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

ECN 7100 Final Assignment

Fall 2017

Prof S Spangenberg

 

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)

  1. 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:
    1. Average income of consumers
    2. Demographic factors i.e. age, profession, ethnicity, etc.
    3. Tastes and preferences of its customers
    4. Advertising (analyze the trend in the advertising expenditure – sales ratio)
    5. Substitutes
    6. Availability of consumer credit (if the company is consumer durables producer/supplier/retailer)

Try finding answer elements to the following questions:

  1. Can you ascertain (or estimate) the degree of elasticity of demand (with respect to various factors) for the firm’s products?
  2. Does the firm attempt to reduce consumer surplus? What strategies does the firm employ to minimize the consumer surplus?
  3. If possible, estimate the demand curve of the firm/industry (bonus points, you may need data on prices, substitute prices, income etc.)
  1. Analyze the cost structure of the firm. As you know, there are:
    1. Fixed and Variable costs (data on costs can be found in annual reports)
      1. production costs
      2. wages
  • utility expenditure
  1. expenditure on research and development or technology
  2. others
  1. Provide a discussion of how the costs of the firm affect its production.
    1. Do you think the firm has experienced economies of scale or economies of scope? Explain.
    2. Analyze how efficiently the business utilizes its resources relative to other firms in the industry (bonus points)
  2. Analyze, describe and discuss the market equilibrium for the industry
    1. Do you think the market for the firm’s products/services is in equilibrium (surplus and shortage in product supply in the market)
    2. Are the prices stable?
  3. Describe and discuss the market structure the firm faces. Consider:
    1. Perfect competition, monopolistic competition, oligopoly, monopoly
    2. Why do you think a particular market structure you selected above could characterize the firm?
  4. Provide a brief theoretical description/discussion of the market structure.
  5. Discuss the actual market structure of the firm. Refer to the data on the:
    1. number of firms in the industry
    2. product types
    3. potential barriers to entry
    4. access to product information
    5. others
  6. Discuss how the market structure determines the firm’s operations. Consider:
    1. Evaluate the expansion and growth strategies the firm employed in the past five years.
    2. How does the market structure determine the financial performance of the company?
      1. 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)
    3. 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)

  1. 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:
  1. draw graphs or create tables summarizing the historical patterns in the variables
  2. describe and discuss how these variables changed over time, and
  3. discuss how changes in these variables could potentially affect the firm’s operations
    1. Evaluate the company’s historical performance by comparing the data on company performance with the macro variables. To do this, you need to
  4. collect/compute the data on sales, profit margins, profit rates return on investment etc.
  5. plot the company data along with the market data
  6. examine and analyze the trends
  7. How the changes in macroeconomy affect the business performance?
  8. Is the macro economy helping to promote growth in your industry?
    1. Identify and briefly discuss government (business) policies that may affect the operations of the business. Consider:
  9. How do government’s business policies affect the firm’s performance, demand for its products etc.?
  10. Effects of trade policies.
  11. Effects of environmental regulations.
    1. Discuss the potential threats/risks to its operations in foreign/domestic markets. Include:
      1. Economic risks
      2. Political risks
      3. Financial risks, etc.

Recommendations (up to 500 words)

  1. Capitalizing on your findings in the first two sections above, you are required to provide recommendations
    1. Present a list of recommendations which could be used to help the business in improving its performance. Consider, among others, the following
      1. How to mitigate risks?
      2. How to reduce costs without compromising quality?

 

 

 

Markets and firms for consideration (the list is not exhaustive)

Accountancy                            PwC, E&Y

Brewers                                   Carlsberg, Diageo

Electrical retail                       Curries, Best Buy

Fast food                                 McDonalds, Burger King

Food retail                              Wall Mart, Tesco

Food and personal care          Procter & Gamble

Home DIY                                B&Q, Homebase

Mobile phone network           Vodafone, Verizon

Oil & Gas Extraction                BP, ConocoPhillips

Pharmaceuticals                     Astra-Zeneca, Pfizer

Soft drinks                               Cadbury Schweppes, Coca Cola

Sugar                                       British Sugar, Tate & Lyle

Tobacco                                   BAT, Imperial Tobacco Group

Handset                                   Apple, Samsung

Air travel                                 Virgin, British Airways

Automobile                             GM, Ferrari

Aircraft engineering               Rolls Royce, Boeing

Aircraft                                    Airbus, Boeing

Tyres                                       Goodyear, Michelin Group

Household Appliances            Zanussi, Indesit Company

TVs                                          Samsung, Panasonic

PC                                            HP, Dell

Sportswear                              Nike, Adidas

Microprocessors                     Intel, AMD

 

Source of Data/Information

https://www.census.gov/ – data on US businesses

https://fred.stlouisfed.org/ – data on macroeconomic indicators

https://www.ons.gov.uk/ – data on UK businesses

http://www.statista.com/  – data on various indicators for various countries

http://stats.oecd.org/ – data on social and economic indicators, OECD countries

http://www.oecd-ilibrary.org/statistics – statistical tables, reports, etc.

