Analysis Of Globalization, Market Structure, Financial Reporting, And Business Concepts

Question 1

a)How globalization affects consumers and firms

Globalization has both positive and negative effects on both consumers and firms. Globalization allows entry of many firms through elimination of trade barriers. Consequently, the consumers have more choices or variety(Accounting, 2017) . Because of competition consumers are able to get quality products at reasonable prices.  The draw backs of globalization to consumers include loss of manufacturing jobs for the people. There is also concerns about the third world worker in terms of environmental and safety conditions.

On the other hand, globalization increases competition among firms. A firm must be ready to change its price, service and customer preferences because of the global market preferences. There is also the benefit of technology improvement as a result of technology transfer(Adil, 2006). 

1. b) Movement along and shift along a demand curve  movement Along Demand Curve

A shift of the demand curve on the other hand occurs when the whole demand curve moves to the left or right . an example is when there is increase of disposable income that means that the consumer can buy more of good x at the same price(Bhaduri, 2012).

A demand curve would shift to the right if the price of a substitute good is increased, the good became more popular, seasonal factors, a complementary good price decreased.

1. c) Economies and diseconomies of scale

economies of scale is the advantages in terms of cost that is achieved by a company in the long run as a result of producing in large scale. This is because expanding production lowers average cost per unit of the good. In economics, economies of scale is achieved by increasing the sales numbers in the organization(Haugen and Mach, 2010). As a result, savings also increases which enables the company to buy raw materials in bulk which enables the company to enjoy discounts.

Diseconomies of scale: This refers to the disadvantage that a firm gets when it produces less than optimum. Factors that influence production cost are lack of decision, technical difficulties and lack of supervision. Diseconomies of scale limit a firms expansion and can also be caused by scarcity of raw materials and lack of skilled labour.

1. d) Determinants of supply

price of input: if the price of input goes up, supply will be decreased. An example of input price is labour wages. When the wages (assuming that the union negotiated higher wages) increase soothe supply curve will shift to the left(Jones, 2013).

Productivity:  this basically means the cost of the process to produce goods. When there is introduction of a new form of technology in the gas industry that produces more efficiently and cheaply, this would increase the supply of the commodity.

Question 2

Increase in number of firms leads us to the conclusion that a market is better because of competition. This is because increase in number of firms leads to increase in supply of gas which consequently leads to decrease in price of gas. 

Expected future price :

If there is expected to be a price increase the suppliers engage in hoarding behaviors which decreases supply in the short term so that they can release when price increases.

1. e) Substitute and complementary goods

A good is complementary if using more of good the good requires the use of another good, they are known as complementary goods. An example is ink cartridge and ink jet printer. On the other hand a good is a substitute if using one good replaces the use of the other good. An example is coffee and tea(Wells, Shuey and Kiely, 2001).  For complementary goods, if there is an increase in price of one good it will affect the quantity demanded for the complementary good.

On the other hand, substitute goods will have a negative demand if one of the substitute good price is decreased.For example, a price increase in good X, will lead a decrease in quantity demanded for good Y and an increase in demand for good X.

a)Analyze the imperfect market structure.

Perfect competition is also known as imperfectly competitive market is one in which there are no rules of perfect competition. All markets have some form of imperfection and therefore most parts of the world market follow this model. The price of goods in imperfect competition market is above marginal cost and therefore customers reduce their levels of purchase. And so reach ineffective levels of production. The most common forms of imperfect competition are oligopolies, monopolies, monopolistic competition and monopsony.

Any competition in which there are specific restrictions that damage the free market is considered as imperfect, having a greater degree of control in production and prices.

The main characteristics of imperfect competition are:

The number of bidders is so short that one can only influence to change prices.

There is no full mobility of goods and productive factors, since there is some kind of control.

There is no product classification, but there are differentiated products.

There is no full freedom to allow new suppliers to enter the market.

There is no perfect knowledge of all the movements that have occurred in the market.

1. b) Explain the barriers to entry of a monopoly firm

one of the most common types of barriers to entry of firms in a market is product differentiation. Potential entrants have to overcome the natural inclination of consumers to a particular brand. The second type of barrier is the institutional barriers which are created by the local or national authorities. In this case an example is issuing the firm with patents for new products and inventions. This enables the firm to be the sole producer of the product for a specified number of years mostly seventeen years.

Question 3

The other type of barrier to entry is licensing. Without a license no business will operate. Therefore by giving only one firm a license and denying other firms , then this creates a monopoly in the market(Waters, 2001).

