Part 1
(a) Compare the environmental factors that apply in both the internal and external spheres of a business firm. Your report should explain the business economics concepts or theories and practice.
(b) The retail Sector has seen rapid changes in consumer shopping in recent years. Choose a well-known retail company that trades globally and do a web search on how well it has performed in the past five years and how it has been influenced by various aspects of its business organisation. Your answer should include both the theory of business concepts and empirical evidence.
(c) Changes in demand or supply cause markets to adjust. Whenever such changes occur the resulting ‘disequilibrium’ (i.e. a balance of demand and supply) will bring an automatic change in prices. Discuss two or more businesses that supply goods and services to consumers. You may wish to include supermarkets such as Asda, or service sector firms like the London Underground and McDonalds. Your answer should include both the theory of these concepts and relevant hypothetical examples.
Part 2
Managers need to be aware of financial intermediaries because they create financial instruments, for example, bank deposits and bank loans, which help the transfer of funds between lenders and borrowers. Identify four UK financial intermediaries and discuss their usefulness to a business organisation within the retail industry. Your answer should include both the theory of these concepts and hypothetical examples.
Part 3
3 (a) Extract from the Zenobia Limited accounts for the year ended 31 March 2018 
Ratio Analysis 2017 2018
Current ratio =current assets/current liabilities=3277/2833 = 1.2 = 1.2
Quick ratio =current assets-stocks/current liabilities x 365=3027/2833×365 = 1.2 = 1.1
Debtors’ payment period=debtors/current liabilities 2168/7653x 365 = 103 days 1945/6876x 365 = 103 days
Stock turnover period=stock/op. costs x 365= 250/5778x 365 = 16 days 208/5342x 365 = 14 days
Required:
Zenobiaplc is in a service industry, dealing in telecommunications. Interpret the above financial ratios and recommend how to improve the performance in year 2019
(b) Suppose that Zara has decided that she wants to pay herself £1550 each year for the next three years rather than deposit these amounts in her savings account. If she can invest a lump-sum amount in a savings account that pays 3 percent interest per year, how much money does Alice need to deposit today to accomplish her goal?
(c) Tobe is proposing two mutually exclusive projects for a possible investment in the Greenford and Greenwich Boroughs of London. He has provided the following projected cash flows for your advice:
| Year | Greenford Project | Greenwich Project |
| 0 | (£150,000) | (£175,000) |
| 1 | 30,000 | 60,000 |
| 2 | 25,625 | 30,000 |
| 3 | 26,000 | 25,000 |
| 4 | 30,000 | 20,000 |
| 5 | 75,000 | 40,500 |
If the required rate of return on these projects is 6.75 percent, which would be chosen and why? Show your calculations/explanations.
Solution
Part 1
Introduction
A business is surrounded by certain environmental factors that have an impact on organizational decision-making process in both internal and external spheres. Changes when incurred in the business environment bring some changes in the consumer shopping attitude. Retail companies around the world are taking diverse steps to develop strategies according to the changes in consumer shopping. Wal-Mart is a well-known company in keeping the consumer happy. Demand and supply in markets is another important aspect discussed in the report by assessing the ASDA and McDonald. Intermediaries are important for the success of companies in the retail sector because these intermediaries help the companies in financial stability.
A-Compare the Environmental factors
What is the environmental factor?
In business terms, environmental factors are defined as those factors and elements of business environment that affect how organizations survive, grow, and operate (MBN.Com, 2018).
The evaluation of both the internal and external factors before launching a strategic marketing plan is considered the most vital task for the management. The understanding of environmental factors leads a company to achieve success in the marketplace. The environment is important because the internal and external environment directly or indirectly influences every action that is carried out by the management (KPMG.Com, 2013).
Internal factors:
Those tangible or intangible factors which occur within the company and management have control over these factors are referred to internal factors. The internal factors that bring positive effects to the company are referred to as strength, and an internal factor that brings negative effect by preventing the company’s development are referred to as a weakness (KPMG.Com, 2013). Some key internal factors are discussed below:
- Organizational structure: The way by which a business or company is structured can enhance or mitigate its success. For smooth functioning of the organization, it’s of paramount importance to develop and establish an efficient and cohesive structure within the organization. When all job positions in the organization are tandem with one another and information flow in the organization being well managed and regulated then this organizational structure will bring positive results (Mageplaza.Com, 2018).
