Globalization, Demand And Supply Analysis, Financial Statements And Ratio Analysis, Risk And Return

Question 1

There is no doubt that globalisation has forever has transformed the backdrop of the consumers behaviour, their thinking and most significantly their spending. Globalization has developed the ability of the consumers in purchasing life changing goods. It has provided the consumers with the flexibility of having several alternatives for consumptions within sensible prices and has resulted in moving a slew of anticipations forward. Marketers have found globalisation as tool of reaching out to the consumers around the globe (Crane and Matten 2016). In an attempt to go, global there are several factors which marketers need to considers such as distance, uncertainty, avoidance and individualism. All the above stated factors have helped in shaping up the consumers beliefs, and values which creates an impact on their purchasing decision. Thus, Globalization has affected the human lives significantly in those products that the consumers can gain access.

Globalization impact on business: Globalization is considered as leading concept that has turned out to be central business factors. Globalization has increased business competition in the areas of products, service cost, technological aspects, production abilities and target market. When an organisation is able to produce goods at cheaper cost and selling at cheaper price it is able to enlarge its share in the market (Pieterse 2015). Another most striking impact of globalization is use of technology by the firms that are entrepreneurial and multinational so that it can exploit new business opportunities. Globalization has led to increase in the transfer of goods and service through technological improvement.

Movement along the demand curve: Movement along the demand curves refers to the change in the price and quantity demanded from one to another on the curve. The movement along the demand curve signifies that the demand association remains stable (Petroff 2013). Movement along the demand curve will take place when the cost of the goods changes with the change in the quantity demanded to the actual relationship of demand.

From the above stated diagram it is noticed that if the cost of a product declines from $9 to $3 then the demand for the quantity augments from 150 units to 450 units leading to increase in demand of 300 units. The diagram represents the movement from one point to another point along the above stated demand curve. Furthermore, if the cost of goods increases from $3 to $9 then there is a reduction in demand by 300 units. Due to the change in the value of the goods, the customers moves along the demand curve.

Shift in demand curve:

Whenever there is a change in the demand because of more than one factors apart from price then it leads to shift in demand curve. For instance, if the amount of income within an area rises then other factors remains same with demand for goods will also increase. This results in demand curve shifting from the original demand curve reflecting that customers at each cost buys more units of product at per unit of time (Edler and Yeow 2016). On the other hand, if there is drop in the disposable revenue of the customers or increase in price of the substitute goods then there is a decrease in demand. The fall or decrease in demand leads to shift in the demand curve to the left.

Question 2

Economies of scale and diseconomies of scale is considered as related concepts and they are the accurate opposites of each other. Economies of scale arise when the cost per unit lessens when more units of goods are produced. Diseconomies of scale arises when the cost per unit increases when more units are produced. Under economies of scale a company would be able attain economies of scale when the cost per unit lessens due to the expansion in its operations. The cost of productions signifies two type of cost that is fixed cost and variable costs. Irrespective of the amount of output, generated fixed cost remains same such as cost of property or equipment (Tietenberg and Lewis 2016).

Variable cost are those cost that changes with the number of output produced such as raw materials and labour cost. A firm attains economies of scale when the cost per unit lessens with more units of production. On the other hand, diseconomies of scale can lead to large amount of inefficiencies, which can reduce the benefits derived from economies of scale. For example if a firm produces 1000 shoes it only requires 2 transportation trips however when produces 1500 units it requires 3 transportation trips and this leads to an additional cost. Hence, the firm should stick with 1000 units and should find alternatives to reduce the transportation cost.

When the price changes the supply of the quantity will also change signifiying the movement along the same supply curve. When the factors apart from price changes then this will lead to a shift in the supply curve. Below listed are determinants of supply,

1. Cost of production:As several companies aims for profit maximisation a higher cost of production will lower down the profit and will hamper supply (Lütkepohl and Netšunajev 2014). Factors effecting the cost of production are price of input, rate of wages, taxes etc.
2. Technology: Improvement in technology helps in reducing the cost and increasing the supply therefore it boost higher supply.
3. Price expectations for future: If the manufacturers anticipate a rise in price they will hold their stocks and offer the buyers with products in future, therefore they can capture higher price.

Determinants of supply in oil sector:

1. Breakdown in technology can be expected to shift the supply for energy
2. Higher price of oil will lead to increase in drilling projects with large research money being poured in several projects that were not viable at lower prices becomes viable and all of these activities increases supply (Ehrenberg and Smith 2016)

Substitute goods can be defined as those goods, which are used by the consumers in place of other goods in order to meet their needs. Examples of substitute goods are those goods, which are used, in daily life such as soap, toothpastes or cold drinks. As these goods are used interchangeably. The price of one-substitute rises then the customers shift to other products since the companies producing substitute products has a very little control over the price (Lütkepohl and Netšunajev 2014). On the other hand, if there is an increase in the price of their product then the demand for these products falls and offsets any rather profits due to rise in price.

