Evaluation of UK High Street Market
The financial and economic literacy report has been prepared to analyze and evaluate the numerous concepts about the economical concept, micro factors, macro factors etc. the report explains about the changes and the performance of UK economical position. For preparing the report, local high street market of UK has been evaluated and it has been identified that how the corporate could growth itself. Further, the study has been done on UK housing market and it has been evaluated that what are the monetary policy of the Bank of England. In addition, the study has been done on recent trends in UK economy and the current account management and concept leverage has been studied. Lastly, the financial performance of Morrison plc has been evaluated on the basis of ratio calculations.
UK high street stores are one of the highest revenue generating industry of UK. The current reports and articles explain that various changes have occurred into the high street stores of UK. High street stores are the concept of primary business streets of cities or town. These markets include the street stalls especially the shops. High street is the common street name in UK which has 5410 high streets, 2702 main streets and 3811 station roads according to a statistical compilation of 2009 (The guardian, 2018). Though, Twigg, (2012) has explained that the current high street position of UK market is not well. As report explains that the 15 shops are getting close everyday in UK. Though, huge competition is there in UK high street market.
For identifying the performance, market structure etc of UK high street market, study has been done on “Happy shopper”. It is an independent brand in UK market which trades in convenience products. The company has been acquired by the Booker group ad currently very few stores are operating their business under Happy shopper, the rest of the stores of the company are operating their business under Booker group (Premier, 2018). The main product of the company is frozen food, groceries, carbonated drinks and confectionery.
The market structure of the company evaluates that there is perfect competition for the company in the UK local high street market. The market evaluation explains that various firms are also available in the market which is offering the same product to the customers in same price such as Farm foods (Happy shopper, 2018). It has been evaluated that the products and the services of the company are quite competitive, though; the recent changes have affected the competitive position of the company. It has been explained by Wrigley and Dolega, (2011) into his study that perfect competition is the market structure in which huge seller as well as buyer is available in the market and the customers are well aware about the product specification and the price of the product. Perfect competition makes it easier for the firm to manage the sales without spending huge amount on advertising and promotions. The market structure of the firm explains that it is easier for the firm to generate the normal profits for long term from the market (Barnes and Lea-Greenwood, 2010).
Market Structure of “Happy Shopper”
Further, the firm size has been evaluated and it has been found that “happy shopper” is a medium enterprises. The market size and the capital size of the firm are according to the medium enterprise and the company is operating its business only in UK market. No operations and functions are performed by the company at international level. Lastly, the growth strategy of the firm has been evaluated. Growth strategy is a set of process and policy which helps an organization to grow rapidly as well as it enhances the profitability level and market share of the company (Whitehead and Williams, 2011). The evaluation on the firm explains that the current position of the company is on declining stage. The stores of the company are getting close and thus it is required for the company to introduce new policies and strategies to form the firm at growth level (The guardian, 2018).
The company could adopt the market expansion strategy to enhance and manage the growth of the company. Market expansion strategy is also known as market development strategy. It evaluates that an organization should sell its existing products into the new market. If the business would find a new market then there are more chances for the company to enhance its profitability. Thus, the “Happy shopper” should expand its market into US market and other markets. The above study explains that the position of the company would be better after few changes.
UK housing market and sector of UK clarifies about different variations and changes into the business in most recent couple of years. The Hilber and Vermeulen, (2016) clarifies that the housing demand of UK market has been bring down at a higher rate in most recent couple of years. However, the present situation of the UK market clarifies that still tremendous rivalry is there in the business and additionally the economy position of the nation is likewise not great. The Housing business index of UK showcase clarifies that the demand of the housing product is very lower in the market however then again, different providers are accessible in the market that are willing to sold out their homes (Leonardi, 2015). For assessing the UK housing industry quickly, new articles and research has been assessed and it has been discovered that the expansion rate and the lower investment in the nation and so on are the fundamental explanation for bring down demand of housing products (The guardian, 2018).
Evaluation of UK Housing Industry
Crescenzi, Luca and Milio, (2016) has clarified that the demand and supply is one of the major base of financial and economical aspects. Demand explains to the aggregate amount which is wanted by the purchasers while the supply is the aggregate items which are accessible in the market with the end goal of offer. Connection amongst request and supply clarifies about the portion of the assets and the resources. Through assessing the market structure of the firm, it has been discovered that less assets and resources are accessible in the market and because of it the demand of the items are very lower. Different other full macro economical variables are likewise influencing the demand and supply of housing items in the UK market. Qvortrup, (2017) has clarified that current changes into the administration and legislature, money related emergency, rules and regulations changes etc have affected on the demand and supply of housing record and housing index. Further, Shmelev and van den Bergh, (2016) has included that the demand of housing items and supply of housing items could be better in UK market with the assistance of few changes into the economy of the nation. However, it has been contended by Mignard, (2014) that the economical variables of the nation are difficult to change as it causes sue to various external factors.