- Human resources: Human resources are considered the most important internal factor because the growth of the organization could be directly impacted by them. Human resources have both positive and negative impacts. For example, when the workforce of the organization is highly skillful, this would be the biggest asset to the organization and vice versa (KPMG.Com, 2013).
- Capital and human resources: Capital resources are also very important for the success of the organization. It became very difficult for the organization when lacking either of the human and financial resources. Lack of resources not only impact staff morale, but it also impinges on the scope and nature of work (KPMG.Com, 2013).
External factors:
The conditions or surroundings in which activities of the organization are carried out refer to an environment. In defining external factors, there are those factors which cannot be controlled by the management. Some important external factors are discussed below:
Economic factors:
Economy has a direct impact over the strategic decision-making process of organization. The level of control over the economic factors is low; that means the main focus is to understand those ways that can help the managers to manage the threats associated with the economic situation and to maximize the available opportunities. Unemployment, interest rates, exchange rates, and inflation are some key economic factors for the organization. The demand for products of the organization is linked with these factors. For example, high inflation increases the price of the resources that eventually enforce the company to increase the commodity prices to recover those higher costs (Mageplaza.Com, 2018).
Technological factors:
Rapid changes in technology are impacting businesses, both positively and negatively. The development of technology in a business context is the creation of new methods for converting resources into products and services (MBN.Com, 2018).
Socio-cultural factors:
These are also important factors in the external environment, and this includes the demographic characteristics, values, mores, and customs of society. Certain social needs are appreciated and valued by society. These social-cultural dimensions need to be understood in a better way because the standard of conduct of business is different in different cultures, and so does the need of a product or service and the taste (Mageplaza.Com, 2018).
Political and legal factors:
The business is directly impacted by the policies of government rule and regulations of the local government. Therefore, the understanding of the political and legal environment plays an integral role in developing the business. Both the economy and the success of the business industry are based on a good business-government relationship and overall implementation of the business law (MBN.Com, 2018).
B-The performance of Wal-Mart over the last five years
Both the online and online shopping in the retail sector is changing because of the multi-screen world, contextual relevance, and constant connectivity. New opportunities are opening for the forward-thinking retail companies such as the in-store experience and digital experience blur. The changes are occurring in the retail sector, making it challenging for retail brands to cope with these changes. A sign of renewed interest is shown by the customers with the mounting confidence of customers. The modern shopping trend shows that customers are focused on technology transformation (Bose, 2017). The latest findings regarding shopping experience show that the customers in modern times are fewer brands loyal because they are changing their brands on a frequent basis. The online shopping trend also increased that forced the companies to transform their business to a more web-based approach. Wal-Mart Stores Inc. is one of the largest retailers in the world because of the capability of the organization to evaluate the complex set of environmental factors that are important for becoming a global company. Over the last five years, dramatic changes have been made in Wal-Mart to keep up with the habits of customers. The changes in the strategic decisions made over the last five years because of the popularity of online shopping (Bose, 2017). Some of the important areas of changes made by Wal-Mart is given below:
- The first surprising move made at Wal-Mart was raising the wages in 2015. The wages of the employees rose to at least $9/hour in February and the year 2016, the wages were raised to $10/hour along with developing a well-organized training program in the organization. The company realized that this move would be helpful in cleaning up stores, improving customer service and eliminating out-of-stock. The success is achieved by that move by the company in the context of both the store performance and enhancement of satisfaction of customers (Bariso, 2018).
- Another important step taken by Wal-Mart is e-commerce acquisition by realizing the trend of online shopping. Over the last five years the acquisition of jet.com for $3.3 billion in August 2016, was one of the biggest decisions taken by the company. At the start, the decision was criticized, but the company as paid by this decision handsomely in the short period. By the end of the year 2016, it was realized that 7% decrease occurred in global e-commerce sales of the company due to which inventory was expanded on the website over U.S. e-commerce operations that increased the sales by 50%. After the decision of acquiring jet.com, certain smaller purchases were made of native online brands like Moosejaw, Bonobos, and ModCloth. It resulted in the increase and growth of e-commerce sales of the company (Bowman, 2018).
- Repurposing of stores is one of the important changes made by the company over the last five years. This year company is considering to opened fever than 10 Neighborhood Markets and 15 Supercenters in the United In 2016 the company tool decision to close its 269 stores from different countries of the world. The focus of change is based on opening 1000 grocery pickup stations in the next year. The change made by the company was to instead of focusing on the stores it already has, it is important to open new pickup stations. This move proved successful for the company because it helped the company in saving the cost that eventually drives sales (Bowman, 2018).
