Cross-sector analysis, Financial Management

Assignment Help:

Cross-Sector Analysis:

The growth of a country depends upon how fast a country can adapt to deregulation and internationalization. Deregulation and internationalization put competitive pressures on the producers, who fundamentally change the structure of the economy. With the advent of technological revolution, there has been fierce competition, which has forced the companies to change their focus. There are four major ways in which changes in economy have made business expansions to stay longer and recessions less probable. These are:

Changes in Corporate Behavior: The pace at which the overall channels of production can change with the changes in business environment reflects the degree of resistance of a particular country in terms of declining growth. Countries in recession which are able to act fast according to the situation are likely to be in a better position than the firms which are slow to take up the advantages of the opportunities prevailing with the changes in the business environment. For instance, fierce competition has forced the companies to adopt a pull strategy instead of a push strategy whereby, the consumer needs and preferences are given the top priorities and the producers are price takers rather than price manipulators. In other words, the producers have lost their power to control prices and now the forces of supply and demand freely determine the prices. As a result, the corporates are looking for new tools and mechanisms to cut costs to increase their profit margins. This corrects the problem of oversupply and underemployment. Another important tool for inculcating efficiency with the firm's operating system is the adoption of just-in-time and other management tools that reduces the ratio of inventories to sales and other significant ratios.

Introduction of Temporary Labor: The temporary labor or ad hoc labor also helps in business expansion. Temporary labor mitigates the pressure on the companies in terms of payroll when the business is in slump. The temporary workers can be easily laid-off at the time of slump. Temporary labor also leads to lower wage inflation. Wage compensation costs are made more flexible by linking an increasing proportion of compensation to profits. For example, introduction of Employee Stock Option Plan (ESOP), where the employee wage is dependent on the stock price movement of the firm. The basic purpose of ESOP is to make employee wages more flexible. Ad hoc labor allows the firm to retain valuable workers as the firm need not be required to lay-off its employees at the time of slowdown. The retrenchment of ad hoc employees also provides a buffer against the declining revenues when the business is in slump.

Financial Deregulation: The next important factor is intensifying competition in a country's financial markets through financial deregulation. Financial deregulation means, deregulating interest rates and making them market determined rather than imposing any ceiling on the interest rates offered by certain institutions such as commercial banks, credit unions, etc. For instance, the transformation of US mortgage financing system has made housing transactions more flexible to changes in the interest rates. With this deregulation, housing industry experienced quick changes between booms and busts. This deregulation brought about a marked decline in the cyclical volatility of housing activity and its sensitivity to interest rates. Deregulation of the financial markets also helped the US economy to stabilize by making household net interest receipts more responsive to changes in market interest rates.

International Diversification: Internationalization of a country's economy would also help it to protect from recessions by diversifying both its supply lines and revenue base. When there is a slump in demand locally, global demand might rise which will strengthen the country's economy and will help in recovering the slump in local demand too. Similarly, when there is an increase in demand within the country, then the country's needs can be met by imports from other countries.

 


Related Discussions:- Cross-sector analysis

Debt and coverage ratios, The ability of a firm to satisfy its debt o...

The ability of a firm to satisfy its debt obligations can be assessed using three sets of ratios: Short-term solvency ratios Capitalization

What do you meant by common stocks in the financial term, What do you meant...

What do you meant by common stocks in the financial term? Common Stocks: Common stocks illustrate ownership interests into the firm. Common stockholders obtain dividends (wh

Corporate debt instruments, Corporate debt instruments are the financ...

Corporate debt instruments are the financial obligations of a corporation having priority over the claims of the shareholders (equity or preferred) at the time of

Interest rate risk for floating-rate securities, In a fixed-rate coup...

In a fixed-rate coupon bond, the change in the price can be attributed to the change in the market interest rates. This change is due to the difference in the pre

Payback period, Payback Period It is an amount of time, mainly measured...

Payback Period It is an amount of time, mainly measured in years; it takes previously the undiscounted cash inflows from a project equal the cash outflow. It indicates the leng

Show the net operating income approach, Q. Show the Net Operating Income ap...

Q. Show the Net Operating Income approach ? The NOI (Net Operating Income) approach advocates that the cost of equity increases with the increase in the financial leverage. Thi

Types of financial investments, Question: (a) Give the four main types...

Question: (a) Give the four main types of financial investments and state the risks and bene ts associated to each type. (b) (i) Let k(t; T; s) denotes the return at time t

Liquidity, The capability of an asset to be converted into cash as quickly ...

The capability of an asset to be converted into cash as quickly as possible without any discount to its value.

Prepare a revised aging schedule of account, Debit Credit Accounts recei...

Debit Credit Accounts receivable $300,000 Allowance for doubtful accounts $35,000 Sales for 2010 were $5,500,000. All sales were sales on account. At the end of each month

Limitation of weighted average cost of the capital, Q. Limitation of weight...

Q. Limitation of weighted average cost of the capital? 1) Determine the Weight; the first and foremost difficulty in computing the average cost is to an easy job. This type of

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd