheless, company has been negative factors sluggish market conditions(Gibson, 2012).

This top down analysis helps investor s to evaluate macroeconomic factors such as global business economy, Gross domestic product of particular economy and interest rate. This top down analysis would provide open to close analysis to investors in which firstly broad overview of organization would be considered then investors would end up with analyzing company’s performance (Bierman, 2012).

It is evaluated that investors before making investing decision should use fundamental analysis. It will help investors to analyse the true performance of company. Therefore, it could be said that investors should use both analysis named top down and bottom up analysis to make their investment decision.

This top down analysis and bottom up analysis assist investors to evaluate the true performance of Tesco plc. It will also provide how far company could go in future in context with value creation on investor’s investment. Top down analysis provides that during the last five years supermarket business grow by 14%. Other economic factors business economy, Gross domestic product of particular economy and interest rate is rising at the normal rate of 1.53% since last four years (National Institute Economic Review, 2011).

Share price analysis- This analysis shows that Tesco Plc has been increasing its share price since last three years irrespective of sluggish market conditions and business performance (Stickney, et al. 2009).

Global financial crises have been evaluated which reflects that commercial banking and financial institutions were not only sector which were negatively influenced by global financial crises. There are various financial tools which should be used by investor before making investment decision. Now in the end, it would be inferred that investors should use top down and bottom down analysis before making investment.

References

Bierman, H. 2012. The Capital Structure Decision. New York: Springer Science & Business Media.

Bragg, S.M. 2012. Business Ratios and Formulas: A Comprehensive Guide. New Jersey: John Wiley & Sons.

ConstantinC?runtu,&MihaelaLoredanaL?p?du?i. (2012). METHODS USED IN DETERMINING THE VALUE ADDED USED IN THE ASSESMENT OF THE COMPANY’S REAL ECONOMIC POWER. Annals of the University of Petrosani : Economics, XII(1), 33-48.

Cui, Kuang, Wu, & Li. (2014). The changing trend and influencing factors of energy efficiency: The case of nine countries. Energy,64, 1026-1034.

Ehrhardt, M. and Brigham, E. 2013.Corporate finance: A focused approach.5th ed. Cengage Learning..

Gibson, C.H. 2012. Financial reporting and analysis. London: Cengage Learning.

Gotze, U., Northcott, D., and Schuster, P. 2015. Investment appraisal: methods and models. Springer.

Jiang, Z., & Kim, K. A. 2013.Financial management in china. Journal of Multinational Financial Management, 23(3), 125. doi:10.1016/j.mulfin.2013.03.007

Johal, P., Vickerstaff, B. and McAuliffe, E. 2014.Unlocking financial accounting. New York: Routledge.

Kiran, R. S., & Singh, V. K. 2014. How to make the financial analysis an easy task – A comparative analysis between the traditional and the modern approach? International Journal of Engineering Research and Applications, 4(8), 61-66.

Lee, J.Y. and Epstein, M.J. 2012.Advances in management accounting. Bingley: Emerald Group Publishing.Edwards, J.R. 2013. A history of financial accounting. New York: Routledge.

Mumba, C. 2013. Understanding accounting and finance: Theory and practice. USA: Trafford Publishing.

National Institute Economic Review, 2011, Vol.218(1), pp.F3-F3

Nottage, L.R. and Aoun, F., 2017. Corporate Governance, Corporate Responsibility and Law: Independent Director Requirements in Australia and the Asian Region.

Stickney, C.P., Weil, R.L., Schipper, K., and Francis, J. 2009. Financial accounting: an introduction to concepts, methods and uses. London: Cengage Learning.

Webster, A. 2014.Introduction to accounting. 2nd ed. Applied Finance.

Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. 2010.Accounting principles. 10th ed. USA: John Wiley & Sons.

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