Another type of barriers to entry is when the government gives exclusive franchise rights to a particular firm to sell a product. This is given to mostly utility companies for example postal services.

1. c) Environmental policies used by government to address market failures

to many economists the key to dealing with market failures in regards to environment.  The key is therefore to internalize external cost and benefits to ensure that they are part of the decisions making process. Pollution taxes- is one of the common approach that is used by government to deal with those who create negative externalities. This is also known as making the polluter pay. By introducing a tax, it increases the private cost of production which consequently reduces the output and demand for the good that is creating the negative externality(Spooner, 2015).

1. d) circular flow of income

The value of a good acquired by a customer, is equal to the income obtained by the company that produces it, that income is distributed as follows: payment of wages, capital income and purchases between companies, obtaining for the case of an economy Closed the following identity: 

Total Customer Purchases Total Revenue Salary + Internal Capital Income = Business = + Purchases between Companies

The purchases made are of two types, the purchases made by the final users of the product and those made by companies that use the products of other companies to make their own products, if you subtract the purchases of the companies you get:

Final Demand = Value Added = Salary + Capital Income

This Circular Flow shows us that Families demand goods and services produced by companies and goods that supply the capital labor inputs to the companies they produce.Purchasing Goods Jobs Income On the other hand the goods and services companies-And vices that are sold to Families andCapital income services are used to pay workers and the capital they need(Nobes and Parker, n.d.).

e)macro economic concept of unemploymentLabor is a driving force in every economy, the wages and salaries paid to workers fuels spending and labor output is vital for companies. Unemployment is a significant concern within macro economics. Unemployment refers to the number of people actively looking for work and are not getting the wages. Unemployment in the U.K in 2015 stood at 7.2% while in 1980 the unemployment rate stood at 12% . the highest rate of unemployment was in 1982 when it peaked at 14%.(Leeds, Von Allmen and Schiming, 2006).

Question 4

The Philips curve highlights the relationship between unemployment and inflation.  The lower the unemployment rate the higher the rate of inflation.  There is a trade off between efficiency and employment 

a) four basic financial statements, their formats and purpose
the four basic financial statements are income statement, balance sheet, statement of cash flows andstatement of retained earnings.

a)The income statement is usually considered the most important of them all because it presents the entity’s operational results. The format of this financial statement includes revenues, expenses as well as the profits or losses generated.

1. b) The balance sheet on the other hand presents the assets, liabilities and equity of the company as of the reporting date. It is structured so that total liabilities and capital equals the assets of the entity.

c)statement of cashflows- this statement presents the company’s outflows and inflows in a particular period(Hoggett et al., n.d.). This is important because it provides a way to analyze the income statement more deeply. It includes a segment for investing activities, financing activities and operating activities.

d)statement of retained earnings- shows the changes in the entity’s during the reporting period. The format varies but can include dividend payments, purchase or sale of stock and changes caused by reported losses or profits.

1. b) Ratios

Currentratio

This type ofratio is used to gauge a company’sabilityorcapacity to pay its shorttermdebt in a period of less than 12 months. It is calculatedusingthe formulae (current assets/ currentliabilities). For a company to be consideredable to pay its shorttermdebtthecurrentratio should be 2 andabove.

United states Steel Corporation

Current asset =6078 million

Current liabilities= 3245 million

6078million/3245 million= 1.8

Steel Dynamic Inc

Current assets=2473634 thousands

Current liabilities=2107589 thousands

(2473634/2107589) thousands= 1.17
source: https://www.stld.com/

1. c) analyze the four phases of management accounting

1.Formulation-this is the phase for identifying ways of achieving the company’s objective. This is where SWOT analysis is made for the company. It is termed as the most important phase.

2.Implementation-this is the stage where the strategies to meet the objectives are executed. However, the management should ensure that all employees and stakeholders understand their responsibilities and roles.

3.evaluation- To measure performance it is important to evaluate strategies used. GAP analysis is used by some companies to compare the actual versus the expected. An example, is comparing anticipated sales with the actual number of sales(Karas, 2005).

1. Modification- this phase is where correction of any weakness found during evaluation is done.
2. d) Relevant and irrelevant cost

Relevant costs are those costs that are affected by decisions made by the management in a particular business situation. They are incurred in one managerial alternative and avoided in another. In all management decisions these costs should be analysed.

Irrelevant costs-

In all managerial decisions and alternatives that are considered, these costs are not affected  and shall be incurred in all managerial alternatives.They become irrelevant and need not to be considered in calculations for managerial analysis(Macro Economics, 2006).

