Day 22
Case Study: Company – Macquarie Group Limited
Abstract
The important constituent of the financial market is Investment Banking. The researcher has
chosen Macquarie Group Limited for the case study. Macquarie Group Limited is an
international investment firm and financial management company of Global multinationals. The
case study talks about the introduction of the company followed by what are the micro elements,
the micro elements that positively affected the Macquarie Group Limited mainly includes
customers, organization, market, competitors and suppliers. There are 5 major principles in the
case study which are favored by the company i.e. maximizing utility, opportunity cost,
diminishing marginal utility, supply and demand. After analyzing these principles, it is found
that for Macquarie Group Limited to be successful, it needs to acknowledge its customers, global
market, and business strategies, know when to purchase more inventory, allow enough time for
raw material delivery, or consider replacing equipment that has dropped in value further than
reasonable maintenance. Lending Debt and Tax Evasion are the 2 main issues faced by the
company. Lastly, the case study talks about recommending Macquarie Group Limited as the
good company to invest in because the company has not just sales but also earnings. Also,
Macquarie Group has increased EPS by 15 per cent a year in the past three years.
Introduction
Macquarie Group Limited is an international investment firm and financial management
company of Global multinationals. It hires more than 14,000 people in 25 countries and is the
world's biggest transportation fund provider together with Australia's top-ranking mergers and
acquisitions partner with funds under administration in excess of A$ 495 billion. Macquarie
holds a range of licenses which allow it to carry out activities in the territories in which it invests
and is controlled internationally by a large number of regulations. The Holey Dollar has become
Australia's first illustration of financial creativity, according to Macquarie Group, which
represents the development of realistic solutions for competitive outcomes.
There are 5 current operations of Macquarie Group i.e. Macquarie Asset Management which
involves Macquarie infrastructure and real assets. Second operation is Banking and Financial
Services i.e. personal banking, wealth management and business banking products. Third
Operation is Specialized and Asset Finance i.e. lending finances to customers and lending assets
to businesses including 600,000 cars, passenger aircraft, medical equipment etc. Fourth
Operation is Commodities and Global Market where the company conducts research on more
than 2300 stocks and market trading for more than 160 products. The last operation is Macquarie
Capital where the company advises other companies on growth opportunities, sources investment
funds and negotiable transactions.
Micro Environment and its Elements
The micro-environment is connected to an organization’s specific outskirts and constantly
specifically impact the company. Therefore, the job setting is also defined as this. It is necessary
for a company to track and evaluate all of its micro-environmental elements.
The elements are:
a. Customers: Customers are individuals who purchase the products / services of an
organization. Without consumers a company cannot function in plain terms. A good
corporation has the products / services closely watched by both clients and investors.
Effects: For Macquarie Group Limited, the customers are contractors, people asking for
loans, passenger aircrafts, companies who want fund sourcing and because of the good
service provided by the company, the customers are increasing.
b. Organization: For Macquarie Group Limited, there are 3 types i.e. Owners, Board of
Directors and Employees. Owners are the individuals who have a large equity stake in the
business and have a strong important role in the company’s welfare. Additionally,
investors nominate the board members to control the administration process of the
company and to guarantee that the needs of the investor are upheld. And, the individuals
who work in the company are workers who become significant contributors to its
performance. It is crucial for all workers to support the aims and priorities of the
organization.
Effects: The Board of Directors have played major role in the high value contracts.
c. Market: The market is considerably greater than the amount of all the customers. The
company needs to research the demand with regard to the current scale, development
opportunities and competitiveness. The Assets under management (AUM) for Macquarie
Group Limited is AUD 542.7 billion, the employees in 2019 were 15, 715 and the capital
ratio is 13.5% which falls under Basel III.
Effects: Due to the good performance of the company, the company is able to hire new
employees every year.
d. Competitors: The institutions that compete both for suppliers and products are
competitors. It is therefore important that the organization is conscious of its rivals and
able to analyze risks arising from its competition. A business will also be mindful of its
rivals, their capabilities and disadvantages and of the most violent and strong rivals. The
competitors of Macquarie Group Limited are Westpac, ANZ and Nab Banks.
Effects: The increase in number of competitors with similar services in the existing
market did not affect the position of Macquarie Group Limited in the market.
e. Suppliers: Suppliers are yet another significant micro-environment element. To sustain
their production, companies rely on various distributors for machinery, raw material, etc.
