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Introduction - Managing Resources In An International Business Environment
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Managing resources in an international business atmosphere are essential for the growth of the country’s economy. Managing resources is an efficient and effective task of expansion for an organization, these resources include financial resources, human skills, and inventory. For managing resources, it is very important to make proper investment decisions that are beneficial for the organization. Investment decision refers to an financial resources allocation in which investors of an organization select the most beneficial and appropriate assets or investment prospects based on risk profile, investment purposes, and reoccurrence expectations (Dor and Elovici, 2016). An organization has very limited financial resources, consequently, the top-level management commences capital budgeting and fund apportioning in long-term assets. Managers of organizations supervise business operations and choose short-term investments to make sure liquidity and working capital.
These are well-planned activities that help in allocating financial resources to attain the highest possible return, these decisions are fully based on investment objectives, investors' nature, and risk. The process involves the steps to make and perfect an investment decision plan (Farayibi, 2015).The steps are first formulating objectives for investment, evaluating and ascertaining the risk involved, assets allocation, and at last monitoring the performance of investment decision strategies.Before taking any kind of investment decision, doing an appraisal of the investment is very important. Investment appraisal is an approach in which the business measure the petition of probable reserves or project stuck on the result of numerous resources budgeting and financial technique. For investors, it is a method of fundamental scrutiny as it benefits in recognizing long-term trends along with the organization's perceived profitability. There are various methods and techniques for investment appraisal through which an organization can achieve its goals and objectives (Farayibi, 2015). The investment appraisal systems are the reimbursement era, current value, and secretarial rate of return, these three are the most important techniques for savings appraisal. The report develops a deep understanding of managing resources in an international business environment. It helps in developing a critical analysis of investment appraisal, its techniques, objectives, scopes, and various methods of appraisal.
The report provides a detailed overview of investment decisions, it also makes a critical evaluation of the company's investment decision with the help of different theories and research studies, and statistical data. The report has considered Amazon a multinational technology company as the case company. The report highlights the critical evaluation of recent investments that the company has made related to R&D, technology, expansion, etc.
Company and investment identification
Amazon also recognized as Amazon.com, is an internet-constructed company that deals in trade of books, music, electronics, and many other goods which are sold directly or with the involvement of a middleman. Amazon is a MNC that has elaborated business spread in e-commerce, cloud computing, digital platform, and AI, the Company’s headquarters is in Seattle, Washington. Amazon was launched by Jeff Bezos in Bellevue, Washington on 5th of July, 1994. In the early stage, company started to sell books on an online websites. Now the company has extended in dealing with multiple product lines in order to grow all around the world. According to modification in technology and the requirements of society Amazon is looking for adapting masses of new and innovative strategies which provides the company success. (Jeff Wilke, 2020) The Amazon planning outcome had brought drastic change in the knowledge and experience of its consumers. TheAmazon is uninterruptedly developing over the period of time leading to several distribution centres. Amazon's supply chain encompasses the entire process of multi-level inventory management, a mixture of classy IT, pricing, a widespread network of warehousing, and brilliant transportation, and delivery. All these essentials makes Amazon's supply chain the utmost productive and updated among all competitive companies in the market. The image below represent logo of Amazon.
The Covid-19 disaster has emphasized how Amazon has become part of current commerce – and is expected to become progressively in post-pandemic. Yet, challenges stay one step ahead similarly to the new areas for investment and expansion. The Internet played an important role in Amazon's story. But on the other hand technology, marketing strategy, business tactics, and most importantly its investment decisions made Amazon the leading multinational company across the world. Amazon has grown significantly over the period of time from just selling books to areas like cloud computing, consumer technology, and logistics, the most recent launch of entertainment like Amazon prime TV and Amazon mini TV.
The figure above shows Amazon’s net revenue from first quarter 2007 to first quarter 2022. Amazon is investing profoundly over the past years in sectors like transports and logistics. Company’s huge investments stance comes from those of technological products as compared to -the earlier period. Amazon looks as if formulating plans for upcoming future of business expansion and increasing its revenue growth. Amazon is been progressively wrenching up investments to place for the upcoming future as the company's essential business is slowing down for the last few years. In the past year, Amazon has publicized lots of important investments representing billions of dollars. Amazon's investment decision has a primary focus on new delivery businesses, investing in new headquarters, and logistics.
Critical appraisal of investment decision
Critically discussing investment appraisal
Investment appraisal is the scrutiny conducted to deliberate the effectiveness of the investment over the life of assets along with consideration of strategic fit and affordability. Investment appraisal is a method in which businesses assess all possible investments and projects based on financing techniques and several capital budgeting. For companies, it is a form of fundamental analysis as investment appraisal helps in classifying long-term trends and also helps in identifying the company's previous profits.
