11 Jun IDENTIFY AND DISCUSS A RANGE OF FACTORS THAT DETERMINE THE DEMAND FOR THE COMPANY’S PRODUCTS.
Identify and discuss a range of factors that determine the demand for the company’s products.
Economic Analysis of a Company
This assignment requires you to use all the knowledge and skills gained in ECN7100 lectures to conduct a real-world economic analysis of a business. The task is similar to what professional analysts and consultants do when carrying out an economic analysis of companies. The outcome of your analysis will be a report of 4000 words (+/- 10%) excluding tables and appendices.
Choose a company for which you can find data and information on the public domain. Do not pick a company because it is your favorite or is a top brand. The availability of data is more important than the company itself for this task. You are expected to collect information/data on a company’s business activities and the industry it operates. This is the hardest task in this assignment. Successful completion of your report is conditional on the availability of sufficient data.
The analysis will have two dimensions (a) microeconomic and (b) macroeconomic:
Microeconomic analysis includes the analysis of the:
Demand, supply, costs and production of a product or a range of products/services of your chosen company.
Market structure of the industry in which the company operates.
Macroeconomic analysis includes the investigation of the:
Forces/factors that determine the company’s operations in the long run (fiscal and monetary policies)
Environmental policies of the company the country is based
Recommendations. Based on your analysis, provide recommendations to the business.
Assignment Guide
Follow this guide to complete your report. I’ve bullet pointed the concepts and factors you will consider when conducting the analysis, accept these as hints! Bullet pointing makes the assignment look complicated, but it is not. It is a simple task. The experience you gain from working on this assignment is invaluable! Most of the information (data and major events) you need in order to complete this assignment can easily be found on past news articles about your chosen company – I expect you to become avid business news readers by the time you finish this assignment.
Your analysis should start with the study of the company’s history, description of its activities, the industry it operates in, types of services and products it produces, business environment it operates in, main markets and other aspects of company’s business profile.
Microeconomic analysis (2300 words)
Identify and discuss a range of factors that determine the demand for the company’s products. Explain how various factor may affect the quantity demanded. Consider the following:
Average income of consumers
Demographic factors i.e. age, profession, ethnicity, etc.
Tastes and preferences of its customers
Advertising (analyze the trend in the advertising expenditure – sales ratio)
Substitutes
Availability of consumer credit (if the company is consumer durables producer/supplier/retailer)
Try finding answer elements to the following questions:
Can you ascertain (or estimate) the degree of elasticity of demand (with respect to various factors) for the firm’s products?
Does the firm attempt to reduce consumer surplus? What strategies does the firm employ to minimize the consumer surplus?
If possible, estimate the demand curve of the firm/industry (bonus points, you may need data on prices, substitute prices, income etc.)
Analyze the cost structure of the firm. As you know, there are:
Fixed and Variable costs (data on costs can be found in annual reports)
production costs
wages
utility expenditure
expenditure on research and development or technology
others
Provide a discussion of how the costs of the firm affect its production.
Do you think the firm has experienced economies of scale or economies of scope? Explain.
Analyze how efficiently the business utilizes its resources relative to other firms in the industry (bonus points)
Analyze, describe and discuss the market equilibrium for the industry
Do you think the market for the firm’s products/services is in equilibrium (surplus and shortage in product supply in the market)
Are the prices stable?
Describe and discuss the market structure the firm faces. Consider:
Perfect competition, monopolistic competition, oligopoly, monopoly
Why do you think a particular market structure you selected above could characterize the firm?
Provide a brief theoretical description/discussion of the market structure.
Discuss the actual market structure of the firm. Refer to the data on the:
number of firms in the industry
product types
potential barriers to entry
access to product information
others
Discuss how the market structure determines the firm’s operations. Consider:
Evaluate the expansion and growth strategies the firm employed in the past five years.
How does the market structure determine the financial performance of the company?
Try to find out if the company earns above average profits (i.e. because of barriers to entry, you may not need data for this)
Can the firm continue earning above average profit? Or How can it earn above average profit?
When writing the ‘Microeconomic Analysis’, try to use graphs or tables plotting/showing the trends for the past five years. Data on sales, costs, profit margin, employee numbers, market share etc. could be used. These are easily collected or computed using the annual reports of the companies. Below, I provided a list of the sources of data, the list is not exhaustive. So, try using other data sources.
Macroeconomic analysis (1200 words)
Collect data on a number of key macro variables that affect the long run costs of the firm, demand for its products, the business environment and the industry. To do this you should:
draw graphs or create tables summarizing the historical patterns in the variables
describe and discuss how these variables changed over time, and
discuss how changes in these variables could potentially affect the firm’s operations
Evaluate the company’s historical performance by comparing the data on company performance with the macro variables.To do this, you need to
collect/compute the data on sales, profit margins, profit rates return on investment etc.
plot the company data along with the market data
examine and analyze the trends
How the changes in macroeconomy affect the business performance?
Is the macro economy helping to promote growth in your industry?
Identify and briefly discuss government (business) policies that may affect the operations of the business. Consider:
How do government’s business policies affect the firm’s performance, demand for its products etc.?
Effects of trade policies.
Effects of environmental regulations.
Discuss the potential threats/risks to its operations in foreign/domestic markets. Include:
Economic risks
Political risks
Financial risks, etc.
Recommendations (up to 500 words)
Capitalizing on your findings in the first two sections above, you are required to provide recommendations
Present a list of recommendations which could be used to help the business in improving its performance. Consider, among others, the following
How to mitigate risks?
How to reduce costs without compromising quality?
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