 

Useful web sites/links

http://marketrealist.com/page/12/?tx=content-type&tm=overviews#article-919858

http://www.oecd.org/economy/

https://www.retaildetail.eu/en

http://finance.yahoo.co.uk

http://www.farmbusinesssurvey.co.uk/

 

 

Suggested Readings

Aigner-Walder, B. (2015) Effects of the Demographic Changes on Private Consumption: An Almost Ideal Demand System Analysis for Austria. Journal of Economic and Social Studies, 5, 1, 33-57

Andreyeva, T., Long, M. and Brownell, K. (2010) The Impact of Food Prices on Consumption: A Systematic Review of Research on the Price Elasticity of Demand for Food. American Journal of Public Health, 100, 2, 216-222.

Bagwell, K. (2005) The Economic Analysis of Advertising. Columbia University Discussion Papers No. : 0506-01

Baker, J. (2003) Competitive Price Discrimination: The Exercise of Market Power Without Anticompetitive Effects (Comment on Klein and Wiley). Articles in Law Reviews & Other Academic Journals. Paper 278.

Ellickson, P. (2013) Market Structure and Performance.  International Encyclopedia of the Social & Behavioral Sciences, Forthcoming; Simon School Working Paper No. 13-21

Foot,  D. and Gomez, R. (2006) Population aging and sectorial growth: the case study of the UK, 2006-2026. OJBE, 5:1

Griffith, G. (2003) The Impact of Supermarkets on Farm Suppliers. The Australian Economic Review, 37, 3, 329–336

OECD (2015), OECD Employment Outlook 2015, OECD Publishing, Paris. Available at: http://ifuturo.org/documentacion/Employment%20outlook%202015.pdf

OECD (2015) GENERAL ASSESSMENT OF THE MACROECONOMIC SITUATION. OECD Economic Outlook Volume 2015/1

Rauch, D. and Schleicher, D. (2015) Like Uber, But for Local Governmental Policy: The Future of Local Regulation of the ‘Sharing Economy’. George Mason Law & Economics Research Paper No. 15-01. Available at: http://ssrn.com/abstract=2549919

 

Further Guidelines

The report should be well structured and presented, making appropriate use of reading materials, graphs and footnotes, and with full referencing.

In general, all pieces of work should display the following desirable characteristics as much as possible:

  • Answer focuses on question(s) asked
  • Degree to which the answer covers all aspects of question
  • Degree to which answer exhibits understanding and knowledge of relevant theoretical (and empirical) literature and of policy issues
  • Degree to which answer demonstrates consistency, coherence and purposeful analysis
  • Appropriate use of graphs (and statistical methods)
  • Analytical and critical ability – ability to go beyond the descriptive and the immediately obvious
  • Depth and breadth of the analysis
  • Originality (i.e. synthesis of a fair amount of material and being more than a rehash of some text or texts)
  • Assessment of the importance of the topic under discussion
  • Evidence of the use of a variety of sources
  • Clarity of explanation
  • Conclusions that cover the main issues and which offer a critical assessment of the work undertaken and relevant policy implications
  • Appropriate referencing
    • Use Harvard style (find the Harvard style guide on blackboard)
  • Overall quality of presentation

Grading Scheme:

 

Microeconomic Analysis
  • Provides a succinct summary of the key arguments which the paper will subsequently develop.
  • Explains key concepts that will be used in the paper
  • Demonstrates understanding of the topic.
  • Provides a coherent and consistent analysis.
  • Use of graphs and data.
  • Empirical evidence is provided which is appropriate and clearly explained.
50%
Macroeconomic Analysis

 

  • Provides a succinct summary of the key arguments which the paper will subsequently develop.
  • Explains key concepts that will be used in the paper
  • Demonstrates understanding of the topic.
  • Provides a coherent and consistent analysis.
  • Use of graphs and data.
  • Empirical evidence is provided which is appropriate and clearly explained.
20%
Recommendation Key arguments in support of thesis are reiterated.
Business implications are discussed.
20%
 
Overall Structure Uses appropriate format and presents items in a logical structure. Writing is clear and concise.  Ensures correct spelling, grammar and punctuation. Uses the Harvard referencing system correctly. 10%

 

 

 

 

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