economical and financial literacy for managers

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Amazon Inc. is an American cloud computing and automated business company founded in Seattle by Jeff Bezos. Amazon is a tech goliath in the real world and is thought to be the top web-based marketplace due to its market capitalization and overall offers. As a start-up, Amazon was an online bookshop; however, the business later diversified, with the selling off, but not limited to, apps, furniture, watches, DVDs and video download/streaming, and electronics. Amazon also provides overseas delivery options to specific countries on several of its online goods. Amazon competes with some of the largest corporations such as Walmart; this is America’s largest corporation regarding capitalization. Currently, Amazon exists as the world’s fourth most valuable public company.

Concerning net sales, Amazon has continued to witness an upward trend as shown in the graph. In its last financial year, this multi-national e-commerce company recorded its net sales revenue of $135.99 billion from $107 in 2015 placing it ahead of its competitors (“About Amazon,” 2017).

Fig. 1. Amazon’s net sales trend from 2004-2016 (“About Amazon,” 2017)

Amazon’s profits, on the other hand, have not been constant, thus, in 2016, the company experienced an upsurge in its net income which was recorded at $2.37 billion from 596 million which indicates it’s achieving the profitability CFS.

Amazon has also achieved the market value critical factor, for the first time, this year its share topped $1000 a 33% rise elevating the market cap to $ 475 billion, almost twice the value of Walmart, the largest retail chain.

Fig. 2. Amazon’s share price trend (“About Amazon,” 2017)

Regarding customer’s satisfaction levels, Amazon is considered as one of the best examples of e-commerce retention rates. According to data, Amazon possesses a return rate of 3.0% which is higher than that of its competitors. Therefore, it is evident Amazon has high customer’s satisfaction levels.

Fig. 3. Amazon’s customer’s return rate (“About Amazon,” 2017)

Concerning customers’ ratings and reviews, Amazon has continued to experience low customer ratings on its website. Hence, it has failed in achieving these critical factors. However, according to Jeff Bezos, these ratings do not reflect the capability of their website. According to the Amazon’s data, the company’s delivery period is 5-7 days. However, the company‘s target delivery time is three days. Hence, it has not achieved critical factors.

