Advance Finance for Decision Making

ADVANCE
FINANCE FOR
DECISION MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................5
1.4 Summarize the financial priorities that need to be considered when making financial
decisions......................................................................................................................................7
SECTION 2......................................................................................................................................8
2.1- The method of cash focuses on the instant identification on the expenses and revenues
while accrual basis focuses on forecasting of incomes and expenses.........................................8
2.2- explain the structure and content of final accounts and their uses for business decision
making.........................................................................................................................................9
3- Statements of cash flow........................................................................................................10
2.3 interpret the financial information in the financial statements you have obtained and
illustrate differences between the sets of accounts...................................................................10
2.4..............................................................................................................................................11
2.5 Financial analysis of Morrison and also suggesting the u8efulness of ratios analysis in
decision making........................................................................................................................13
SECTION 3....................................................................................................................................14
5.1 Difference between business ethics, corporate governance and accounting ethics as
controls on business accountability...........................................................................................14
5.2 Assessing the role of the finance director/chief financial officer as a guardian of business
ethics.........................................................................................................................................14
5.3 Analysing the key concepts and principles of corporate governance that may impact on
business decisions.....................................................................................................................15
5.4 Examining key national and international financial reporting standards that are relevant to
business decisions.....................................................................................................................16
Requirement...................................................................................................................................17
3.4 Critically examine techniques needed to manage cash flow and the impact of cash flow on
key business decisions..............................................................................................................19
SECTION 5....................................................................................................................................21
4.1 Financial implication made by various business ownership structure................................21
4.2 Analysing the corporate governance, legal and regulatory environment............................21

4.3 Interest of stakeholders and managers in decision making.................................................22
4.4 Evaluating the significant return on capital employed as well as managing long term
solvency....................................................................................................................................22
4.5 Importance of EPS in measuring business performance.....................................................22
CONCLUSION..............................................................................................................................22
REFERENCES..............................................................................................................................23

INTRODUCTION
Implicating the advance finance for decision making will be helpful and adequate as per
analysing and making the appropriate decisions which will be relevant with the operations of the
business. In the present report there will be discussion based on various operational techniques,
budgeting methods etc. which will be helpful in meeting the level of revenue and structural
capital. Analysing the various outcomes which are comprised of making qualitative changes in
various operations which will be helpful and adequate as per meeting the goals and stabilising
the firm in ascertaining the financial requirement. The suggestion will be provided to the
professionals working in various organization as per controlling the costs as well as managing
the operations of firm.
SECTION1
1.1 Examine and Explain the factor that guide and drive business decision-making.
Decision making is one of the most important function in an organization. Every operation in a
company needs a decision on the working of the company. Decision-making is the crucial task
for the management, there are many factors which effect and influence the decision making in
the present and future. Some of these factors are:◦ Return On Investment: it is one of the main factor that influence the decision making
process in any organization. Considering the factor of profitability of the company at the
time of decision making is very important. Return on investment is the difference
between in the money which a company invest in different activities in the business like
marketing, operations , inventory etc. and the actual return a business is getting (Nash,
2018). By estimating the return on investment it is very east to decide for the business
weather the potential returns justifies the expenses and risks involved in creating
implementing different activity plan business.◦ Image and Brand Management: Decisions on where to advertise and sell and at what
price the product is to be sold, the social activities a company engaged in have a huge
impact o the brand image of the company. Brand image of the company focuses on public
perception and intangible gains for the company. At the time of making decisions ,
concerning about public perception can influence decisions about product, sponsorship
and public relation campaigns. Brand awareness can influence the sessions regarding
pricing, marketing and displaying products and services.

