ECONOMICS Essay Example | Topics and Well Written Essays - 500 words - 1

ECONOMICS - Essay Example An organization will have to pay higher interest coverage for their long term debts. In addition to this, the charges for bank overdraft and short term borrowings will rise which will affect the working capital balances adversely. If the company has leased manufacturing instruments, it will have to pay a higher lease rental. Since an increase in the interest rates will tend to squeeze money out of the economy, employees might demand higher salaries as well. According to Bloomberg, the yield curve (as on May 8, 2009) predicts the rise of interest rate in near future. This means that organization will plan to maintain its profit in future. It can provide discounts to enhance the sales volume to make reserves for the dry season ahead. It can restrict research and development activities and curtail unnecessary costs since revenue generation might see a downfall. Cars and trucks are costly commodities and are generally bought by customers if they get convenient borrowing schemes. This makes interest rates a decisive factor in determining the sales. A high interest rate means that customers will have to pay a higher installment (EMI). This has greater implications for earning assets like trucks; customers (generally transporters) will postpone their present demand in anticipation of lower interest rates in future. This translates to the fact that consumer demand for both cars and trucks will come down. The main monetary items that affect the operations of a business are the cost of goods sold and general and administrative expenses. Cost of goods sold will depend on the cost of raw materials and the wages of the employees. The company might have to incur advertising and selling costs as well. For purpose of accounting, the company will have to incur depreciation expenses. The tax structure of the country where the company operates is an important determinant of operating costs. A high tax bill will increase the financial