In addition, the monetary policies and financial approach of Bank of England has been studied. This bank is the national bank of UK. This bank oversees and takes every one of the choices of the nation identified with financial. Hall and Buckley, (2016) has clarified into his investigation that monetary policies and strategies are controlled by the national bank of a nation to deal with the liquidity position of the nation to make economy development. Liquidity relies upon the cash which is provided by the bank in the market. It incorporates money, check, credit and different other currency market instruments, for example, portfolios and mutual fund etc. Thomas, Autio and Gann, (2014) clarifies that the fundamental thought process of Bank of England is to deal with the inflation rate. The inflation rate of UK is becoming lower and it clarifies that the bank is providing less cash in the market. Because of the less inflation rate, the request of the housing products has been lower. Further, it has been included by the Hoxhaj and Khattree, (2016) that the Bank of England has decreased the housing credit % to deal with the request and supply of the housing items.
Monetary Policies of Bank of England
Through the study on housing industry of UK, it has been discovered that the demand and supply of UK housing industry is not so great. The housing industry of UK market has faced huge losses in last few years (Mirror, 2018). The inflation rate has had enormous effect on the position and performance of the housing industry and further, monetary policies of Bank of England of UK is also not affecting the housing product demand in positive manner.
Economical indicators are the main economic concepts of a nation; it is set and analyzed by the private organizations and many government agencies. These economical indicators offer understanding about the economical performance and position of a county and hence, it could likewise have a huge effect on the FOREX market. UK economical factors have been recognized and it has been assessed that different changes have happened into the economical performance of the nation in most recent 5 years. UK economical performance and position is the one of the main 10 economies around the world. Essentially, large macro economical markers are the measurement of the performance of the country and it is set by the government agencies (Crescenzi Luca and Milio, 2016). As it were, macro economical variables clarify about the situation of the nation against some other nation. The macro economical variables of UK market clarify that the GDP of the nation is getting enhanced in most recent 5 years and net worldwide investment position of the nation is likewise great. The GDP rank of UK is sixth in the event of nominal GDP and 9th if there should be an occurrence of PPP GDP. The highest contribution of UK economy is service sector (Qvortrup, 2017).
The main economical indicators of the nation are World Bank, gross domestic product, national statistics, labour market insights, inflation measures, household expenditure, retail sales, consumer confidence, interest rate, balance on trade, public sector finances, balance on payments etc. Shmelev and van den Bergh, (2016) reports clarifies that the GDP development of the organization has been changed huge in most recent 5 years. The GDP level of the nation was very higher in 2015 yet at this moment, GDP of UK has been lowest.
Figure 1: GDP changes
(Trading economies, 2018)
It has been clarified by ONS (2018) that the GDP of the nation has been brought down due to different changes into the legislature, budgetary emergency etc. More to it, the economical reports of the nation clarifies that the UK government should found a way to deal with the position and the execution of the organization (Guerrero, Cunningham and Urbano, 2015). It has been assessed that the inflation rate of the UK market has likewise been changes quickly in most recent 5 years. It has been distinguished that in the time of 2015 and 2016, the inflation rate was very lower due to the Donald Trump’s US government victory. Because of this victory, UK’s office for national insights has announced an essential change into the inflation numbers. The guardian (2018) has clarified into his reports that inflation rates are utilized to compute the benefits payouts and wage arrangements to raise the fares.
Analysis of UK Economical Indicators
Figure 2: Inflation rate
(Trading economies, 2018)
Further to it, UK market’s balance on trade has been assessed and it has been perceived that the balance on trade of the nation is evolving quickly. Balance on trade clarifies about the exchange surplus or exchange deficit of the nation. Figure 3 clarifies that the nation is confronting trade deficit in most recent 5 years. However, in current years, level of trade deficit has been lower. Trading economies (2018) has clarified that it is required for association to deal with the balance of trade in surplus as all things considered, the benefit level of the nation winds up higher.
Figure 3: Balance of trade
Likewise, UK market’s employment rate has additionally been assessed and it has been discovered that the labour rate of the nation has been improved. Labour rate clarifies about the estimation of the extent against which the labour resources are utilized by a nation. The present employment rate of the nation clarifies that the nation is offering a good labour rate.
Figure 4: employment rate
It explains about the recent changes in the UK economy.
Current account management and concepts leverage:
Managers of an association take the context of all the connected variables of the association while settling on a choice. It becomes crucial for them to assess the entire concerned factors so a good choice could be made and organization could accomplish the objectives and the goals. An administrator takes all the significant choice in a business, for example, money related choices, marketing choices, research decision, human resource decision etc.