◦ Opportunity cost: decision on making involves the best use of available resources which
involves the decision of choosing best alternatives between two or more options. An
opportunity cost trade off is an influencing factor in these type of decisions (Libby,
2017). what a business gets by choosing one alternative over another and what a business
has to give up is the trade off decision of a company.
1.2 Assess the significance of financial factors in business decision-making.
In decision-making process of any organization, finance is very important factor. It Is
the basic requirement for any activity in the business. Based on the revenue and outflow of
the business many decisions is taken. The significance of financial factor in business
decision-making are: Personnel: Labor is one of the most important costs for a business which it securely
sustains. Each employee in the company represents a significant dedicated cost, which it
expects a return on investment while hiring the employees. The cost of an employee is
considered as an investment in growth and revenue of the business, hiring more
employees is considered as business expansion and growth of companies capabilities.
When finance of the company allows, companies may take the personnel related risk to
achieve growth. Growth: any company wants to grow to increase revenues, margins and profits. The
financial position of the company is to be calculated in order to grow the size of
business, market, to ascertain risk management and ownership (Klychova and et.al.,
2015). Available capital includes cash in hand, available credits and investment capital is
the main resources for the growth of the company. Cost cutting: the company has to make decisions to cut the cost in order to preserve the
profit margins if the finance resources is not up-to the mark. If the revenue of the
company is decreasing, it may lead the company to become tighter on its various
activities like purchasing, training and equipment, travel expenses etc.
1.3 Identify the characteristics of business risks that impact on financial and business decisions.
Any difficulties in business and financial and operational activity in business can leads to
the possibilities of the business risk and uncertainties. Each risk carries different implications for
business owner to overcome. Financial and economic condition can also effect the financial and

business decision of the company. The business risk that will effect the financial and business
decision are: Market fluctuations: the fluctuations in the demand and supply of the product in the
market can effect both financial and business decisions. With the decline in the demand
of the product, the decision regarding operational management will be effected, as well as
the financial decision regarding the increase in production and inventory amount will be
effected. market fluctuation leads to worsened the gross margins and profitability which
leads the management to change the business decisions. Fluctuations in foreign currency and interest rates:since the cost and the value of assets
and debts of business operation are influenced by the fluctuations in interest rates or
currency rates in market, it will affect the financial condition of the business (Heitzman
and Huang, 2018). The business, than has to make new decisions regarding sales volume
and material volume in foreign currencies.
 Competition: More the competition in the market more the risk of loosing the customer
for the business. The business has to take new marketing decision to attract the customer.
With the increase in competition in the market, the sells of the product will decrease
which leads the business to reduce its price which will affect the profit margin of the
company.
1.4 Summarize the financial priorities that need to be considered when making financial
decisions.
Before making financial decision, management should ascertain what are the financial
priorities of the company. Financial decisions is a comprehensive financial planning and wealth
management firm that helps high-net-worth business to achieve their financial goals. Financial
goals are made by making the financial priorities. The financial priorities to be considered for
decision making are: Cost control: this measure is used to reduce or control the business expenses. By
identifying and evaluating the business's expenses, management can determine weather
those cost are reasonable and affordable. For this a proper budget should be made, and on
the basis of this budget operation cost could be reduced through methods such as cutting
back,moving to a less expensive plan or changing service providers. Cost control is one

of the financial priorities of the company to set a goal of cost effective measures of
operations. Profit Maximization: a companies most important goal is to make profit. Profit
maximization is the foremost important priority of a company. High operating profits can
mean that company has effective control of cost. To maintain the expenses the profit
maximization should be achieved. A specific measure should be set to determine weather
the company has achieved the the profit as per the aim or not (Pratt, 2016). For example,
the company has make a goal to attain 10% of profit margin of the business per year, so
the decision will be made according to aim set by the business.
 Sales-revenue enhancement: sales revenue is company's sale over a given period of
time. Increasing in the sales revenue is to be considered before making financial
decision. Increasing in the sales revenue will increase the market share of the company at
the same rate as the total market. A business weather small or big will always want to
enhance its market share as it will enhance its sales revenue for the business.
SECTION 2
2.1- The method of cash focuses on the instant identification on the expenses and revenues while
accrual basis focuses on forecasting of incomes and expenses.
Basis of
comparison
Cash basis Accrual basis
Meaning The cash basis method of accounting
in which incomes are recorded in the
statement when the cash is actually
received and expenses are recorded
when they actually paid out.
The accrual basis is the accounting in
which incomes are earned, (yet not
received) recorded in the statements
and the expenses occurs (yet not paid)
are recorded in the statement.
Nature Cash basis of accounting is effortless
in nature
Accrual basis of accounting is
complex in nature
Method Cash basis of accounting is not
recognizing under the companies act
Accrual basis of accounting is
recognized by the method of