Complementary goods can be understood as those goods where use of one goods increases the use of other goods. For instance, in increase in the demand of X box will create an increase in the demand for DVD games. The demand for petrol increases with the rise in sale of automobiles. With an increase in the price of one goods then there is not only a fall in demand but there is also a fall in demand for other goods as well which is dependent on the use of other goods as well (Davidoff 2013).

Imperfect competition or in other words imperfectly competitive markets are a place where the rules of perfect market is not followed. At the time of dealing with the imperfect competition, the equilibrium price can be influenced by the agent’s action. Under the imperfect competition, the price of the goods tends to increase over the marginal cost. This leads the consumers to decrease their degree of purchase and ultimately reaches insufficient degree of production (Thimmapuram and Kim 2013). The most usual forms of imperfect competition is monopolies, oligopolies, duopolies and monopolistic competition. Government often tries to keep away from these situations by undertaking corrective measures to end the imperfect competition.

Question 3

Monopoly is understood as a market structure where there is a solitary seller of the goods having no close substitute. Monopoly is subjected to market barriers for new firms as they find it hard to enter into the market. These barriers are as follows;

Product differentiation: Under a market where there is product, differentiation new firms may find it difficult to enter. The probable entrants somehow have to overcome natural consumer inclination to recognise the brand name of seller with products that are not easy to beat (Esteves and Reggiani 2014). For instance, no consumers ask for a bowl of flavoured gelatin for dessert instead they request for a bowl of Jello.

Institutional barriers: These are barriers are several forms where governments issue patents for their new goods and inventions. Patents generally lasts for seven years and the owner of the patent has the solitary right to manufacture and sell that goods. These leads to creation of monopoly for the holder of patents.

Licencing restriction by government: Several different occupation such as doctors, barbers, lawyers etc.are provided with licence or government certificate. The objective of such license is to protect the consumer and guarantee quality as nobody wants to visit doctor who does not possess medical certificate or a lawyer with no legal certificate and training (Taussig 2013). However, the question arises for barbers and beauticians. If the barbers and beauticians does not provide a good hair cut then their market will soon eliminate due to the lack of consumers.

Environmental distresses are attributable to the economic marvel that is known as market failure. A market failure results when there is large number of goods and services is manufactured and used up by the economy. This consists of the direct environmental control by the government to intervene in the market where there is negative externalities and tries to make the producers to clean up the environment (Sloman, Norris and Garrett 2013). Government implements environmental policies by threatening producers with penalties and fines. The government policies is aimed at monitoring industries to enable and force them to manufacture their goods in a clean and effective manner. The next alternatives for government consists of the imposing corrective taxes. Industries that produces huge amount of goods often pollutes the environment and they are taxedfor pollution they create. Hence, producing more leads to more taxes then the companies will effectively discover ways of producing in more environmentally responsible way (Laibson and List 2015). This will help them to keep their cost low and maximise their profits.

In an economy, income flows from one division to an additional division whenever there occurs a transaction. New spending leads to the generation of new income which ultimate’s leads to additional spending. Expenditure and income continues to flows around the macro economy, which is known as circular flow of income (Bernanke, Antonovics and Frank 2015).

The circular flow is accustomed through removal and additions. Households might opt to save their income instead of spending the same and this leads to reduction in the circular flow of income (Patel, Al-Bahrani and Sheridan 2014). Marginal decisions to accumulate their flow of returns in the economy are due to their savings in their withdrawal out of their circular income.

Question 4

Unemployment can be defined as the phenomenon that takes place when there is a person who is in search of employment and is unable to find any work. Unemployment is considered as tool to measure the health of an economy (Goodwinet al. 2015). The most frequently measure of employment is the rate of unemployment, which signifies the quantity of unemployed individuals divided by the amount of individuals in the work force.

The four basic financial statement with purpose and format is stated below;

Income statement: The income statement helps in stating the net profit and net loss.

1. The purpose of income statement is to keep the track of all the money incoming and the money outgoing (Deegan 2013).
2. The purpose of income statement is to lay down the financial performance of an organisation over the particular period. 

Format of Income Statement:

Balance sheet: The balance sheet is one of the four basic financial statement that consist of assets, liabilities and owners or shareholders equity. The assets consists of the cash, property, inventory and anything that could be owned by the company.

1. The purpose of balance sheet is to enable the managers to make key financial decision with the current situation (Jones 2015).
2. The purpose of balance sheet is to provide summarized information on the assets of the company, whichis owned to and by the company.

Format of balance sheet

Statement of cash flow: A cash flow statement can be defined as the statement that represents the changes occurring in balance sheet along with the income effect of cash and cash equivalents.  

1. One of the first purpose of the cash flow statement is to lay down the information concerning the cash receipts along with the net change in cash arising out of the operating, investing and financing activities of an organisation during the given period (Oldroyd, Tyson and Fleischman 2015).
2. The net amount of changes from thee above stated three classification should be equal to the change in the organisations cash and cash equivalent during the given period of reporting.