In this way, the focus of the company is to transform the production process of the company from labor to capital because through automation, in the long run, Wal-Mart could capitalize on cost saving.
Number of Walmart U.S. stores in the United States from fiscal year 2012 to 2021, by type
Source: https://www.statista.com/statistics/269425/total-number-of-walmart-stores-in-the-united-states-by-type/
C-Changes in demand or supply in ASDA and McDonald
Disequilibrium is created when markets do not find the final equilibrium point. The demand is greater than supply when the price is lower than the market equilibrium price, and this could cause disequilibrium. Sticky prices, non-profit maximizing decisions, and governmental control are some of the important factors that cause disequilibrium (Tejvan, 2017).
Demand is the level of goods willing to buy for the customers at the certain level of price over a given period while supply is the level of the goods quantities that producers are able and willing to supply in the market at the different level of prices over a given period. According to the theory of demand, there is an inverse relationship between the demand and the prices of goods and services. It simply states that the decrease in demand occurs when the increase in prices occurs while other factors remain constant and vice versa. The demand curve is used to illustrate this inverse relationship between the demand and price (Samuelson, 2010).
Demand Curve ASDA
The vertical axis in the demand curve is used to measure price and horizontal axis is used to measure demand.
Supply Curve ASDA
According to the law of supply, there is greater supply when the price of goods is higher while other things remain the same and vice versa. The supply curve illustrates this relationship.
ASDA is the third largest retail company in the UK. To keep a balance between demand and supply in the market, the company is investing in those areas that matter to the customers. The prices are reduced by the company to increase the demands of customers. The addition of innovation in the economic boom leading the company to compete with values stores like Sainsbury and M&S. The focus of the company is to invest more in the retail stores of the company to employ more people in the company, and this step is taken by the management to contribute to the reduction of unemployment. When the demand curve of the ASDA slows, then it indicates that customers are switching to other brands in the retail industry (Eley, 2018).
McDonald is leading company in the service sector because its demand of the cheap products is increasing that shows the demand curve clearly shows that the company’s focus is based on reducing the prices for increasing the demand. The work in the McDonald is based on the speed of operation inaccurate ways. The efficient planning of the company regarding the supply and demand chain is the main factor of gaining good market share in the service sector. McDonald is operating in different countries around the world, but for maintaining the demand and supply at a constant level, the company is using the complete outsourcing approach. The needs and requirements of the customers are evaluated to forecast the demand for McDonald products and then supply planning is developed based on principles of collaboration and trust between the suppliers, operators, and brand itself. The advancement of technology in the shape of inventing new machines for making burgers will increase the supply of the burgers of McDonald. The increase in unemployment and an increase in inflation will decrease the demand for company products because more people will buy cheap food (Fickenscher, 2018).
Conclusion
It is concluded that lack of a proper plan to manage the environmental factors results in the difficulty of keeping the market share. The changes in demand and shopping needs are occurring because of the changes occurring in the field of technology. The people in modern times are attracted to online shopping and they have demand of having all the important information about the company on the internet. The company’s management is responsible for keeping the balance between the demand and supply.
Part 2
Managers need to be aware of financial intermediaries
What is financial intermediary?
It is an institution that makes loans to borrowers by holding funds from lenders. Examples include pension funds, mutual funds, investment bank and commercial banks (CFI.Com, 2018).
- Insurance companies: Insurance companies in the UK are playing an important role in the retail industry in transferring the risk of loss. Insurance companies help the retail companies to protect the employees and the company itself against the financial loss that could be incurred like damage to business properties, accidents, disability, death, and other misfortunes to retail companies. For example, Wal-Mart is one of the well-known companies in the retail industry and the company has a wide range of retail stores so the company may need insurance of these stores. Important aspect needs to focus on is the selection of the insurance policy. The insurance companies in the UK provide the care and information to retain industry by their expertise in minimizing the risk to the business. The advisors in insurance companies in the UK advise and guide the retail companies in selecting the best and right insurance policy for a retail outlet of the company. Some of the benefits of insurance companies include retail company can cover its loss of profit because of events like flood or fire and retail company can take help regarding stock in trade (ONREC.Com, 2017).
