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Accounting and Financial Management - PDF

   

Added on  2020-10-22

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Accounting andFinancial Management

Table of ContentsINTRODUCTION...........................................................................................................................1PART A...........................................................................................................................................1Introduction............................................................................................................................11. Calculation of relevant ratios to analyse organisation's performance................................12. Calculation of working capital cycle for Bitmap Plc.........................................................5Conclusion..............................................................................................................................7PART B............................................................................................................................................71. Various investment appraisal techniques...........................................................................72. Key benefit and limitations in investment appraisal method...........................................143. Suitable sources of finance for investment.......................................................................15PART C..........................................................................................................................................161. Budget and its relation with strategic objective and plans...............................................162. Budgeting process and and interlinking of budgets used in an organisation...................16CONCLUSION..............................................................................................................................17REFERENCES..............................................................................................................................19

INTRODUCTIONAccounting and financial management is the process of preparing financial reports for anorganisation and managing organisation's financial performance. It is the main responsibility ofaccountants and managers of the company to appropriately maintain and keep financial andaccounting information in the form of financial reports so that internal and external stakeholderscan analyse accurate data of the business (Ward, 2012). Actual performance can be determinedwith the help of various accounting techniques including ratio analysis, capital budgeting andcost of capital. Main aim of this project report is to develop an understanding about theaccounting and financial management in the context of an business organisation. Two differentcompanies have been discussed in this report. First organisation which is provided is BitmapPLC which is a furniture manufacturing company and executing its business operations inLondon, UK. Another business entity which is provided for analysing accounting and financialmanagement is Toyland Ltd. This company is based in London and currently manufacturing toysfor children. In this project report calculation of accounting ratios, working capital cycle andcapital budgeting of two different companies are performed according to the different casescenarios.PART AIntroductionBitmap Plc is a furniture manufacturing company which is currently operating itsbusiness activities in London successfully. Board of directors of organisation have analysedsignificant changes in the financial statements of Bitmap Plc. Directors of this business entityhave asked the management accountant to prepare a report on the financial performance of theorganisation (Banerjee, 2012). Various financial ratios have been calculated in this report.1. Calculation of relevant ratios to analyse organisation's performanceRatio analysis: It can be defined as a qualitative analysis of organisation's performancewith the help of various information which is recorded in financial statements of the company.All the internal and external stakeholders use ratios to determine that organisation is performingwell or not in the market. In the case of Bitmap Plc, ratio analysis have been conducted for thedirectors so that they can analyse the cause of changes in financial statements (Blankespoor and1

et.al., 2013). Various types of ratios are calculated as a management accountant from thefinancial statements of two years of this organisation below:Profitability ratios: Such type of ratios are calculated by the accountants of thecompanies in order to analyse the actual profit making ability of the organisation. Following arethe ratios that are calculated by management accountant of Bitmap Plc:Net profit ratio:Formula: Net profit after tax / total revenues * 100Particular20162017Net profit after tax32204060Revenues1800023000Net profit ratio17.89%17.65%From the above calculation it has been observed that Bitmap Plc's net profit ratio hasbeen decreased to 17.65% in year 2017 from 17.89% which is for year 2016 (Khan, 2015).Gross profit ratio:Formula: Gross profit / total revenues * 100Particular20162017Gross profit910012200Revenues1800023000Gross profit ratio50.56%53.04%While calculating the ratio the management accountant of Bitmap Plc have identified thatgross profits of the company have increased in year 2017 which has resulted in increased ratio.50.56% and 53.04% are the gross profit for year 2016 and 2017 respectively.Liquidity ratios:The ratios are calculated to ascertain actual liquid strength of a company(Krakhmal, 2012). Main purpose behind the calculating this ratio is to make future planning forinvestment and purchasing of business assets. If is it weak than management accountant suggestsdirectors to take appropriate actions. In Bitmap Plc following liquidity ratios are calculated:Current ratio:Formula: Current assets / Current liabilitiesParticular20162017Current assets41505160Current liabilities15001100Current ratio2.774.692

From the above calculation it has been analysed that organisation's liquid strength is verygood as in year 2016 current ratio was 2.77 and in year 2017 it has increased up to 4.69.Quick ratio:Formula: Quick assets / current liabilitiesParticular20162017Quick assets23502800Current liabilities15001100Quick ratio1.572.55From the above calculation it has been analysed that organisation have good liquiditybecause the ratio of Bitmap Plc in year 2016 and 2017 are more than ideal ratio which is 1:1.Gearing ratios: These ratios are related to organisation's capital structure in whichrelationship of internal and external liabilities are analysed with each element of organisation.Main purpose of gearing ratios is to determine company's financial stability (Taipaleenmäki andIkäheimo, 2013). Management accountant of Bitmap Plc have calculated following ratios for thepurpose of analysing company's stability in monetary terms:Debt equity ratio:Formula: Total debts / total equitiesParticular20162017Total debts35004600Total equities1200015760Debt equity ratio0.290.29From the above computation it is assessed that debt equity ratio in year 2017 and 2016 issame which shows that debts and equities has no contribution against the changes observed byboard of directors. In both years that is in 2016 and 2017 debt equity ratio is 0.29.Total asset to debt ratio:Formula: Total assets / total debtsParticular20162017Total assets1550016760Total debts35004600Total asset to debt ratio4.433.643

From the above calculation it has been observed that organisation's total asset to debtratio is decreased in year 2017 when compared to 2016. For both the years this ratio is computedas 4.43 and 3.64 respectively.Asset utilisation ratios: Such type of ratios are calculated to analyse the value oforganisation's assets compared to revenues (Brigham and Houston, 2012). Following ratios arecalculated by management accountant of Bitmap Plc in order to analyse overall utility of assetsof the company:Fixed asset turnover ratio:Formula: Total revenues / Fixed assetsParticular20162017Revenues1800023000Fixed assets1135015200Fixed asset turnover ratio1.591.51From the above calculation it has been analysed that fixed assets turnover ratio of BitmapPlc has been decreased up to 1.51 in year 2017 from 1.59 which is for 2016.Total asset turnover ratio:Formula: Total revenues / total assetsParticular20162017Revenues1800023000Total asset1550016760Total asset turnover ratio1.161.37While calculating total asset turnover ratio, management accountant of Bitmap Plc haveanalysed that the ratio of the company has been increased in year 2017 as compare to previousyear. For the years 2016 and 2017 this ratio is calculated as 1.16 and 1.37 respectively whichshows enhancement of business operations of this company.Investors potential ratios: All such type of ratios are mainly used to analyse performanceof organisation's shares. Management accountant of Bitmap Plc has used following ratios toprovide appropriate information to all its investors:Return on equity ratio:Formula: Net profit after tax/total equity * 100Particular201620174

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