Statement of owners’ equity: A statement of owners’ equity represents that if any changes occurs between an accounting periods in the owners’ equity then it is listed on those statement (Craig and Michaela 2014). The purpose are as follows;

1. The statement objective is to portray the changes in the balance of capital of business over the reporting period
2. A statement of owners’ equity represents the contributions made in the along with the withdrawals and net income or net loss.  

Formatof owners’ equity:

1. Beginning equity balance
2. Additions and subtractions
3. Ending balance

Accounting ratio Tesco
Liquidity ratio	2015	2016
Current Ratio	0.6	0.75
Asset management ratio	2015	2016
Fixed asset turn over	2.77	2.84
Profitability Ratio	2015	2016
Net Profit Ratio	1.32	1.24
Market value ratio	2015	2016
EPS	-2.12	0.05
Debt management ratio	2015	2016
Debt/Equity	1.51	1.24

The above stated accounting ratio computed for Tesco states that the company reported a better current ratio of 0.75 in comparison to the financial year of 2015 where the company reported the current ratio of 0.6. The fixed asset turnover represented a positive situation as well with 2.77 in 2015 and subsequently increased to 2.84 in the financial year of 2016. The company though reported negative market value ratio of -2.12, which subsequently improved in 2016 with 0.05 (Dutta and Patatoukas 2016). The debt equity ratio reported for 2015 and 2016 stood 1.51 and 1.24 respectively. The net profit ratio was although a disappointing factor with 1.32 in 2015 and 1.24 in 2016 representing a fall of 0.8%.

The four phases of management accounting are as follows

1. Accounting planning
2. Accounting control
3. Organisation of management accounting
4. Accounting communication

Accounting planning in management accounting consists of defining the business purposes and the medium of attaining desired objectives for probable options. This enables preparation of information and cost benefit analysis for decision-making.

Accounting control consist of comparing the planned results with achieved in order to determine the probable deviations and undertaking corrective measures (Edwards 2013).

Organisation consist of solving the accounting problems of an internal organisation such as managerial authority and division of responsibility for executing business activities.

Accounting communication consist of relocating and transferring instruction through enterprise management. The accounting communication provides a scheme for transferring and eliminating any interruptions in the flow of information.

Cost that is impacted by the managerial decisions can be regarded as relevant cost and those costs that are not effected are regarded as irrelevant costs. Irrelevant cost is not impacted by the managerial decisions and they are ignored at the time of taking decisions. Only relevant cost is effected and they are taken into the considerations at the time of making decision (Dutta and Patatoukas 2016). At the time of making decision in relevant cost anticipated future cost will differ under various alternatives. Historical cost are considered to be irrelevant in the decision making even though they may be considered as best available for determining the relevant cost.

Concept of risk: Risk is defined as the variability in the anticipated return from a project. It is regarded as the level of divergence from the anticipated return. Risk is connected with the opportunity that states the realised return will be less than amount of return that were anticipated.

Conception of return: Return is defined as the definite income derived from a scheme along with the increase in the value of capital. Hence, there are two elements of return namely the periodic cash flow from investment activity either in dividends and interest.

Concept of capital: The capital structure represents the firm’s finances along with its general operations and expansion by putting into use different sources of funds. An organisation structure of capital can be considered as combination of long-term debt, short-term debt, common equity and preferential equity. An organisations percentage of short and long-term debt is taken into the considerations at the time of analysing the capital structure (Deegan 2013).  

PmtNo.	Payment Date	Beginning Balance	Scheduled Payment	Total Payment	Principal	Interest	Ending Balance	Cumulative Interest
1	01-01-2017	$       25,000.00	$       9,876.37	$       9,876.37	$       7,626.37	$      2,250.00	$    17,373.63	$     2,250.00
2	01-01-2018	17,373.63	9,876.37	9,876.37	8,312.74	1,563.63	9,060.89	3,813.63
3	01-01-2019	9,060.89	9,876.37	9,060.89	8,245.41	815.48	0.00	4,629.11

If Gary decides to invest 800 at a rate of 6%, he will have 952.81 at the end of 3 years. Gary future value of 952.81 will be equivalent to his present value of 800. He will have to make an investment of 2586.88 in order to derive the amount of 800.

Initial Investment Amount	-50,000	IRR 12.5%
Total Number of Years	5			NPV
	Project A	NPV	Years	Project B
Number of Years	Annual Cash Flow		0	$-50,000.00
Year 1	$         18,000.00	$-32,000.00	$    1.00	$-50,000.00
Year 2	$         18,000.00	$-14,000.00	$    2.00	$-44,444.44
Year 3	$         18,000.00	$   4,000.00	$    3.00	$-35,116.60
Year 4	$         18,000.00	$ 22,000.00	$    4.00	$-24,663.51
Year 5	$         18,000.00	$ 40,000.00	$    5.00	$ 99,500.00

From the above stated computation it can be understood that project A has NPV of $40,000 whereas Project B, has NPV of $99,500. Therefore, it can be concluded that investing in project B is beneficial as it has better cash flow than project A.

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