2013 companies act 2013.
Income
statements
In this method of accounting,
statement of accounting shows the
lower income
In this accrual basis method, the
income statements show the high
income comparatively.
Applicability of
matching
concept
Cash accounting do not adjust with
the matching concept
Accrual accounting fully implies with
matching concept.
Recognition Cash is received in the case of income
and paid in the case of expenses
(Graham and et.al., 2017)
Revenue is earned in the case of
income and expenses incurred in the
case of expenses.
Suitability This method of accounting is more
suitable for the sole proprietorship or
contractors,
This method of accounting is more
suitable for, enterprises, firms.
The change in cash and accrual basis effect the business decision making as businesses
grow their financial need keeps on changing. Whether a company is experiencing a change in
revenue or in expenses.
2.2- explain the structure and content of final accounts and their uses for business decision
making
structure of final accounts consists of following -
1- Profitability account
Profitability account is an amended form of trading and profit loss account. It records all
the trading expenses through which the gross profit identifies and records all the expenses which
the part of trading is not (Bruch and Feinberg, 2017). The profitability account provides a deeper
insight of margin generated over the expenses. Profitability statement shows manager and
investors whether the company made or lost money during the period being reported.
Its sub content is
 gross profit or loss
 office expenses, selling and distribution expenses
 miscellaneous expenses (Loan, interest on capital, repair charges etc.)

 other income (rent received, commission earned etc)
2- Balance sheet
After making a profitability statement, balance sheet is prepared which shows the exact
financial position of the business (Veatch, 2017). To ascertain this balance sheet statement
contains all assets and liabilities of the enterprise.
The sub contents of asset and liabilities are as under
 Current liabilities
 Fixed liabilities
 Reserves
 Capital
 Current assets
 Fixed assets
3- Statements of cash flow
Cash flow is the statement which shows the inflow and outflow cash and cash equivalent.
It includes the following sub content -
 Cash from Operating activities (receipts from sales of goods and services, interest
payments, income tax payments etc)
 Cash from Investing activities (purchase or sale of an asset)
 Cash from Financing activities (Issue and redemption of shares and debentures
etc)
2.3 interpret the financial information in the financial statements you have obtained and illustrate
differences between the sets of accounts
financial statements include a preparation of balance sheet and an income statement.
Preparation of balance sheet consist of assets and liabilities, equity of a specific date in time. And
the statement consists of company, revenue, expenses, and net income (Karl, 2018). The
interpretation of financial statement is an important management tool as it signifies the analysis.
Following procedure is to be followed to interpret the financial statement
 Firstly, prepare the common sized balance sheet for the financial statement which shows
the dollar value of the income and expenses account.

 Secondly, do the comparative analysis of the financial statements taking common sized
balance sheet as a base.
 Thirdly, apply the ratio analysis. By calculating the several financial ratios that helps to
measure the company's performance. Therefore, the interpretation of all the financial
statements should be done separately (Bucher‐Koenen and et.al., 2017). For example- To
interpreting the balance sheet interpretation is done with the help of quick ratio, current
ratio, debt equity ratio etc. To interpret the income statement, gross profit margin,
operating profit margin, net profit margin etc. to be identified for interpretation. For
interpreting cash flow statements, interpretation of cash from operating, investing and
financing activity to be done.
2.4
Aspects Income statements Balance sheet Fund flow statements
Meaning Income statements
shows the company's
revenues and expenses
during a particular
period.
The position of assets
and liability of particular
company shown in
balance sheet
The change in working capital
between two balance sheet
data is shown in fund flow
statements
Nature It results revenue from
entity's operating
activities.
The value of asset and
liability at particular
point of time is discloses
by balance sheet (Farrell
and et.al., 2017)
The fund flow shows the uses
and sources of fund.
Contribution By providing
management with an
overall view of the
business as its
contribution.
Balance sheet cannot
used as a tool for
financial analysis to the
top management.
Fund flow is the tool for
financial analysis to the top
management.

