Advanced Finance for Decision Makers

This document provides an overview of advanced finance for decision makers. It covers topics such as the role of financial information and analysis, financial statements, and the significance of financial factors in decision making. It also explores the importance of cash flow and fund flow statements in decision making.

Advanced Finance for
Decision Makers

Table of Contents
INTRODUCTION...........................................................................................................................3
Section 1..........................................................................................................................................4
Role of financial information and analysis..................................................................................4
Section 2..........................................................................................................................................6
Financial Statements....................................................................................................................6
Section 3........................................................................................................................................11
Accountability for Financial Reporting.....................................................................................11
Section 4........................................................................................................................................15
Sources of Finance.....................................................................................................................15
Section 5 - Ownership Structures and Financial Performance......................................................18
CONCLUSION..............................................................................................................................21
REFEERENCES............................................................................................................................22

INTRODUCTION
Finance is an integral part of corporate growth. To accomplish their priorities and goals,
companies are expected to handle their financial capital in an acceptable manner. They are
expected to consider the link between risk management, financial reports as well as financial
decision for such a reason. The present initiative, alongside relevant realistic examples, focuses
on explaining this financial element (Bag, and et.al., 2020). The article would provide an
overview of financial reporting as well as its role in the decision-making process. Accounting
mainly focuses on transmitting financial information about a business. Basically, reporting is
indeed a backward-looking sector, dealing about what has previously occurred economically as
well as what role the organisation is placed in currently.
Maximizing shareholder equity is the main focus of corporate finance. It is possible to increase
shareholder capital from over long-term and short-term, but the financial department's role is to
decide how strive to accomplish both. Often the targets can seem to be in conflict with each
other. A business may for instance, opt to pay distributions (a small pay-out to any man who
takes a company's shares), which enhances the equity of short-term owners. Dividend payment,
furthermore, implies that perhaps the capital is not spent in long-term acquisitions that could lead
to a further rise in the equity price level, thus raising the income of long-term owners. The
finance department may also decide whether a corporation can claim a debt. Suppose, for
instance, that both schemes are total home runs, however the business always only seems to have
enough capital to finance one. That the corporation can borrow funds because it can pay them,
the financial manager can find out. In an organisation, the primary priority is to ensure that
capital would be in the system at any point moment. A business needs to provide enough money
to cover its expenses, but it still needs to make significant investments because it can expand. For
the general purpose of maximising shareholder capital, the financial system is committed to the
challenge of finding out where to assign funds to do otherwise (Brée and et.al., 2015).
Finance is really the management of how to manage funds appropriately, how persons and
organisations can spend money in order to produce the highest potential expansion across time
under changing circumstances. Functionally, financing with a forward sector, obsessed with how
a resource throughout the future would be valuable.

Section 1
Role of financial information and analysis.
Every decision which is made with respect to the business will be pointing out specifically to
a problem or a demand of the department, but all the decisions can harm the main objective of
the company. When the decisions are made by the managers, it can terminated in to
interdepartmental complex issues. There are couple of factors which guide and drive the business
decision makings:
1. Return on investment- one of the common factor which is driving the business decisions
is the impact of profitability. It can be estimated in plenty of ways, but to calculate a
return on the investment is still the easiest one. The return on investment is the range of
benefit which one receive or lose by performing an action.
2. Image and impact of brand- while making decisions of business, starting whether to
advertise and selling or to the prices which is charged and the charities sponsored by the
business, it have an impact on the image. It could be good for the business to give that
inventory and proceed the business further, but even if the business is ended up with less
financial profit from the donation, as they will protect the brand.
3. Effect on resources- while evaluating the profit caused by a good decision in a business,
one might also be concern about the entire effect on the sales or on the human resources
and the accounting, production and data technology details. If by making specific product
will snatch the staff away from the other practices, they might lose the other benefit
opportunities.
4. Lost opportunities cost- while making a choice, one may lose the chance to make another.
For example if one purchases a fresh machinery which will progress the production, one
may not be able to produce the bonuses for the year. While making important business
decisions, it should be kept in my mind that what will happen with the money and the
resources (Francis, Hasan, Park and Wu 2015).
There are few more important factors which impact on the business decision makings. These
factors includes the past records, a couple of cognitive activities, a series of commitment and the
results, the differences of individuals, involving the age and the social and economic status. . In
addition making some strategic decisions is a crucial part of handling a business. Some of the