Suppliers may affect the company's cost base, and are thus a significant factor. Macquarie
Group Limited’s suppliers are based on all over the world including India and China. The
supply process is done using the Coupa procure-to-pay (P2P) platform for all purchasing,
invoicing and payments.
Effects: Due to the start of using the Coupa procure – to- pay platform, the company
gained more suppliers.
Micro Economic Principles and its Effects on Macquarie Group Limited
As the price of a good or service increases, businesses increase the supply of that good or service
and decrease the supply of others, the principles which tell businesses about all other things
being equal.
The Micro Economic Principles are:
1. Utility Maximization
Maximization of utility relates to the idea that people and businesses obtain the greatest
gratification from their economic choices. For starters, people may buy the mixture of
products / services that offer the most pleasure while choosing whether to invest a set
any.
Effect: Utility Maximization applies to the Macquarie Group Limited for example, the
optimum number of working hours to provide their manpower. Doing further increases
wages, however reduces spare time.
2. Opportunity Cost
An opportunity cost is the cost of a missed opportunity. The definition of the cost of
opportunity can extend to several different circumstances. Opportunity costs are
generally classified as income, but may also be seen in terms of time, individuals-hours,
mechanical production or some other limited resource.
Effect: Applied to the Macquarie Group Limited, it may apply to the benefit that the
company might have received from its money, facilities, and immovable properties if
such assets were treated differently.
3. Diminishing Marginal Utility
The rule of decreasing marginal utility notes that a product or service's marginal
usefulness decreases as the supply available to it rises. Economic players are dedicating
any subsequent unit of the product or service to fewer and less appreciated ends. The
concept of declining marginal utility is used to describe certain economic anomalies,
including demand for energy.
Effect: For Macquarie Group Limited, an example could be, A person might purchase a
certain form of share for a while. He/ She eventually buys fewer and prefer some other
form of share or buy mutual funds instead because the gratification they received from
the share in the beginning is declining.
4. Supply
Supply is the amount of product and service that a company has to offer to its customer at
a given point in time. Supply management can be defined as the capacity to analyze,
procure, and sustain the assets required to effectively operate a company. It needs to take
into account supplier management of any raw resources, and the purchase and
maintenance of goods or industrial equipment needed to create goods.
Effect: For Macquarie Group Limited to be successful, it needs to acknowledge its
customers, global market, and business strategies, know when to purchase more
inventory, allow enough time for raw material delivery, or consider replacing equipment
that has dropped in value further than reasonable maintenance.
5. Demand
Demand is an economic theory that relates to the ability of a customer to purchase
products and services, and the willingness to pay a premium for a specific product or
service.
Effect: Macquarie Group Limited will want to optimize its profitability by ensuring that
customers have exposure to the goods and quality facilities.
Elementary Theories and their Application to Organization
Study of different market systems has produced economic theories that control
microeconomic analysis.
Some of them are:
1. Keynesian Theory
Keynesian is an economic philosophy regarding overall consumer investment and its
effect on production and growth. Keynesian philosophy is about utilizing constructive
policy action to control economic activity to counter or avoid economic deflation.
Fiscal and monetary activism are the key materials Keynesian economists suggest to
control the economy and battle joblessness. Expenditure from one customer becomes
revenue for a company that then needs to spend on machinery, salaries for the
employee, energy, materials, acquired services, taxation and returns for the
shareholder.
2. Friedman Theory
The Friedman theory, also known as shareholder principle or stockholder ideology, is
a standard hypothesis in market ethics proposed by economist Milton Friedman that
maintains that the owners are the primary liability of a company. This approach
defines stockholders as the company's economic motor and as the sole team to which
the company is fiscally conscious. Friedman suggests that the stakeholders should
then determine for themselves what social projects to take interest in, rather than
requiring an individual that is expressly designated for corporate reasons by the
shareholders to settle these matters for them.
3. Fisher Effect
The Fisher Effect is an economic principle developed by economist Irving Fisher that
explains both actual and nominal interest rates and the interaction with inflation. The
Fisher Impact notes that the actual interest rate is equivalent to the nominal interest
rate, less the rate of inflation predicted. The Fisher's equation shows that the true
interest rate could be extracted out of the projected interest rate by deducting the
predicted inflation rate. The principle was applied to the study of money flow and
exchange in foreign currencies.