 differentiate between financial decisions relating to capital expenditure and those relating to
revenue expenditure
Basis Capital expenditure Revenue expenditures
Benefits The future economic benefits are
generated by the capital expenditure
The current year benefits only generated
by the revenue expenditures
Occurrence Capital expenditures occurs one time
only.
Revenue expenditures occurs frequently
Tenure Capital expenditures occurs for long
term
Revenue expenditure occurs for the short
term
Shown in Capital expenditure is shown in the
balance sheet, in asset side as well as
in income statement
Revenue is shown in only income
statements.
The above differences in capital expenditure and revenue expenditure mainly effects the
financial decision. Financial decisions are of mainly three types like investment decision,
financing decision dividend decision. The effect of expenditures is mentioned below Investment decision – the different in revenue and capital expenditure effects the
investment decision because funds are involved and are available in limited quantity, so the
tenure of both the expenditure effects investment decision to achieve the goals of wealth
maximization. Financing decision - financing decision includes minimization of cost, maximization of
sales etc. The capital and revenue expenditure effect financing decision as when they occur they
cause derail in finance decision (Graham and et.al., 2017).
 Dividend decision - The third major financial decision relates to the disbursement of
profits back for whom those invested. The term dividend refers to that part of profits of a
company which is distributed by it among its shareholder. Dividend is the profit for shareholders
but it increases the expenditures of company.

2.5 Financial analysis of Morrison and also suggesting the u8efulness of ratios analysis in
decision making
Morrison 2017 2018
Particulars Formulas Details Ratios Details Ratios
Profitability ratio
GP margin GP 604 4% 633 4%
Net sales 16317 17262
NP margin NP 812 5% 862 5%
Net sales 16317 17262
Liquidity
Current ratio Current assets 1176 0.41 1278 0.41
Current Liabilities 2864 3081
Quick ratio Current assets- inventories 562 0.20 592 0.19
Current Liabilities 2864 3081
Interpretation: Addressing the outcomes derived on the financial analysis of Morrison
which consist of records of years 2017 and 2018. Thus, it can be said that there is not that much
variations in the outcomes. The profitability index of both the year has reflected the same
proportionate results. Thus, it can be said that revenue and costs incurred in operations are
similarly rising in some proportion. Thus, it can be said that the profitability of firm is quite
favorable and which helps in bringing them the most appropriate and adequate determination of
the facts. On the other side, as per considering the liquidity or the short-term solvency of entity
which brings the outcomes as there is no that much variations in the outcomes only the rise in
quick ratio in 2018detremines the rise in liquidity level. Thus, it can be said that firm is having
appropriate outcomes and will have profitable growth in the coming period.
Importance of ratio analysis in decisions making:
In relation with analyzing the financial stability and viabilities of the organization the
determination of various ratios plays main role in bringing the accurate analysis over the
outcomes which have been analyzed and tasted by the professionals. Ascertaining the financial
strength of firm will be helpful to the investors in analyzing capacity of entity in meeting debts in
the right time (Bruch and Feinberg, 2017). Analyzing profitability ration which will be helpful in
addressing operational capacity and efficiency of unit. Similarly, identifying the liquidity ratio

which in context with helps in analyzing the short-term solvency as well as measurements of
various operational units. Moreover, the benefits which are associates with the planning and
administration will be helpful in measuring the operational gains and the viabilities to meet the
debt, solvency and profitability level. It discloses the clear details regarding efficiency of firm on
which investors will make investment decisions. On the other side, as per considering the
internal benefits where professionals will make decisions relevant with operational
improvements in the firm.
SECTION 3
5.1 Difference between business ethics, corporate governance and accounting ethics as controls
on business accountability
The major point of difference between business ethics and corporate governance of an
organization is that ethics are termed as descent standard of philosophy and moral which a
corporate attempt to stand but the corporate governance is a way with the help of which an
organization attempts to remain ethical with the maximizing of profit. Depending on the type of
organization corporate governance, vary in terms of obligations. Whereas, accounting ethics are
the access of financial information to an accountant. This power of an accountant of the firm
benefits the organization in terms of enhancement of company's perception regarding the abuse
of information or manipulation of numbers. The main difference between business ethics,
corporate governance and accounting ethics is that al of them are set by different authorities in
order for the smooth functioning of a firm (Crane and Matten 2016.). Business ethics are decided
by the management of an organization itself, corporate governance are abided by the law which
includes honesty and transparency in accounting or in other management practice of the
organization and accounting ethics are decided by International Accounting Standard Committee
(IASC) and International Financial Reporting Standards (IFRS) with the usage and application of
these standards. All the ethics and the corporate governance are set for the to carry the one
objective and that is smooth functioning of an organization by remaining ethical but all have
different aim of application and are formed to solve the various issues of a business.
5.2 Assessing the role of the finance director/chief financial officer as a guardian of business
ethics
The operation in finance of a corporation is uniquely qualified in order to take the role of
leadership in fetching out the ethics of an organization because finance has been plugged

