Advance Finance for Decision Makers

Advance Finance for Decision
Makers

Table of Contents
INTRODUCTION...........................................................................................................................4
Section 1...........................................................................................................................................4
1.1 Examining various factors that drives for decision making of the business .........................4
1.2 Assessing importance of the financial factors in the business decision making ...................5
1.3 Determining features of the business risk that affects business decision and financials ......5
1.4 Summarising financial priorities which requires to be taken into account at the time of
making the financial decisions ....................................................................................................6
Section 2...........................................................................................................................................6
2.1 Comparing accrual and cash flow approaches to the accounting and financial reporting and
their implications in decision making..........................................................................................6
2.2 Structure and content of final accounts and its use in decision making. ..............................7
2.3 Financial financial information and difference between sets of accounts...........................13
2.4 Difference between decisions relating to revenue and capital expenditure.........................14
2.5 Ratios used in decision making............................................................................................14
2.6 Key requirements for published accounts of public limited company................................15
Section 3.........................................................................................................................................15
3.1 Stating the difference between accounting ethics, business ethics and the governance in
order to ensure control on the business accountability .............................................................15
3.2 Assessing role of finance director as the guardian of the business ethics ..........................16
3.3 Analysing important principles and the concept of the corporate governance that might
impacts business decisions ........................................................................................................17
3.4 Examining the national and an international reporting standards which are relevant to the
business decisions......................................................................................................................17
Section 4.........................................................................................................................................17
4.1 Difference between the long term financing and working capital needs of business. ........17
4.2 Sources of long term finances and working capital finance. ..............................................19
4.3 Reasons behind accessibility of working capital for the business continuity......................19
4.4 Techniques needed for managing cash flows and impact of cash flows on business..........20
4.5 Methods of making capital investment decisions. ..............................................................20

4.6 Benefits and Drawbacks of off balance sheet financing......................................................22
Section 5 ........................................................................................................................................22
5.1 Financial implications of various business ownership structures. ......................................22
5.2 Analysing corporate governance, legal and regulatory environments of different ownership
structures of business. ...............................................................................................................23
5.3 Comparing and contrasting interests of managers and owners in decision making............23
5.4 Significance of return on capital employed and other performance measures for long term
business sustainability................................................................................................................24
5.5 Examining importance of the EPS as measure business performance................................24
CONCLUSION..............................................................................................................................24
REFERENCES................................................................................................................................1

INTRODUCTION
Every business is aware of the fact that profitability of company is affected by the
decisions taken. Financial managers have a crucial role in the growth and success of business as
all the business activities run on the decisions taken. Decision making is process of gathering all
the information and facts relating to the aspect for which business is to be taken. The study
provide the understanding about the various financial factors influencing the decision making. It
will also provide about the concepts and tools used by the managers in taking financial decisions
of company. It will also cover accountability for financial reporting, sources of finance and
financial performance of different ownership structures.
Section 1
1.1 Examining various factors that drives for decision making of the business
Return on investment- It is reflected as the difference in between the money that is
invested in the things such as inventory, marketing, actual return and potential. ROI controls the
modifying risk of investment and it influences and drives both type of business decisions that
includes pre-investment and the post-investment.
Competition- This factor is said as one of the major aspect which strongly recommends
within the process of the decision making (Kumar, 2017). Today's world is seen as dynamic and
highly competitive so it is important for an organization to pay attention towards the challenges
and the operation of the business. Thus, at the time of making decisions in relation to the future
developments, business needs to consider the competitors and their respective plans for business
development.
Social responsibility- It is also a crucial factor that influences the decision making in the
business. In such concept, business needs to be acting in an interest of the society for the sake of
their common good.
Brand image- Managing brand image also influences the decision making that emphasize
on intangible gains in respect of the public perceptions (Diouf and Hebb, 2016). It concentrates
on differentiating business from the rivalry and developing faithfulness among the customers,
encourages the decisions regarding estimating, exhibiting products & the services at a standard
level.

1.2 Assessing importance of the financial factors in the business decision making
Accounts receivable- It is the major financial factors that leads to business growth and
requires an unanticipated bank loans. In order to run its business smoothly it is essential for the
business firm to consider at the indicators like turnover of the accounts receivable, cash
collection, credit policies and an ageing of the receivables.
Net income- This factor is counted as essential because it shows the profits earned by the
company after meeting all its expenses, costs and the tax liabilities (Rubin and Patel, 2017). This
factor helps the company in making decision relating to keeping control over the cost so and
increasing the percentage of the revenue so that higher profitability could be attained.
Working capital- It is stated as the difference between the current liabilities and the
assets. Without adequate working capital, business enterprise cannot run its business smoothly.
Thus, it acts as the most important financial factor as it helps the firm in making the decisions
regarding optimum use of the resources so that efficient and effective working capital can be
maintained for achieving objectives of the business.
Sales or operating revenue- It referred as the financial factor that shows the revenue
generated by an entity through selling its stock (Parent, Kalenkoski and Cardella, 2018). Higher
sales depicts higher profitability and growth rate of the company so it is very important for the
firm to seek appropriate measures in meeting the sales target. This in turn helps in making the
decision regarding the operational activities and in relation to demand of the customers.
1.3 Determining features of the business risk that affects business decision and financials
Time- In the present scenario, time is been characterized by an intense competition,
globalization of an economy, advanced technology. In the future periods or coming periods
business risk are tend to increase in an intensity. This affects and impacts the financial and the
business decision to great extent as for surviving in the business it is important for it to cope up
with the changes.
Nature of the business risk- In case the business is engaged in the manufacturing or
buying of the basic necessity items such as cloth, oil and the sugar. There seems to be less risk as
demand for majority of the items is counted as inelastic (Boatright, 2017). However, in case the
company is engaged in manufacturing of the luxury items are seen as exposed towards the
business risk due to the demand for the luxury items is reflected as highly elastic. In this way the
business and the financial decision of an entity are influenced.

Sales term- If the business conducts its sales on the cash basis, the risk of the business are
seen as zero as possibility of the bad debts is concerned with. On the other state, an enterprise
conducting the business on the large credit sales are highly exposed with the risk regarding bad
debts.
1.4 Summarising financial priorities which requires to be taken into account at the time of
making the financial decisions
Understanding financial goals- prior to making financial decision it is important that the
company makes sets its financial goals. This helps in making suitable decisions in respect of
raising the funds and performing tasks in the common direction to achieve the financial
objectives.
Having the plan relating to debt pay-off- While making finance related decisions, an
enterprise needs to look over the debt obligation by way of preparing the pay-off plan. This
ensures prevention of the firm in taking too much of the loan amount in future periods.
Spending wisely- It is the another most important priority that could be made by effective
planning. This in turn ensures a good future in respect of generating higher profitability.
Safeguarding the financial documents- In order to keep the track record of all the final
investments in the document form is considered as cumbersome (Şahin, 2018). It is very crucial
for an enterprise to keep proper record and maintenance of its financial documents as such
documents act as evidence.
Performing for routine financial check-ups- There present a need for performing the
regular check-ups or review of an investment plans because it enables in making effective plan.
Routine review ensures that their investments directly aligned with their spending requirements.
Thus, it is critical for an organization for keeping a constant check on the financial planning.
This helps in making suitable financial decisions with regards to raising of the funds and its
allocation so that larger amount of profits can be generated.
Section 2
2.1 Comparing accrual and cash flow approaches to the accounting and financial reporting and
their implications in decision making.
Cash Basis – The accounting method only recognises the revenues when the cash is received
similarly the expenses are recorded when they are actually paid. The cash accounting method do
not records accounts payable or accounts receivable.