Discuss how changes in macroeconomic factors might affect the ability of SLSL to achieve its revenue objective.

An example essay on Question 10 in the APT revision guide for OCR F297 2012 exam.

The general feedback was that it was a good piece of writing with much Level 3 and 4 analysis and evaluation achieved.

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Olaleye O
Question 10
Discuss how changes in macroeconomic factors might affect the ability of SLSL to achieve its
revenue objective.
The housing market, and subsequently, the success of businesses operating in the market, are
significantly dependent on and affected by changes in the state of the economy. Seeing as a house
purchase is a huge and risky commitment for buyers, the ability to buy one will undoubtedly depend
on macroeconomic factors such as income, unemployment, interest rates, mortgage rates and
inflation. SLSL's objective is to increase revenue by 4% at the end of the financial year; therefore the
business' ability to achieve its objective is essentially dependent on the factors mentioned above,
and changes in said macroeconomic factors can either affect SLSL's ability negatively or positively.
Before SLSL's ability to achieve this objective is determined by macroeconomic factors, the objective
must be analysed according to `SMART'. SLSL's objective is specific, measurable and time scaled,
however is it realistic? At the moment, SLSL's turnover is £868,946, so a 4% increase means that
their financial aim by the end of the year is £903,704 ­ an increase by only £34,758 which could be a
significant increase or not depending on the average commission SLSL receives for completed work.
Nevertheless, SLSL's capability of achieving this depends greatly on the state of the housing market
and the state of the economy, and more importantly mortgage rates.
The most important macroeconomic factor that will determine the materialisation of SLSL's objective
is the rate of interest charged on loans, and in terms of the housing market, this is charged on
mortgages. The interest rate charged on mortgages determines whether people will buy houses or
not, which subsequently determines whether SLSL increases its revenues or not, because the case
material states that SLSL only receives commission on the basis that a purchase is completed. Also,
there is no mortgage rate provided in the case material, only the Bank of England base rate, which is
the interest, charged to other banks and money lenders; therefore people that wish to borrow
money will pay considerably more than the Bank of England base rate. The housing market works on
the hope that a low base rate will be closely followed by low mortgage rates, which might ultimately
persuade more people to buy houses. With more buyers on the market, selling is likely to become
easier and more potential vendors might be willing to put their houses up for sale. However, in an
economic downturn, the opposite will occur. For SLSL, a low mortgage rate should ideally increase
the number of properties in its portfolio, therefore giving the business a higher chance of increasing
its completed sales which might eventually lead it to increasing its revenue and possibly contributing
to achieve the 4% increase by the end of the financial year.
Although the availability of mortgages affects the housing market, the demand side of the mortgage
market can also affect SLSL's ability to achieve its objective of a 4% increase of revenue and that is
because young people must be willing and able to enter the market in order for houses to be sold,
but they also face difficulties from the market. Problems with unemployment may rise as there is
uncertainty and vulnerability to unemployment with the proposed double-dip recession in the UK. If
people are not secure in their jobs, they will be deterred from buying houses, therefore if
unemployment scares rise, SLSL's chances of increasing its revenue by 4% decrease. Also, the
austerity measures of the Coalition government, such as the VAT increase and cutbacks on
government spending, will make it difficult for people to save for a deposit, or to repay their
mortgages if they do eventually find the means to buy a house as they will have to make measures to
survive on essential means rather than buying houses. These problems with the state of the economy
are a huge cause for concern for SLSL if they are looking to achieve this 4% increase by the end of
the financial year because any unfavourable change in the economy, especially the housing market,

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Olaleye O
has subsequent unfavourable impacts on SLSL. An increase in the interest rate will reduce the number
of buyers, and the fewer buyers there are on the market, the more reluctant vendors are to put their
houses up for sale.…read more


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