virtually into all the facets of a business. A chief financial officer has so many responsibilities
and roles to carry very effectively (Soltani and Maupetit 2015). They put all the emphasis on
face to face conversation with the employees which includes the financial boot camps and
different skill-up meetings where a CFO has to be present for employees at various levels of an
organization. Some of the roles has been discussed below: -
 The primary role of a finance director is to identify the individuals with appropriate
financial profile in order to act properly in the primary function with the finance eye. '
 To provide the various training programs according to the enterprise.
 Conducting the implementation of compliance practices and ensuring the activities that
support governance.
 In order to have best results, a CFO has to partner up with the technology function to
fetch the best results for the organization with less efforts which in return increases the
technological productivity as the planning for resources of an enterprise are planned well
beforehand and not autonomous.
 The most vital function of finance director is to assist the internal customers including the
individuals of organization such as operation manager, who needs the financial data to
determine the decisions on pricing etc.
5.3 Analysing the key concepts and principles of corporate governance that may impact on
business decisions
 The Board has approved the corporate strategy which aims to generate sustainable long-
term value for an organization by selecting a chief executive officer (CEO). This
principle impacts positively to the organization in the form of capital allocation for long-
term growth and managing the risks effectively by setting the objective of 'tone at the top'
for ethical conduct of business decisions of an organization.
 Management produces the oversight of the board and the committee for an organization
who is responsible for producing the financial reports of the business that shows financial
position of the organization (AUTHOR and DIRECTOR 2015). Business decisions are
affected at the time of results of operations when there are disclosures of investors who
are interested in assessing the financial and business soundness.

 Corporate governance allows the organization to put forward the positive traits on display
for the investors. On being made visible it impacts the organization to be accountable for
the behaviours and actions and thus the companies are more away from duplicity.
 In the attempt to minimize the risk of distrust, organizations go out of their way to fulfil
the social responsibility in the materials of corporate governance.
 Another strategy of corporate governance which lays emphasis on various organization's
culture in order to put business priorities aside. The unique culture of a firm evades
everything from vision to values, work environment etc. in this way it impacts the
business decisions to set values, rules of working and vision.
5.4 Examining key national and international financial reporting standards that are relevant to
business decisions
International Financial Reporting Standards (IFRS) are a specific defined set of accounting
standards which states the way of reporting the particular type of transaction and other business
events. They are issued by International Accounting Standard Board (IASB), which clearly
describes the working of an accountant and the way in which they can maintain and report the
accounts. IFRS were introduced in order to have a common language of accounting which is
helpful for accountants and businesses to understand company to company and country to
country. The standards mainly aims at maintaining the stability and transparency in the financial
world. (Tricker and Tricker 2015)
Following are the various aspects of business practices for which IFRS set the mandatory rule:-
 Statement of financial report- It is also known as balance sheet which impacts the way
in which the reporting of elements of balance sheet are made.
 Statement of comprehensive income- It is a form of a single statement, or it can be
stated as profit or loss account and statement which shows the position of equipments and
property.
 Statement of changes in equity- also termed as statement of retained earnings which
states the changes in earning or profits of the company for a given time period.
Statement of cash flow- this is the summary of financial transactions for a given period with the
separation of cash flow into operations, investing and financing.
SECTION 4

3.1 Explain the difference between long-term financing needs and working capital needs for
businesses.
Basis of
Difference
Long term financing Working capital need
Meaning Long term financing means financing that
compasses a longer stretch of time that could
go for a year or more to face the shortage of
capital.
Working capital financing is to
finance the everyday
operations of the company.
Flexibility Long term financing is less flexible because
amount of fund raised using sources of long
term financing can not be changed as per
requirement.
It is more flexible than long
term financing because the
amount of fund raised can not
be changed as per the
requirement (Oulasvirta,
2016).
Time period Long term financing is more than one year Working capital or short term
can be financing for a shorter
span of time from one day to
18 months.
Sources Long term funding can be done from shares,
debentures, public deposit, term loans from
bank, loan from financial institution, etc.
Working capital sources are
customer advances, short term
bank loans, overdraft
agreement, letter of credit etc.
Requirement Long term financing is used to buy non
current fixed assets, expansion of
companies, construction on a big scale.
Short term funding is raised to
meet daily expenses, to
increase level of current assets
and working capital.
3.2 Compare sources of long term finance and working capital finance for businesses.

