Accounting and Financial Management

Running Head: Accounting and Financial Management
1
Project Report: Accounting and Financial Management

Accounting and Financial Management 2
Contents
Part A................................................................................................................................3
Introduction...................................................................................................................3
Case overview...............................................................................................................3
Ratio analysis................................................................................................................3
Working capital cycle...................................................................................................6
Conclusion and recommendation.................................................................................6
Part B................................................................................................................................7
Introduction...................................................................................................................7
Investment appraisal technique.....................................................................................7
Key benefits and limitations of investment appraisal techniques.................................9
Suitable source of finance...........................................................................................11
Part C..............................................................................................................................12
Budget definition and its link to business...................................................................12
Budgeting process.......................................................................................................13
References.......................................................................................................................14
Appendix.........................................................................................................................16

Accounting and Financial Management 3
Part A:
Introduction:
The report has been prepared for the directors of Bitmap plc in order to present them
about the financial position and performance of the company. In order to depict about the
financial performance of the company, ratio analysis study has been presented on the
company. Further, the working capital cycle of the company has also been prepared to
measure the operational and efficiency performance of the company.
Case overview:
Bitmap plc is a London based company which manufactures furniture. Board of
directors of the company are interested to know the significant changes in the company in
current year from the last year. In order to measure the changes and its impact on the
financial performance of the company, various financial ratios have been calculated. The
study of ratio analysis is as follows:
Ratio analysis:
Ratio analysis is one of the most used financial analysis types. It is used by the
companies, investors and the financial analyst to obtain quick information and indication
about the financial position and financial performance of the company at various key places.
Ratios are basically categorized as liquidity ratio, profitability ratio, gearing ratio, investor
potential ratio and asset utilization ratio (Kaplan and Atkinson, 2015). The study over these
ratios has been performed to measure the financial changes in the business and the
performance of the company.
Profitability ratio:
Profitability ratios are one of the financial analysis methods which are used by the
investors, stakeholders and the organizations to identify the ability of the business to generate
the earnings against the revenues, cost of goods sold, operating cost, shareholder’s equity and
total assets of the business (Romney, Steinbart, Zhang and Xu, 2016). In this report, return on
capital employed and met profit margin of the company has been evaluated to measure the
financial performance of the company.
Return on capital employed measure the profitability position of the company on the
basis of total capital available. In case of Bitmap plc, it has been found that return on capital

Accounting and Financial Management 4
employed of the company is 36.43% and 35.31% in the year of 2016 and 2017 respectively.
It depicts that ROCE of the company has reduced in current year because of higher capital
(appendix). It concludes that business is required to improve the profitability position.
Further, net profit margin measure the profitability position of the company on the
basis of sales revenue. In case of Bitmap plc, it has been found that net profit margin of the
company is 17.89% and 17.65% in the year of 2016 and 2017 respectively. It depicts that net
profit margin of the company has reduced in current year because of lesser profit (appendix).
It concludes that business is required to improve the profitability position.
Profitability Ratios: 2017 2016
Return on Capital employed
Operating profit / 6,800 5,100
Capital employed (total assets - current
liabilities)
19,26
0
14,00
0
Answer: % 35.31% 36.43%
Net profit margin %
Net profit / 4,060 3,220
Sales Revenue % 23,000 18,000
Answer: 17.65% 17.89%
Liquidity ratio:
Further, liquidity ratios have been calculated. Liquidity ratios depict about the liquid
assets managed by the company to meet the entire short term debt obligation. In this report,
current ratio and quick ratio of the company has been evaluated to measure the liquidity level
of the company (Kiran and Singh, 2014).
Current ratio measure the liquidity position of the company on the basis of total
current assets available against the current liabilities. In case of Bitmap plc, it has been found
that return on current assets of the company is 2.77 and 4.69 in the year of 2016 and 2017
respectively. It depicts that current ratio of the company has improved in current year because
of current assets and lesser current liabilities (appendix). It concludes that business is required
to reduce the current assets level.
Further, quick ratio measure the liquidity position of the company on the basis of total
quick assets available against the current liabilities. In case of Bitmap plc, it has been found
that quick ratio of the company is 1.57 and 2.55 in the year of 2016 and 2017 respectively. It

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depicts that quick of the company has improved in current year because of lesser current
liabilities (appendix). It concludes that business is required to reduce the current assets level
to manage liquidity risk and operational cost of the business.
Liquidity Ratios 2017 2016
Current Ratio
Current Assets / 5,160 4,150
Current liabilities
1,10
0
1,50
0
Answer: 4.69 2.77
Quick ratio
Current Assets -
Inventory / 2,800 2,350
Current Liabilities
1,10
0
1,50
0
Answer: 2.55 1.57
Gearing ratio:
Further, gearing ratios have been calculated. Gearing ratios depict about the resources
available and managed by the company to meet the long term solvency position. In this
report, gearing ratio and interest coverage ratio of the company has been evaluated to
measure the liquidity level of the company (Kurov and Stan, 2016).
Gearing ratio measures the solvency position of the company on the basis of total debt
available against the total assets. In case of Bitmap plc, it has been found that gearing ratio of
the company is 22.21% and 16.67% in the year of 2016 and 2017 respectively. It depicts that
gearing ratio of the company has improved in current year because of better management of
resources (appendix). It concludes that gearing position of the company is average.
Further, interest coverage ratio measures the gearing position of the company on the
basis of EBIT available against the interest expenses. In case of Bitmap plc, it has been found
that interest coverage ratio of the company is 10.20 and 6.80 in the year of 2016 and 2017
respectively. It depicts that interest coverage ratio of the company has reduced in current year
because of higher interest cost (appendix). It concludes that gearing position of the company
is average.
Gearing Ratios 2017 2016

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Gearing ratio
Total debt / 3,500 2,000
Total assets 15,760 12,000
Answer: % 22.21% 16.67%
Interest Coverage Ratio
EBIT / 6,800 5,100
Net Finance Costs (used net interest
expense) 1,000 500
Answer:
times
p.a
6.8
0
10.2
0
Asset utilization ratio:
Further, asset utilization ratios have been calculated. Asset utilization ratios depict
about the efficiency level managed by the company to operate the daily activities of the
business. In this report, credit turnover and stock turnover ratio of the company has been
evaluated to measure the efficiency level of the company (Deegan, 2013).
Creditor’s turnover days measure the total time period in which the credit amount
would be paid to the creditors back by the company. In case of Bitmap plc, it has been found
that gearing ratio of the company is 51.17 days and 29.09 days in the year of 2016 and 2017
respectively. It depicts that creditors turnover days have improved (appendix). It concludes
that efficiency position of the company needs to be improved.
Further, stock turnover days measure the total time period in which the stock would
be ordered back by the company. In case of Bitmap plc, it has been found that gearing ratio of
the company is 61.40 days and 62.42 days in the year of 2016 and 2017 respectively. It
depicts that stock turnover days of company has improved (appendix). It concludes that
efficiency position of the company has become better.
Asset utilization ratio 2017 2016
Creditors turnover days
Accounts payable/ 1,100 1,500
Cost of sales 13,800 10,700
Answer: (note the above needs to be x
365) # days 29.09 51.17