Investment appraisal is an input to the investment decision these both are interconnected to each other, both analyses are part of the decision-making process of the company. Investment appraisal is the initial input for the investment decision process. The investment decision is a major step in planning strategies related to the financial point of view and capital budgeting of the company. Investment decisions are made by the sponsors and governance board that justifies the investment in a particular project, portfolio, plan, or program of the company.
Investment appraisal is connected to the business case for the project, these are dependent on the attribution of benefits at the right level. A business case carries collectively the investment appraisal for the project, plan, program, or portfolio. It is a wider proof-based description of how the investment is proposed to direct the realization of quantifiable and qualitative benefits (Zarzecki and Pawlak, 2020). Mainly companies use investment appraisal to compare options which are considered the trade-off amongst several benefits, whole life costs, and risks to determine the best worth. Investment decisions are the result of investment appraisal, investment decisions help in balancing several elements like return on investment (ROI), portfolio effect, and affordability.
Discussing methods of investment appraisal
An investment appraisal is a procedure by which a company can evaluate where an investment is worth it or not. For example, dependent on the range of organization, investment appraisal might comprise the buying of a computer for £100 after deciding to provide in original innovative industrial plant which results in a million savings for the company (Soka, 2020). The method of investment assessment is preferred by confidential as well as public sector companies. It helps in assessing the decision mechanism which further helps in evaluating the value of savings in a particular project whether it is valuable or not. There are various techniques or methods used for investment appraisal, the details description of methods are as follows:
- Reimburse period
It is a straightforward method of investment appraisal, it calculates the extent of the period required for an investment to be rewarded back, either by income streams formed or by the savings done by the company (Loginovskiy, 2016). This concept generally refers to the investment which is with the short payback period.
This method also has major drawbacks, it stimulates short-term plans and neglects those plans which can provides a better return, over the long term. It neglects the instance value of capital.
The method for calculating the payback period is
Payback period in years = cost of the investment / annual cash flow
- Accounting rate of return (ARR)
The ARR compares the book-keeping profits which are created by the investment. The ARR investment appraisal perception refers to the situation whether the chosen investment has the capability of making a higher rate of return, or with the surplus of the subsidiary cost of capital of the company. Calculation includes the turnover from the investment which can be taken out from financial records and by considering all the income from investment.
ARR is quite simple to calculate in comparison to other methods of investment appraisal but it has some weaknesses. This method is fully dependent on accounting statistics not on the cash flow of a company, so this method disregards the requirements of working capital. Another major weakness is that this method follows the accounting conventions like depreciation and several accounting standards which might restrict the comparability of different organizations.
The formula for calculating ARR is as follows:
ARR = Averages Annual Return or Annual Profit from the investment / Initial Cost of investment
- Net Present Value (NPV)
This investment appraisal is a perception that permits businesses to make well-knowledgeable decisions, taking into description the period value of wealth. It is created on cash in and outflows throughout the project discounted for the interest rate of the capital employed. The NPV investment appraisal method considers that cash flow is linked by means of the investment to be contained within. In this manner, functioning resources activities are reported and definite cash flows are fewer inclined to management (Oke and Conteh, 2020). The usage of a composite interest calculation mechanically records for the value of money over specific time. The NPV investment assessment method considers that every positive results are investments, and competing for the investment with a higher NPV is chosen. The ROI considered in the calculation, is the rate at which an organization attains funds.
The weak point of this method is that it uses a single and same interest rate over the life time of the project and the cash timings are not possible to forecast which makes it quite difficult.
The formula for calculating NPV is as follows:
NPV = Sum of all cash flows over n number of years – C / (1+i)n
Where, i = Interest rate
n = No of years
C = cost of investment in year
- Internal rate of return(IRR)
The interior rate of return(IRR) is the significance rate that which compares the nearby value of the upcoming future earnings to the cost of the asset expense. By using the NPVmethod, if the result of present value is zero, then the interest rate to goods or products is calculated (Hazen, and Magni, 2021). IRR investment appraisal is used to calculate the interest rate on that an investment might be backed. Till the rate goods produced by the investment surpass the fund rate the project is feasible.
- Profitability index
The profitability ratio is intended by separating the nearby value of opportunity outcomes which are further economical by the essential rate of return by the investment outlay (de Souza Rangel et. al. 2016). If the value of the investment is more than a year then that is also discounted by the mandatory rate of return.