- Investment banks: Investment banks play a significant role in the retail industry in guiding the retail companies into the trends that could impact the business. Retail companies can take advisory services to form the investment banks to choose the best option for investing. The key advisory services of investment banks in the UK are based on corporate finance, project finance, capital sourcing, and specific merger and acquisition. Investment banks help the retail companies in expanding their business line through different possible options. The investment banks in the UK are considered as specialized in different sectors of the retail industry, for example, big-box stores, apparel, and specialty stores, personal services and grocery. Another service that is taken from the investment banks is the promotion and trading of securities. In this way, the investment banks could be the beneficiary for the retail companies because they facilitate retail companies in the transaction and market making. As the retail sector in the UK is very competitive, so effective investment making services can increase the competitive advantage in the retail industry by making investments in the most profitable areas (Levinson, 2018).
- Credit Unions: There are different numbers of non-for-profit financial institutions in the UK referring to Credit Unions to serve their members. Most of the credit unions in the UK have developed their website, and members are allowing checking their balances online. The retail industry can take the benefit of electronic transfer and payments. Credit Union in the UK for example, retail Cure, a new credit union in the UK is helping the retailers in ensuring that credit and saving products are affordable and in access to their employees. The retail companies can increase the satisfaction of the employees by giving them access to the loans through a credit union in the UK and saving accounts that are offered by the credit unions with the lower interest rate is also beneficial for the retail industry. The saving plans offered by these could be life changing for the employees of Retail Company because of encouragement they get from a credit union to save their money (ONREC.Com, 2017).
- Financial Advisors: Financial advisors in the UK are offering wider ranges of services to the clients. The services that are provided by the financial advisors in the UK include investment advice, financial planning and providing impartial advice regarding the comprehensive range of company’s financial products. The development of technology has created an opportunity for retail companies to take automated financial advice. Cash saving products, investment opportunities, insurance and mortgages, and pensions are important areas in the retail industry in the context of which retail companies need financial advice. In a very competitive retail industry of the UK, the retail companies can take advice regarding the best time of investing, and the contribution of financial advisors in financial planning would create an opportunity to choose the best available option to raise finance for the company. The selection of the best source of finance with the advice of a professional would be a cost-effective decision for the company (Levinson, 2018).
Part 3
(a)-Zenobiaplc Financial Ratios
Current Ratio:
Current Ratio 2017=3277/2834=1.16
Current Ratio 2018=2460/2097=1.17
Quick Ratio 2017=3027/2834=1.07
Quick Ratio 2018=2252/2097=1.07
The company has a current ratio of 1.16 in 2017 which increased to 1.17 in 2018. This shows that the current liabilities of the company are lower than its current assets and it has further declined. The company can, however, make it better to have more liquidity.
Quick Ratio:
The quick ratio of the company in 2017 was lower than its current ratio of 1.16 at 1.07 which further lowered to 1.07 in 2018 showing that the company had considerable assets in stocks. Even then, the ratio shows strong liquidity capability of the company.
Debtors Payment Period:
The debtor payment period has remained at 103 days in both years, showing the company strong credibility with a longer debtor payment period.
Stock Turnover Period:
The stock turnover has declined from 16 to 14 days showing the strong and improved efficiency of the company to turn stock into sales.
(b)-Zara
| Payment | 1550 | Annually |
| Time | 3 | years |
| Interest | 3.75% | per year |
| Deposit today | £4321.88 |
PV=PMT/(1+r) ^n
PV=1550/ (1+3.75%) ^1 + 1550/ (1+3.75%) ^2 + 1550/ (1+3.75%) ^3 =£4321.88
Zara would need to invest a lump-sum amount of £4321 in first year to have a three-year installment of £1550 by having an interest earning of 3.75%.
(c)-To be
| Rate | 7% | |
| Year | Greenford Project | Greenwich Project |
| 0 | -£ 150,000.00 | -£ 175,000.00 |
| 1 | £ 30,000.00 | £ 60,000.00 |
| 2 | £ 25,625.00 | £ 30,000.00 |
| 3 | £ 26,000.00 | £ 25,000.00 |
| 4 | £ 30,000.00 | £ 20,000.00 |
| 5 | £ 75,000.00 | £ 40,500.00 |
| NPV | -£ 779.26 | -£ 25,573.51 |
| Selected Project | Greenwich |
The Greenwich Project is the better one as it yields a higher net present value than the Greenford project.
References
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