 Long term financial sources: it is a source of financing that is provided for more than a
year. The firm which are facing shortage of capital, take the long term financing.
The long term financial sources are:
1.Equity Shares: the public limited company can raise funds from public or promoters as equity
share capital by issuing ordinary equity shares. Equity share capital also provides security to
other investors of funds. Hence, it will be easier to raise equity share capital.
2.Debentures: it is a document of acknowledgment of the debt with the seal off the company. t
contain the term and condition of loan,payment of interest, redemption of the loan and the
security offered by the company. It is an instrument of raising long term loans.
3.Loans from Financial Institution: firm getting long term loans by raising loans from the
financial institution. Term loan also referred to as term finance, represent a source of debt
finance which is repayable in less than 10 years (Marshall, 2016). Term loans are secured
borrowing a s significant source of finance for investment in the form of fixed assets.
4. Retained earning: When a company retains apart of its profit in the form of free reserves and
same is utilized for further expansion and diversification programes , it increases the net worth of
the business. It is the cheapest method of raising a long term finance. Short term or Working
capital:Working capital finance is a loan that has the purpose of financing the everyday
operations of a company. Working capital loans are used to cover accounts payable, wages, etc.
The sources of working capital financing are:
1. Loans from Commercial banks: small scale business can take loans from commercial banks
with or without security. This loans can be repaid either in lump sum or in installment.
2.Public deposits: short term funds can be raised by inviting shareholders,employees and general
public to deposit their savings with the company. It is simple method of raising funds from the
public.
3. Bank overdraft and Cash credit: overdraft is a facility of exceeding the current account balance
for a short period of time. Cash credit is an arrangement whereby the banks allow borrowing
money up to a specific limit called cash credit limit.
4. Advances from customers: demanding the advance payment from the customer is an easy way
of raising short term funds.
3.3 Identify why access to working capital is critical to business continuity.

Working capital is the part of the capital employed of the company. It is the difference
between short term liability and short term assets. In general it is the cash required to meet the
day to day expenses on salaries, wages, rents, advertising etc . It is more like heart of a
company, if it is weak ,the business can not survive or will be difficult to survive. Working
capital not only important but should also be in adequate amount. Working capital is the
lifeblood of the company as it is important for the smooth operational function. Working capital
is important for a company and its continuity, importance of working capital are: Strengthen the solvency: Working capital helps to operate the business smoothly without
any financial problem for making the payment of short term liabilities (Gordon and et.al.,
2017). Purchase of raw materials and payments of salary, wages, and overhead can be
made without any delay. Enhances the goodwill: A firm with strong working capital position can make timely
payment of its outstanding bills. This enhances the reputation of the firm.
 Meeting of contingencies: any unforeseen contingencies like business depressions,
financial crisis due to huge loss can be overcome if the working capital is maintained by
the firm.
3.4 Critically examine techniques needed to manage cash flow and the impact of cash flow on
key business decisions.
The success of the business often depends on how healthy its cash flow is and how
well it is managed. For a new business this is very important as in the starting the company will
have lower level of working capital. Following are some techniques needed to manage cash flow.
 Keeping the track of status of cash flow in order to be able to manage it. It involves to
have knowledge of every area of business where money is needed.
 Monitoring any inefficiencies which hampering your cash flow immediately, as even
small one can make a huge losses.
 Increasing cash flow doesn't means to cut down the operational cost, investing in the
business by hiring people and purchasing resources is important to increase productivity
of the business (Laudon and Traver, 2013).
 Making payments on time is an important cash flow technique.
Cash flow in the business is estimated by preparing cash flow statements. It is a financial
report which shows the cash inflow and outflow at a given time. Cash flow statement is