For financial decisions, it is essential for a manager to deal with the financial position of the organization (Uechi et al, 2015). Financial choice could be made by the financial managers through the assistance of current account management and leverage management. Leverage explains about borrowing or debt the funds to buy equipment, machineries etc. Entrepreneurs could utilize the debt or the equity sources to raise the funds for the betterment of the company. Using leverage or debt increased the funds and the cash position of the company. It also improves the financial performance of the company. It additionally improves the return of the organization in context with the equity (Vogel, 2014). Leverage makes it simple for the managers to assess the financial risk of the organization with the goal that a better investment choice could be made. This strategy is useful while funding the assets of the company through new sources.
Leverages are of 3 types. The leverages are operating leverage, financial leverage and combined leverage. Entire leverages offer a base to the financial manager to make a decision. Operating leverage clarifies that a company with high operating leverage is quite sensitive and it influences the primary concern of the organization. Additionally, use of financial leverage offers a base about the financial risk of the organization and combined leverage clarifies about the operating and financial risk both.
Such as, an organization has the following situation:
Fixed cost = $ 1,00,000
Variable cost = $ 3,00,000
Sales = $ 5,00,000
Long term loans = $ 4,00,000
Interest rate = 10%
Operating leverage = ?
Financial leverage = ?
Combined leverage = ?
- Operating leverage = Contribution / Sales – variable cost – fixed cost
= (500000-300000)/ 100000
=2
- Financial leverage = Sales – variable cost – fixed cost / Sales – variable cost – fixed cost- interest
= (500000-300000-100000)/ (500000-300000-100000-40000)
= 1.67
- Composite leverage = operating leverage * financial leverage
= 2*1.67 = 3.34
Additionally, the study has been done on account and financial manager. It is significant for the account managers to have enough and sufficient knowledge about principles of accounts. Current account managers make the decision about the financial performance of the organization (Raki?evi? et al, 2016). There are various ways to evaluate the financial performance and the position of an organization. Following are the example of financial evaluation:
Description |
Formula |
SOUTHWEST AIRLINES CO |
||
2017 |
2016 |
2015 |
||
Profitability |
||||
Return on shareholder funds |
NPAT/ Total equity |
26.58% |
29.64% |
16.77% |
Operating profit margin |
Operating net profit / Sales |
18.41% |
20.77% |
11.96% |
Gross Profit Margin |
Gross Profit / Sales |
69.98% |
69.60% |
58.74% |
Liquidity |
2017 |
2016 |
2015 |
|
Current ratio |
Current assets/current liabilities |
0.66 |
0.54 |
0.74 |
Acid test ratios |
Current assets-Inventory/current liabilities |
0.61 |
0.50 |
0.69 |
Efficiency |
2017 |
2016 |
2015 |
|
Receivables collection period |
Receivables/ Total sales*365 |
9.76 |
8.73 |
7.16 |
Payables collection period |
Payables/ Cost of sales*365 |
8.21 |
10.78 |
57.20 |
Inventory days |
Inventory/ cost of goods sold *365 |
20.06 |
18.84 |
16.26 |
Gearing Ratios |
2017 |
2016 |
2015 |
|
Gearing |
Noncurrent interest bearing debt / noncurrent interest bearing debt + equity |
0.25 |
0.26 |
0.26 |
Debt ratio |
Total Liabilities / total assets |
0.64 |
0.65 |
0.66 |
Investment ratio |
2017 |
2016 |
2015 |
|
Earnings per share |
NPAT/ Number of ordinary shares |
3.55 |
3.26 |
1.63 |
Price earnings ratio |
Market price per share / earnings per share |
16.33 |
- Ratio calculations:
Ratio calculations have been done on Morrison plc to evaluate the financial performance of the company. Profitability ratio of the company explains that the position of the company has been better from last year. The current ratio of the company is 1.38% which is way better than -4.53%. Further, liquidity ratio of the company explains that the short term debt obligation of the comapny is not good. It is required for the company to enhance the level of the short term assets (Morningstar, 2018).
Market value ratio of the company explains that the current position of the company has been better from last year and still various changes are required to be done in the organization to manage the market value. Asset management ratio of the company briefs about a better position and lastly, debt management ratio of the organization briefs that the capital structure of the company is better.
Description |
Formula |
MORRISON plc |
|
2016 |
2015 |
||
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 management ratio |
|||
Fixed Asset turnover |
Sales/ Net fixed assets |
2.02 |
2.09 |
Debt management ratio |
|||
Debt to assets |
Debt/ Total assets |
0.60 |
0.61 |
- Calculation of present value:
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 |
It explains that the Alice is required to pay £ 1,328.16 right now to receive £ 650 annually for 3 years.
- Calculation of net present value:
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 |
NPV calculations explain that project A should be accepted by the company.
Conclusion:
To conclude, huge changes have been faced by UK high street market. Though, UK market could adopt the new strategies and policies to manage the performance. Further, UK housing market’s demand and supply explained that about the lower demand of the housing products. In addition, the recent changes into the macro economical factors explain numerous changes. In addition, the accounting and financial concept has been studied and it has been identified that there are various ways on the basis of that a better decision could be made by the managers about the financial performance.
References:
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