Business and International Financial Management Assignment Sample

Business Management and International Financial Management

Introduction of Finacial Management Assignment

Financial management refers to the practices that might help an organisation deal with finances in such a way as to be successful and compliant with regulations. It is all about planning, organising, and directing financial activities in an organisation, and for this essay, Asda Stores Ltd. has been selected. Asda is a supermarket chain, and it is headquartered in Leeds, England. The company was founded in 1949, and the company aims to encourage everyone to be honest and open (Asda.com.2022). It is a completely value-led company, and it works collaboratively and values everyone's input.

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Discussion

Asda's dividend distribution policy

A dividend can be mentioned as the payment given by a company to its shareholders, and it is generally given in the form of a distribution of the profits gained by the company. The profits gained by the company can be retained in the business, or all can be used for expanding the business or acquisitions. In terms of discussing the dividend distribution policy of Asda, it can be found that the British supermarket chain has been sold by Walmart, and the company paid about £1.15 billion to its parent company as a dividend in March, as reported in 2020 just before the COVID-19 lockdown in the country (Haydock, and Smith, 2019). In this regard, it can be found that the company paid a dividend to its parent company as a significant shareholder.

In October 2020, the private equity group TDR capital, along with the Issa brothers, bought a major stake in Asda from Walmart, considering a significant deal in which the Issa brothers and the TDR capital gave the supermarket chain an enterprise value of about $8.8 billion (Pattiruhu, and Paais, 2020). As reported in 2019, it has been found that Asda is the third largest grocery supermarket chain, just after Sainsbury and Tesco and the dividend payment of the company was made in the financial years of 2017, 2018 and 2019. Additionally, it has been found that the UK government announced relief in business rates due to the pandemic, and the supermarket chain followed other supermarkets and decided to pay back £340 million of relief (Reuters. 2020 ). In addition to this, it was found in 2017 that the company paid a dividend of about £3.8 billion after the completion of the "buy-in" of the pension scheme of Asda with Rothesay Life in 2019 (KANAKRIYAH, 2020). However, the acquisition of Asda was completed in the first half of 2021 due to some regulatory approval.

In this regard, it has been found that the deal was probed by the competition and the market authority of Britain. However, it was also found in 2019 that Walmart attempted to sell the supermarket chain to Sainsbury for about £7.3 billion, but there were some regulatory issues while completing the deal (Bentham, 2018). It has been reported that the operating profit of Asda fell to £584.2 million in 2019 from £803.2 million in 2018, considering the sales of about £22 billion; however, in 2020, the company reported that their sales increased by 2.7% (Reuters. 2020 ). However, the growth of the company has lagged behind Tesco, Morrisons and Sainsbury. The company has been hit hard by the COVID-19 pandemic as well.

Efficient market hypothesis theory in the context of Asda's operations

In terms of discussing the efficient market hypothesis theory considering the operations of Asda, it is important to know the aspects of this hypothesis. The hypothesis theory of efficient market states that share prices refer to the fact of reflecting all possible information as well as the consistent alpha generation that is impossible, and it can also be known as efficient market theory (Xiao, Chen, and Yu, 2021). In this regard, it can be found that the theory discusses the stocks that trade on exchanges only at their fair value, and the stocks make it quite impossible for the investors to buy or sell the stocks that are undervalued for inflated prices (Görçün, Zolfani, and Çanakç?o?lu, 2022). Due to this, it becomes next to impossible to outperform the entire market considering market timing or an expert stock selection. The only way by which the investor can attain a high return is by buying investments that are riskier. It has been found that Asda considers analysing its expenses to make a budget, and it aims to lower its expenses since the company has been sold (Rossi and Gunardi, 2018).

Furthermore, the theory of efficient markets is the cornerstone of "modern financial theory", and it is extremely controversial due to its disputes. The followers of this theory argue that searching for undervalued stocks in the market and trying to predict market trends is pointless. At the same time, they discuss that no technical or fundamental analysis has the ability to produce a consistent risk-adjusted excess return that can also be known as alpha. There are some detractors of the theory as well who state that the theory points to the events when the "Dow Jones Industrial Average" (DJIA) fell by more than 20% in a day, and as evidence, the stock prices deviated from their fair values (Lekovi?, 2018). There are some special considerations of this theory, the proponents of this theory state that due to the market randomness, investors would invest in passive and low-cost portfolios, which might be more effective (Khuntia, and Pattanayak, 2018). However, it has been found by Morningstar Inc., in their compiled data, that they compared the returns of active managers in every category against a composite model in relation to the index funds and "exchange-traded funds" (ETFs).

In this regard, it can be mentioned that financial management refers to the effective and efficient management of all money-related resources of a company, and the major objective of financial management is to maximise the profitability of the organisation. Along with this, making financial decisions is also a significant objective of financial management, along with maintaining the proper cash flow of the organisation. Financial management is extremely important for an organisation in order to secure its operations and so that it can pay expenses and wages (Ignatenko, 2021). However, cash flow is also a significant indicator, and it helps to understand how an organisation can be financially stable. There is a term financial forecasting which mainly provides an organisation with a practical explanation of its financial forecasting abilities, and with the help of this, an organisation can understand the importance of various types of models and tools that might help it to give the touch with financial success.