important indicator for decision making as it show's firm's liquidity. It has a huge impact on the
company's decision making, as it deliver the key information that helps in making financial
decisions like making short term budget. Positive cash flow helps the manager to fix the daily
budget of the company and the proper use of working capital.
3.5 evaluate – using illustrative examples – methods for making capital/investment decisions and
criteria that may be used in the evaluation
The methods which are used to evaluate capital budgeting decisions are: payback period: it is the calculation of time period to get the original investment back.
This method is very easy to calculated. Payback method doesn't consider the time value
of money. Net Present Value: NPV approach does consider the time value of money for as long as
the projects generate cash flow. The net present value method uses the investor's required
rate of return to calculate the present value of future cash flow from the project
(Cucchiella and Rosa, 2015). The net present value method considers the differences in
the timing of future cash flows over the years Internal rate of return: this method is simpler variation of the net present value method.
It uses a discount rate that makes the present value of future cash flow equals to zero. A
project that has the highest internal rate of return may not have the best net present value
of future cash flows
3.6 Explain the benefits and drawbacks of off-balance sheet financing.
Off-balance sheet is the term for asset and liability that do not appear in company's
balance sheet, but still considered as the assets and liability of the company. The items in off-
balance sheet are those which is not owned by or are directly obligation of the company. The off-
balance sheet financing includes operating leases and partnership. By using operating lease, the
company is recording only the rental expenses, resulting in clear balance sheet.
The advantage of off-balance sheet are:
 As the item is neither an asset nor a liability, a business doesn't want to include it on
balance sheet. Because off-balance sheet item is not a liability it gives little risk to the
company.

 With off-balance sheet financing, the business obtains the funds or item it needs without
affecting its debt burden. Off balance sheet financing gives the business the ability to use
its remaining allowable borrowing capacity for other purposes.
Disadvantage of off-balance sheet are:
 The balance sheet records the value of long term assets at the price paid for them known
as historic or book value. A disadvantage of off-balance sheet is that it ignores the
current value of these assets, it also ignores the value or the money it would take to
replace an asset at current prices (Nash, 2018).
 Only assets acquired by transactions are reported on the balance sheet. Therefore, it does
not includes some very valuable assets that can be expressed in monetary terms.
SECTION 5
4.1 Financial implication made by various business ownership structure
Importance of effective financial control in all the business activities on which the
structure of business will be helpful in bringing the qualitative outcomes which in turn will be
effective and adequate in analysing the requirements. There various common ways and variation
sin the structure of the business such as:
Sole proprietorship: These are the businesses which are self-governed and operated by a
single owner one which the utilisation of funds is mainly relevant with purchase of inventories
and other overheads (Types of Ownership Structures, 2018).
Partnership: Considering the nature of this business where governance based on
influences of more than 2 partners. Thus, the requirements of funds in making payments to the
staff, operating expenses of business etc.
Corporation: These are the organization which seeks for the appropriate amount of
revenue which will help them in rising the market share as well as making payments to the
shareholders and meeting operating expenses.
4.2 Analysing the corporate governance, legal and regulatory environment
Demonstrating the corporate governance in relation with the various structure and nature of
businesses. Thus, it can be said that in sole proprietorship the governance of funds will be based
on making appropriate decisions (Veatch, 2017). However, in relation with partnership firms
these are the decisions which has been made by professionals on their mutual understanding as

per analyzing their requirements and managements of each operations. However, in relation with
this it can be said that there are various issues which will be addressed as per having
improvements in various business operations.
4.3 Interest of stakeholders and managers in decision making
The decisions made by stakeholders and managers are mainly based on financial discloser made
by the company. Investors mainly seeks for the financial disclosure which consist of information
relevant with turnover and the dividend policies of the organization. Similarly, internal managers
seek for the information relevant with operating expenses and the valuation of firm on which
they make decisions to overcome with expenses as well as plans for promotional activities.
4.4 Evaluating the significant return on capital employed as well as managing long term
solvency
Analyzing the return on capital employed which will be helpful in managing the long terms
solvency of the firm (Karl, 2018). Thus, the equity has been collected by the firm in the years
will be measured as per analyzing the profitability which consist of information that the revenue
of firm will be risen and have the most appropriate outcomes in return.
4.5 Importance of EPS in measuring business performance
Analyzing the Earning per share will bring the information that the how much a company is
retaining on its generated capital (Bucher‐Koenen and et.al., 2017). Thus, it will be helpful tool
in bringing the information relevant with the market value of firm.
CONCLUSION
On the basis of above report it can be said that there are various obstacles and changes in the
operations which will help in meeting the targeted aims of organization. Analysing the impacts
of various financial tools which are needed to be considered by the professionals of entity that
will be appropriate in improving the efficiency, profitability, liquidity and solvency.

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Types of Ownership Structures. 2018. [Online]. Available through :<
http://oneal.research.ucf.edu/Class/GEB5516_4152/Business%20Structure/Business
%20Formation-Ownership%20Structures.pdf>.