decisions which are taken can also affect the employees or the consumers. Regardless of the fact
that whether that how high or low are the effects of the choices, it is essential to also consider the
factors affecting decision making in a certain business. Most of the businesses form decisions in
accordance with how they will adjust with the company’s strategies. To make choice on the basis
of the image and the impact of the brand of the company will present the others about the
strategies of the company which are fixed and aligned. There is a critical implications of the
business environment on the business decisions. And it becomes necessary for the business to
have a look onto the overall data which is available while making those decisions which affects
the entire company (Graham, Harvey and Puri, 2015).
2. Significance of the financial factors: the financial factors are the key tools which allows the
business to monitor all their financial transactions. Financial accounting in a business is a
process in which the company make a record and submit the details of financial information
which goes inside and outside of the business activities which approves both the company
managers and the outsiders to be aware about the company’s position and make certain
decisions. The financial factors is a score card on the financial record of the business which
represent when the sales are done and when the amount has been incurred. It collects the data
from couple of financial statements which was formed earlier like the revenues, expenses,
capitals and the good costs (Fonseca, Mullen, Zamarro, and Zissimopoulos, 2012). There are
few areas in which financial accounting helps the business decision making of the company:
 It supplies the investors with a base-ful examination for and the comparison among the
financial conditions of the securities providing organizations.
 It provides help to the creditors to assess the ease, transparency and the creditworthiness
of the business.
 In addition to the above factors, it also helps the businesses about how to assign the
different resources in a business. The financial accounting is also a lifeline for the
creditors as the financial statements.
3. The financial decisions can have a long term impact for the customer’s wellbeing and other
crucial decisions. The consumers make the financial decisions out of which some of them are
complicated. There are some primary areas which are enrolled in financial decision making
which includes the financial behaviours which further helps in financial wellbeing, psychosocial
identification of financial wellbeing and the role of various components in the financial

wellbeing. The process of financial decision making is quite sensitive and is under the control of
the financial managers to identify the external and the internal components which can affect the
casual formation of company activities. The financial managers can process the decision making
in four main areas:
Investments: in the area of investments, it is the responsibility of the financial manager to define
the optimal size of the company. In this context, it is necessary to have a market study in the
place and be clear about the aims to which the company is objecting.
Financing: the financing strategy can be defined as the effective being in the continuation of the
business to a long period of time.
Management of assets: it is one of the major components for the company to gradually meet the
requirements and as result to fix itself to meet the aims or the goals which have been laid out by
the company.
Dividend policies: the most essential financial decisions which is taken by the financial
managers is with regard to the company’s dividend policies. It is related to the evaluation of the
company’s earnings which will be paid to the shareholders (Levy, 2015).
Section 2
Financial Statements
In the companies Fund Flow statement uses the Accrual Basis of Accounting This is the reason
why fund flow is being used here instead of accrual basis the cash flow statement includes the
facts that led to the cash movement in a financial year. And the fund flow statement includes all
the facts that are cash related even if the cash movement has not occurred. But whenever
manager want to make cash traffic from them. The cash flow statement determines the inflows
and outflows of cash on the basis of operating activities, investing activities and financing
activities. In the fund flow statement, it is known according to the source of fund and application
of fund. And it is through this that the change in working capital is known. The cash flow
statement extracts the changes in cash and bank balances. Financing positions of the company
are ascertained in the fund flow statement. Here the fund flow will work only when an account is
a current account and a non-current account. It is seen in the cash flow statement that the
company is doing cash generate at a rapid pace Whereas in the fund flow statement, it is known