The formula of PI is as follows:
PI = Net present value + Initial investment / Initial investment
- Discounted cash flow
NPV, IRR, and PI are the investment appraisal approaches that make the best out of the inexpensive cash flow method, which is acknowledged as the best decision technique investment appraisal (Fernandez, 2019).
Critically evaluates Amazon’s investment decision.
Amazon's investment decision has primarily focused on new deliverance business but it also includes other areas which are investment in new centre of operations. Amazon has established crystal clear desires in the moving and logistics by classifying such services as budding competitor in a supervisory particle previous this year.
The outlay derives as Amazon is been providing up with immense profits even with slow revenue growth. The company recorded a vast loss in revenue in the first quarter of 2019 at $7.09 per share. But after that, the revenue growth loses speed over the board. Amazon’s 16.9% revenue growth signified the slowest growth in the first quarter of 2015 (Lauren Feiner, 2019).
The figure above shows, Amazon’s development has been maintained with its cloud business and Amazon Web Serviceswhich is becoming a most important profit gainer for the company. In the initial quarter of 2019, Amazon's web service returnssignified 13% of sales, 10% more than the previous quarter (Eugene Kim, 2019). Amazon web service which stated 41% revenue growth, seen in company’s growth slow down as linked with its previous year's sales which were recorded at 49%. After all these ups and downs Amazon is earning profits and putting those profits into the new venture. But the company's investment strategies stand out amid its tech squint for scale and style. Amazon's investments are very show as the most notable investments of Amazon are as follows:
Aurora – Amazon has invested in a self-driving car start-up earlier called Aurora. This investment has presented a great opportunity for Amazon and widened its margins for the upcoming future.
Air – when it derives to logistics and transportation Amazon is always ready to grab every possible opportunity. The company has expanded its transportation by launching Amazon Air, which includes 50 planes and new regional hubs (Lara Williams, 2020). The company is investing up to $ 1.5 Billion in new hubs. This helps Amazon to bring more logistics and reduce dependence on third-party shippers.
Project Kuiper – Amazon is expanding its ambitions which are beyond Earth with the help of Project Kuiper. The company has planned to set up a new network of 3000 satellites to increase its speed in accessing the internet across the world. This will help the company to reach every network across the world.
HQ2 and Other office expansions –Amazon is investing $ 5 million in its second headquarters, which is divided into two separate locations Northern Virginia and New York. With help of this investment company will remain across North America with, 17 commercial offices and tech hubs.
Pillpack – Amazon's one of the most investments is stepping into the medicinal space, it is an online pharmacy PillPack with a huge purchase of $ 753 million. This investment has benefited the company as it expanded the delivery skills into a new form. But this investment has a major drawback in that PillPack shows the company's interest more extended in new business opportunities rather than employees benefits.
The report concludes the detailed studies about investment decisions and critically evaluates Amazon's decision to undertake several investments. Investments decision states about managing resources which are efficient and effective ways for the development of an organization. The decisions related to investments include various resources like financial resources, human skills, and inventory. For managing resources, it is very important to make proper investment decisions that are favorable organization. The report discusses investment decision which is a financial resource allocation, it is a kind of well-planned investment that allocates financial resources to attain high returns. Investment decisions are done based on the risk capabilities of the company and investors' interests. The report also includes the objectives and scope of investment decisions and how it is important for every organizational strategic plan and set up goals. The essential step in order to take the right decision about investment is the investment appraisal, it is the path on which businesses assess the attractiveness of investments. These investments are based on several findings of financial techniques and capital budgeting. The report provides a critical evaluation of investment appraisal, and how much it is important in every organization's success. The Investment appraisal is the initial input for the investment decision process which is an input to the investment decision and both are interconnected to each other. The report highlights the details of various methods of investment appraisal and their drawbacks. The types of investment appraisal are payback period, IRR, ARR, NPV, profitability index, and discounted cash flow.
The main highlight of the report is the critical evaluation of the investment appraisal of Amazon which helps in understanding the importance of resource management. Amazon.com is an internet-founded company that trades in selling music, movies, selling books, electronics, and many other goods. Amazon is continuously growing with the help of technology, marketing strategy, business tactic, and most importantly its investment decisions these all made Amazon the leading multinational company across the world. The company is looking for investing profoundly over the past few years in sectors like transportation and logistics. Amazon's investment decision has a primary focus on investing billions of dollars in new delivery businesses, new headquarters, logistics and transportation
The report develops a deep understanding of the company Amazon's recent investment decisions. It provides a critical and descriptive view of the company's various investments which are Aurora, pillpack, Air, Project Kuiper, and HQ2. At the end of the report the recommendations and suggestions are provided to increase the efficiency of the company through the right investments decisions.
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