The concept of risk and return

The reward for investing is the Return.It is the prize for risking your money in the market.

The market pays you for your risk .The sacrifice of your investment is the Risk.It is the possibility that the value of your investment will decline.It is expressed as the volatility of the value of the investment.Risk – return are linear and positively related. That is, if you want higher earning you should assume a greater risk(Sjursen, 2000).

What is risk? The risk is the sacrifice of each investment, the possibility that the value declines, and is subject to multiple factors. It is also expressed as the volatility of the value of the investment.Risk and return are related, almost proportionally. If a higher gain is desired, a higher risk must be assumed. Therefore, there is no investment without risk. However, some products carry a greater risk than others.

Therefore, the greater the risk of investment, the greater the return on investment should be, in order to be attractive to investors. However, it must be taken into account that the relationship between risk and return is not directly proportional, although, in general, the risk is greater. 

1. b) the concept of capital structure

Concept of capital structure

A company can be financed with its own money (capital) or with borrowed money (liabilities). The ratio between one quantity and another is what is known as the capital structure.

In other words, the capital structure is the specific mix of long-term debt and capital that the company uses to finance its operations(Sjursen, 2000). The financial manager has two points of interest in this area. First, what amount of funds should the borrower apply for? That is, what mix of debt and equity will be better? The mixture chosen will affect both the risk and the value of the company.

Second, what will be the least expensive sources of funds for the company.Financial risk of the company’s capital, as the entity relies on debt financing, the required return on equity will increase, because debt financing increases the risk to shareholders.

c)armotization schedule

Principal=25000

Interest=9%

Loan term =3 years /36months

Interest=principal*rate*time

25000*9%*3=6750

Total amount to be paid=25000+6750=31750 

Year	Payment	Interest	Principal	balance
				31750
1	10583.3	2250	8333.3	21166.7
2	10583.3	2250	8333.3	10583.4
3	10583.3	2250	8333.3	0.01

d) PV ordinary annuity =c(1-(1+i)^-n/i)

i=interest rate

n=number of payments

Present Value=800(1-(1+0.06)^-3)/6%)

=$2146

1. e) mutually exclusive projects are the one that are competing and only one can be selected.

Project A

We need to discount the cashflows to get the Net present Value. 

year	cashflow	(1+r)n	NPV=Cf/(1+R)N
1	18000	1.125	16000
2	18000	1.265	14229
3	18000	1.423	12649
4	18000	1.602	11236
5	18000	1.802	9989
		Total Cashflow	64103
		LESS;Initial outlay	50000
			$14103

Project B 

Has no cash flows for the first four years. In the last year is $99,500. Hence its NPV will be calculated as follows

(1+r)ⁿ

(1+12.5)^5=1.802

Cash flow=99500

99500/1.802=55216.

Less:50,000=$5216

Project A is better because it has higher cash flow as compared to project B 

References

Accounting. (2017). South-Western Pub.

Adil, J. (2006). Supply and demand. Mankato, Minn.: Capstone Press.

Bhaduri, S. (2012). Macro economics. [Place of publication not identified]: New Central Book Agency.

Gilman, L. (2006). Economics. 1st ed. Minneapolis: Lerner Publications.

Haugen, D. and Mach, R. (2010). Globalization. Detroit: Greenhaven Press.

Hoggett, J., Edwards, L., Medlin, J., Chalmers, K., Hellman, A. and Beattie, C. (n.d.). Accounting.

Hubbard, R. (2009). Macro economics. Frenchs Forest, N.S.W.: Pearson Prentice Hall.

Jones, M. (2013). Accounting. Chichester: Wiley.

Karas, G. (2005). On earth. New York: G.P. Putnam’s Sons.Leeds, M., Von Allmen, P. and Schiming, R. (2006). Economics. 1st ed. Boston: Pearson Addison-Wesley.

Macro Economics. (2006). Pearson Education UK.

Nobes, C. and Parker, R. (n.d.). Comparative international accounting.

Singh, S. (2013). Macro economics. New Delhi: APH Pub. Corp.

Sjursen, K. (2000). Globalization. Bronx, N.Y.: H.W. Wilson Co.

Spooner, B. (2015). Globalization. University of Pennsylvania Press, Inc.

Waters, M. (2001). Globalization. London: Routledge.

Wells, G., Shuey, R. and Kiely, R. (2001). Globalization. Huntington, N.Y.: Novinka Books.