In measuring the quality of Amazon’s products, the number of products detected is analyzed. In comparison to eBay one of the Amazon’s competitors, the number of defect rate experienced is at 5% while that of Amazon was recorded at <1% which indicates that the Amazon’s products are of higher quality To sum up, Amazon's is considered to be a highly innovative company. For the past few years, Amazon has been ranked as one of the top fast companies. Thus, it is placed in the most innovative companies list. Currently, most of the Amazon's recent innovations account for an estimated 60% of the company's total dollar value of its sold merchandise on its website. The Amazon employee's turnover rate is used to indicate the employee morale levels. The corporation has been continuously ranked as the second company with the highest rate of employee turnover by the fortune's 500 companies. Therefore, Amazon has failed to achieve the employee retention critical factors. Amazon strategy seems simply to be more and faster delivery of options that lead to more revenue, core customers, more services, more products, and industries. One of the vital information that this company uses is artificial intelligence in its overall system to collect information on how the system works and how it can improve to boost Amazons general profitability. Visible applications are the use of drones to deliver products to its clients. Question 2 The economics study mainly consists of two significant sellers and buyers or a certain service or products. The performance of a market system is governed by the forces of supply and demand. Supply is the quantity of the products that are willing and able to avail to the certain group of consumers at a specified debt. Supply is affected by a various component that includes technology, government policies, cost of production, and the price of the products. Demand, on the other hand, indicates the exact amount of goods that buyers are willing to buy. The demand for a commodity is influenced by various factors such as standard of living, customer’s preference, and the price of the product. The elasticity of demand can be described either as being inelastic or unit elastic. In the UK potato price index rose 27 percent higher when compared to March 2016. The price of potatoes can be attributed to the decline the quantity supplied in the market. The scenario that was witnessed in the market was a shortage. A shortage arises when the quantity supplied is lesser than the quantity demanded. In the potato market, it meant that consumers are not in a position to purchase the exact quantity of the commodity they require. In response to the excessive demand, the producers tend to raise the prices of the commodities. The increase in the potato price to unreasonable figure will mean that potatoes will no longer be affordable and demand will decline. Meanwhile, the rising quantity of the available product will sates the buyers hence an equilibrium will be attained. In cases where there is a surplus in the market, the quantity that is supplied tends to exceed the quantity that is demanded. In this situation, the consumers will have a lot of commodities to choose from meaning some of the products won’t sell at all (Davis & Serrano, 2017, p. 16). The supplier will be forced to reduce the prices to make the commodity to be more appealing to the consumer. In response to the reduced prices, consumer tends to increase the demand for the products moving the market back to equilibrium. In such a situation the excessive supply of the commodities supplied exerts a downward pressure on products price. The potato industry is price elastic implying that consumers adjust to demand as the price rises. The market is relatively competitive, and the buyers and sellers quickly adjust their demand for services and goods when the price changes. When the prices of a commodity are inelastic, it is an indicator that buyers and sellers are less likely to adjust their supply and demand even as the price increases. The potato price index increased by more than 27 percent in 2017 a factor that can be attributed to the reduction in the potato yield (Pandey, 2015, p. 63). This is an indicator that suppliers of potatoes are ready and willing to adjust the prices to cater to the increasing demand. The potato is normal good meaning that a general rise in the income causes an increase in demand. The normal goods such as potatoes have a progressive income elasticity of demand. The normal goods tend to have a positive correlation to price because the quantity demanded of the potato changes to the same direction with the changes in real income. A decline in the quantity supplied mean that a shortage will be created because of the rising demand leading to price rise. Potatoes farming rely on seasons because it is an agricultural product. Bad weather tends to create a shortage leading to price increases. Question 3 To protect the economy and sustain the level of prosperity the government uses various methods, for instance, the supply side policies, fiscal policies, and the competitive policies. Fiscal policy involves altering the government policies and program to change a particular phenomenon of economic growth (Coutts & Gudgin, 2016, p. 17). Deflationary policies are used by governments to reduce the inflationary pressure and reduce demand. It entails higher taxes and lower government spending. The automatic stabilizer is crucial in reducing the level of demand. The expansionary fiscal policy is used to boost the rate of economic growth and stimulate the total demand. The expansionary policy involves lower taxes, higher spending and leads increased government borrowing. The supply-side policies majorly aim at increasing the total supply. The supply-side policies enhance the production capacity of the economy while refining the quality the factors of production. The effective supply-side policies lower the rate of unemployment. The competitive policies aimed at promoting the competition; make policies that aim at making the market to function better. The UK adopted explicit competition policy instruments in the past fifty years. The key departments are the Competition Commission, the Director General of Fair Trading (OFT) and the Department of Trade and Industry (DTI). In UK the general competition laws usually address the problems that are created by monopolies in three major settings the structural combination of independent firms, the action by a single firm and the agreements and relationships among the independence firms. Article 82 prohibits individual firms from abusing their dominance by exploiting consumers. The article lists certain actions that might be considered abusing such as imposing unfair selling or purchases price, limiting technological or market development in a manner that aims at driving other firms away from this market or exploiting consumers. Chapter 11 prohibits any acts of dominance that aim to eliminate smaller firms from the market. Over the past six years, there has been an increase in the discretionary fiscal tightening in the UK. The UK coalition government in 2010/11 felt obliged to tighten the fiscal policy; this entailed higher spending and higher tax rates. The main intention of tightening of the fiscal policy was the impact of 2008/09 recession that leads to the worsening of public finances. The fiscal austerity in the United Kingdom describer the decisions that have been initiated by the national government to cut the size of the fiscal deficit and government borrowing. The approach adopted by the UK government allows the economy to grow because deficits are brought down through the economic stimulus. However, economists are of the opinion that that projects take money and time to construct, the aspect of increase in expenditure spending in the short run is quite difficult to quantify. For this reason, it can be argued that borrowing more and