Economicand Market Forces that will Influence the Financial Plan of PrecisionMachines
Economicand Market Forces that will Impact the Financial Plan of the Company
A.Supply and Demand
Supplyand demand for the products and services of Precision Machine willcreate a push and pull dynamic in prices. It is also evident thatprices and rates are deemed to change as demand and supply change(February (Linzer,& Linzer, 2008)). Demandand supply are the economic factors or market forces that influencethe price and the availability of products and services in themarket. For example, if consumers demand more goods and services fromPrecision Machines, the company will likely lower its prices to suitconsumers. This implies that the customers will prefer buying fromthe corporation than from its competitors due to the quality andaffordability of their commodities and services. Demand willinfluence the financial plan in that the organization will be able torealize more sales thus increasing the cash flow of the company. Thesame case occurs in supply (February (Linzer,& Linzer, 2008)). AsPrecision Machines supplies more goods and services to match thecurrent hike in demand, they are bound to increase their prices. Anincrease in the prices of Precision Machines’ commodities andservices will result to more revenue for the firm thus an increase inthe firm’s cash flow.
Competitionis also an economic factor that is bound to affect the company’sfinancial plan. The availability of substitution effect willinfluence the profitability of the industry since consumers wouldhave to purchase the substitute of what Precision Machines isoffering (November (Krugman,& Wells, 2006)). Thismay not be good for the financial plan, as it would imply a decreasein the number of consumers purchasing from it. As the demand for itsproducts decreases, its total sales also decrease thus reducing itscash flows.
Newcompetitors entering the market would also threaten PrecisionMachines by decreasing its market share and the profitability ofexisting customers, which may result in changes in product qualityand price levels (November (Krugman,& Wells, 2006)). Thisimplies that as Precision Machines tries to be at par in terms ofcompetition, it may reduce its prices to attract more customers andprovide low-quality products to reduce the firm’s cost ofproduction. Lastly, it will affect the financial plan of PrecisionMachines in that there will be a decrease in cash flows as therewould be many competitors competing for the same consumers.
Linzer,R. & Linzer, A. (2008, February). Cashflow strategies.San Francisco: Jossey-Bass/John Wiley. Retrieved on 30 July 2016.
Krugman,P. & Wells, R. (2006, November). Economics.New York: Worth Publishers. Retrieved on 30 July 2016.