Application to Organization
A company's economic wellbeing is determined by its employees' creativity,
resourcefulness and work ethic. The huge federal budget surplus generated economic
benefits, however left the business with a dramatically deflated debt burden and the
promise of years of reduced interest payments. Macquarie Group Limited is not too
vulnerable to support higher interest rates even for partial, fleeting times which have
recurred in past years.
Issue Faced by the Company
Macquarie Group has faced few issues in the past. The issues faced by the company
are:
a. Lending Debt
In 2017, Macquarie was reported to have lent £ 2 billion debt to Thames Water in
a transaction in which it purchased Thames Water, a private infrastructure firm
liable for municipal water delivery and waste water disposal in the British city of
London, before selling its interest in the company. Such revelations accompanied
analysis of the potential financial sources of the substantial flooding of the
Thames by Thames Water, and other waterways, with improper disposal between
2012 and 2014, for which Thames Water was punished a reported £ 20 million. In
response to the issue, Macquarie reported that under his term, Thames Water
spent more than £11bn, or around £1bn every year, more than double the sum
generated in 1989 over the five-year era previous to privatization. The massive
spending made to supply water to London has been the first significant project
since the Victorian era.
b. Tax Evasion
In 2018, the Macquarie Group Limited came under long-term prosecution in
many European nations for major tax evasion. Edited by a partnership of 17
European newspapers, Macquarie 's internal records revealed that Macquarie
proceeded to make funds accessible for trading and dividend tax evasion after its
defense lawyers raised concern. The Australian Competition and Consumer
Commission has sued Macquarie Group, via its affiliate Macquarie Equipment
Rentals, for prosecuting 300 small companies swept up in the deceptive
telecommunication repackaging contracts.1
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Government Economic Policies and its effects on the organization
An economic policy is a plan of action planned to affect or regulate the economic activity. There
are two economic policy -fiscal and monetary. The Reserve Bank implements monetary and
fiscal policies its goals of market stability, maximum jobs and the Australian people's economic
growth and welfare.
1. Fiscal Policy: Fiscal policy represents policies of government expenditure which
influence economic factors. Government Spending, Interest Rates and Tax Policies are
major concern of the Fiscal Policy.
Effects:
It helps the company to sustain inflation between 2-3 per cent over time, on
average.
Higher real interest rates can also lead to a lower long-term capital stock and a
lower output level due to reduced investment levels for the company.
Cash-rate is the instrument to control inflation so the company is lowering the
cash rate.
2. Monetary Policy: Regulators are seeking by monetary policies to boost unemployment
levels, monitor prices, manage economic cycles and affect interest rates in an attempt to
regulate the economy.
Effects:
With the unemployment rate increasing from 5.0 percent at the beginning of the
year to 5.3 percent in August, and the new GDP estimates indicate sluggish
development and a retrograde environment after adjusted for population rise, the
company is trying to employ more people so that the unemployment rate is
diminished.
Yet with inflation growth remaining below the target of 2%-3%, the issue is
whether the Macquarie Group Limited is doing enough or whether anything needs
to be accomplished by the State.
Conclusions and Recommendations for the Company
In order to succeed in any kind of business activities, it is essential to analyze the micro elements
of the organization. Macquarie Group Limited succeeded in satisfying its customers and
competitors with new schemes of source funding to the customers of the Macquarie Group
Limited. In order to lead the market even more, Macquarie Group Limited should understand the
preference and demand of the customers by properly analyzing their behavior. The company
sustained the issues faced by it in the recent years. The government policies also played a major
role in the success of the company.
Talking about the Recommendation, the analyst advises that Macquarie Group Limited is a
successful business to invest in after the study as it has not just sales but also earnings. Although
this does not render the shares worth purchasing at any expense, one cannot argue this,
ultimately, productive capitalism needs income. Macquarie Group has increased EPS by 15 per
cent a year in the past three years. But though the securities are highly priced now, most
investors will consider their earnings as a sign of stable income production. For Macquarie
Group bulls, the positive news is that investors (collectively) have a substantial stake in the
portfolio, in addition to purchasing internally. Yes, the insider investor has placed in it a dazzling
pyramid of property, currently priced at 378 million AU$. It means leadership should be
particularly mindful of the needs of clients in taking choices.