running the budget deficit is more likely to benefit the economy in the long-term. The UK also has the supply side policies to try and reduce the level of unemployment in the economy. There has been an extensive privatization campaigns of major utilities such as electricity, water, and gas. The government aims at reducing the total government expenditure. The UK government has also de-regularized the financial markets for instance banks and other financial institutions; this has led to lower borrowing and competition. The government also made significant steps to reduce the power of trade unions. Arguably this move meant that trade unions no longer have the power to bargain for the salaries above the equilibrium. The government has also made a more flexible labor market, for instance, it is now easier for corporations to fire or hire new workers. The government abolished the maximum working week (48 hours). Question 4 The company’s financial statements provide vital information that aid managers in decision making. The financial statements communicate the interest of the outside parties in accomplishing the running of the firm. Various financial statements such as the balance sheet and income statements focus on various sections of financial performance. The financial statements are used to provide more than just the organization's health. The financial statements are critical management tool necessary to effect positive change in a firm. Financial statements are powerful diagnostic tools that the organization can use to evaluate the weaknesses and strength, which can aid in charting the best way forward. The major components of financial statements that form the basis for decision making include the income statement and statement of changes in equity. The management relies on financial planning because it lays a basis for the overall business operations. Financial planning manages the inflow and outflow of cash in the business. Essentially it is impossible for the managers to smoothly run an organization without financial planning. The financial plan starts with the evaluation and analysis of the financial reports without it will be impossible to lay down business strategies that can guarantee success. Managers rely on capital budgeting to determine the merits of an investment project. This involves the decision to either reject or accept a particular project. Manager relies on capital budgeting because it creates measurability and accountability. The capital budgeting is crucial because it is the only measurable way a business can estimate the financial and economic profitability of any investment they make. Capital budgeting is a long-term process that enables managers to monitor and control expenditure, to facilitate the transfer of information, to forecast the future cash flow and to seek out new investment projects. Unlike the business decision that only takes into account singular aspects of business, the capital budgeting decisions only involve two aspects the investment decisions and the capital budgeting. Question 5 Financial intermediaries are organizations that pool the investment or savings of many individuals and invest or lend money to other companies for a specified return. The financial intermediaries present in the market include pension funds, insurance companies, and investment banks. In many cases, companies will assess the available financial intermediaries to weigh the one that is giving them loans at a favorable rate. Some the most common financial intermediaries present in the market include the insurance companies, financial advisers and credit unions (Gerard, 2014, p. 37). If a business is undertaking a risky venture, they take an insurance cover. The financial adviser gives specialized advice that enables companies to make the wise investment. Financial advisers have the vast knowledge of the financial market meaning they can help companies avoid investment risks. The credit unions are the banks that provide the facility for depositing and lending in the financial market. The financial instruments are the intangible assets that are expected to yield a company some future returns regarding cash. Some of the common financial instruments utilized by a company include the derivative instruments and the cash instruments. The derivative is promised to deliver a product at some specified future date (Gerard, 2014, p. 38). The cash instruments are tradable and even derive their value from the financial market they include the preferred share and common share. When firms aim at raising a substantial amount of money they always sell a portion of their share to the public through an initial public offer or the second issue. The organization always carry out a risk and return assessment before investing capital. Some of the risk assessment techniques that are adopted by companies include the credit analysis, the loan to portfolio ratio, and the conditional value at risk-car. For any investment that a business undertakes there is always a substantial amount of risk. Question 6 Financial Ratios Category Specific type of ratio Formulae Tesco Company Liquidity ratio Current ratio Current assets/Current liability 11,958/19,805=0.604 Market value ratio Earnings per share Total earning/number of ordinary shares (6,875) /7,071 =(0.972) Asset management ratio Receivables Turnover Sales/Accounts Receivable 62,284 /2,957 =21.06 Debt management ratio Debt to equity ratio Total debt/total equity 25185/7,071=3.56 Profitability ratio Profit margin ratio Net income/sales (5,719)/62,284=0.092 From the above ratio, the current assets exceeded the current liabilities. The current ratio was 0.604 implying that the company cannot pay its current liability for the use of the current assets. The earning per share ratio also showed a negative trend because shareholders made a loss. The receivable turnover in 2015 was 21.06 (Tesco, 2015, p. 84). The debt to equity ratio was 3.56 an indicator the company is highly geared since it is financed more by external funds. Deposit £400 First year Second year Third year Cash flows £400 £300 £250 Calculation Figure 4 Future Value formulae (Pandey, 2015, p.28)  Year Cash flow 1 £400 FVCF1=£400(1+0.055)3-1=£445.21 2 £300 FVCF2=£400(1+0.055 )3-2=£422 3 £250 FVCF3= £250(1+0.055) 3-3=£250 Total value =£1117.21 Project A and B Year Project A cash flows Net Present value 0 −$50,000 -50000*1=-50000 1 25000 0.9070*25000=22675 2 15625 0.8227*15625=12854.68 3 5000 0.7462*5000=3731 4 12000 0.9768*12000=11721.6 5 32000 0.6139*32000=19644.8 Total net present value 20627.08 Project B Year Project B cash flows Net present value 0 −$50,000 -50000*1=-50000 1 0 0.907*0=0 2 0 0.8227*0=0 3 0 0.7462*0=0 4 0 0.6768*0=0 5 99,600 0.6139*99600=61,144.44 Total Net present value 11144.44 From the above calculations, the best project that ought to selected is ‘A’ because it has the highest net present value. Project A has a cash flow of 20627.08 while project B has a cash flow of 11, 1144.44 (Tesco, 2015, p. 85); selecting project a means that the business will generate more revenue in future. References About Amazon. (2017). Retrieved from https://www.amazon.com/p/feature/rzekmvyjojcp6uc Coutts, K., & Gudgin, G. (2016). The macroeconomic impact of liberal economic policies in the UK. The Economic and Labour Relations Review, 27(2), 139-146. doi:10.1177/1035304616647246 Davis, G. C., & Serrano, E. L. (2017). Demand and Supply. Oxford Scholarship Online. doi:10.1093/oso/9780199379118.003.0014 Gerard, M. (2014). Part III Intermediaries and Financial Promotion, 10 Financial Promotion. McMeel and Virgo On Financial Advice and Financial Products. doi:10.1093/law/9780198705956.003.0010 Pandey, I. M. (2015). Financial management. New Delhi: Vikas Publishing House PVT LTD. Tesco. (2015). Annual Report and Financial Statements 2015 Annual Report and Financial Statements 2015. Annual Report.

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