Asda's methods of appraising projects

Project appraisal refers to the analysis of cost and benefits along with various different aspects of a proposed project, and it might have an objective in order to adjudge the viability of the project. Employment of scarce resources is involved in a project, and an organisation needs to appraise various alternative project associates before allocating the resources for the management of a project (Volden, 2019). There are a number of methods of appraising projects, and at the same time, there are some variations in the expected inflows as well as outflows of our project taken into account by the techniques during the lifecycle of the project. In terms of discussing project analysis considering the cash flows, it can be found that projects of an organisation cannot earn the same level of profit every year and "net present value” can be mentioned as a financial metric that might help an organisation to capture the total value considering the opportunity of investment (Govender, Thopil, and Inglesi-Lotz, 2019).

However, there is a "benefit-cost ratio", which is also an indicator of appraising projects, and it has been found that the company, Asda Stores, uses this indicator in terms of its "cost-benefit analysis". With the help of this, the company has become able to summarise its overall value for money in the context of a project. This helps the company to be associated with the benefits of a project and to express the "value in monetary terms". In addition to this, there is the "internal rate of return", which can also be mentioned as a metric that can be used by various organisations in order to analyse the financial causes, and it might help the organisation to estimate the profitability considering the investments (Florio, Morretta, and Willak, 2018). The "internal rate of return" can also be discussed as a discount rate, and it might help an organisation to make the net present value of all cash flows which will be equal to zero in a "discounted analysis of cash flow".

Conclusion

It can be concluded that financial management is of utmost importance for every organisation, and an organisation can get assistance in acquiring and managing its funds. Financial management is all about planning, organising, and directing financial activities in an organisation, and can help an organisation to allocate its funds and resource allocation, and at the same time, it provides the company with insight to make crucial decisions regarding financial causes. It also helps to cut financial expenses.

References

• Asda.com.2022. Online Food Shopping, George, & more. Available at: https://www.asda.com/ (Accessed: December 30, 2022).
• Bentham, J., 2018. Business and Economics in the News–Sainsbury's and Asda-the decade's mega-merger. Teaching Business & Economics, 22(3), pp.11-12.
• Florio, M., Morretta, V. and Willak, W., 2018. Cost-benefit analysis and European Union cohesion policy: Economic versus financial returns in investment project appraisal. Journal of Benefit-Cost Analysis, 9(1), pp.147-180.
• Görçün, Ö.F., Zolfani, S.H. and Çanakç?o?lu, M., 2022. Analysis of efficiency and performance of global retail supply chains using integrated fuzzy SWARA and fuzzy EATWOS methods. Operations Management Research, pp.1-25.
• Govender, I., Thopil, G.A. and Inglesi-Lotz, R., 2019. Financial and economic appraisal of a biogas to electricity project. Journal of Cleaner Production, 214, pp.154-165.
• Haydock, J. and Smith, T., 2019. No magic dust: The relationship between the national and local assessments in Sainsbury's/Asda. Journal of Competition Law & Economics, 15(4), pp.538-558.
• Ignatenko, C., 2021. Consensus Market Hypothesis: This is Not a Guide to Market Manipulation. Available at SSRN 3849315.
• KANAKRIYAH, R., 2020. Dividend policy and companies' financial performance. The Journal of Asian Finance, Economics and Business, 7(10), pp.531-541.
• Khuntia, S. and Pattanayak, J.K., 2018. Adaptive market hypothesis and evolving predictability of bitcoin. Economics Letters, 167, pp.26-28.
• Lekovi?, M., 2018. Evidence for and against the validity of efficient market hypothesis. Economic themes, 56(3), pp.369-387.
• Pattiruhu, J.R. and Paais, M., 2020. Effect of liquidity, profitability, leverage, and firm size on dividend policy. The Journal of Asian Finance, Economics and Business, 7(10), pp.35-42.
• Reuters. T., 2020. Britain's Asda paid parent Walmart a $1.52 billion dividend in March (2020) Reuters. Available at: https://www.reuters.com/article/uk-walmart-asda-dividend-idUKKBN28L1UG (Accessed: December 29, 2022).
• Rossi, M. and Gunardi, A., 2018. Efficient market hypothesis and stock market anomalies: Empirical evidence in four European countries. Journal of Applied Business Research (JABR), 34(1), pp.183-192.
• Volden, G.H., 2019. Assessing public projects' value for money: An empirical study of the usefulness of cost–benefit analyses in decision-making. International Journal of Project Management, 37(4), pp.549-564.
• Xiao, B., Chen, Q. and Yu, Z., 2021, April. Research on the Investment Value of Sainsbury's. In 2021 6th International Conference on Social Sciences and Economic Development (ICSSED 2021) (pp. 108-115). Atlantis Press.