that how much the working capital of the company is being euthanized. Cash flow statement
performs short term analysis while fund flow statement performs long term analysis.
Importance of cash flow statement in decision making:
The cash flow statement displays the cash position of the company any company can increase
more cash in the current financial year than the previous year, it can also lead to more liability of
the company. Because the company took more loans or the payment was not made to the
suppliant at the right time or the interest amount was not repaid. Due to all these reasons, the
cash increases, so in the company it should be kept in mind that there should not be much
increase in the cash.
Importance of fund flow statement in decision making:
The main objective of the fund flow statement is how to find the change in working capital of the
company. By this, the decision can be easily made to improve the working capital of the
company. From the fund flow statement, the company has to say the profit earned in the financial
year, it can easily decide. Through this, the overall credit of the company can be easily
ascertained.
2. The following are included in the final accounts of the company.
Income statement: The profit / loss due to the purchase and sale of goods and services of an
organization during the financial year is made by making an income statement.
Balance sheet: It is a mirror of the company. Within the balance sheet, there is a final statement
of accounts opened in the books of the company.
Cash flow statement: These details are made to strengthen the position of the company. And
based on the cash flow statement, decisions are made for future activities in the company.
Structure/Content of final accounts:
Income statement structure/ content: The income statement covers all types of revenue and
expenditures and also includes the sales and purchases that take place in the company. Within
this, all types of income and expenses incurred in the company should be transferred.
Balance sheet structure/content: There are two parts inside the balance sheet, one is the
company's liabilities and the other is assets. Accounts that have debit balance balances are
recorded on the assets side and the liabilities side of the accounts with credit balances.
Importance in decision making: The status of the company is analysed from the financial
statements itself. And it is seen that the company is in loss or in profit. In the company can easily

get the information of any account from the company's balance sheet. The company's financial
value can be estimated from financial statements. Financial statement Cash flow and fund flow
can strengthen the financial position of the company and make decisions easily.
3. Balance sheet: Here the current assets have increased in the year 2018 as compared to the
year 2019. Because the cash and its equivalent have increasedwWhile inventory has decreased.
There is a decrease in non-current assets in 2019 as compared to the year 2018, because there has
been a huge decrease in property and equipment. And there is also a significant decrease in
Intangible assets. And in view of current assets and non-current assets, total assets have also
decreased in 2019 as compared to the year 2018. Here the current decrease in the year 2019 as
compared to the year 2018 as trade and non-payable provisions deferred income and current Tax
liabilities and other liabilities have decreased significantly. Similarly, non-current liabilities have
also decreased significantly in the year 2019 as compared to the year 2018. And the total
liabilities and net assets have also decreased. If we talk about equity, then it is bigger in 2019
than in 2018 because there has been an increase in accumulated losses.
Income statement: Here the sale of the year 2019 is very less as compared to the year 2018.As
it is seen that there is an increase in operating gross profit in the year 2019 as compared to the
year 2018. There has also been an increase in debit, restructuring & store exit costs have
increased a lot in 2019 as compared to the year 2018. Due to this, there has been a huge increase
in net finance cost and profit of the period.
4. Capital expenditures: Expenditure whose benefits are available for more than one year are
called capital expenditure. It is as follows, Expenses to purchase permanent properties, Expenses
for setting up properties, Expenses for obtaining license, Legal expenses related to purchasing
properties, Expenses before the company's conference.
Decision making in capital expenditure: Long term decisions are taken from capital expenditure
because the impact of these expenditures lasts for many years. Hence capital expenditure acts as
the main decision making company. These decisions cannot be changed later as the capital cost
of capital expenditure is very high. That is why the company can increase and decrease its
growth. Capital expenditure should be kept in mind by how much return can be received in the
future.
Income expenditure: Expenditure for the operation of business or to maintain the efficiency of
permanent properties or expenses incurred to fulfil the day-to-day activities are called income

expenditure. Such as interest payable on debt, interest payable to creditors, administrative and
distribution expenses of business, post-conference expenses and operating expenses of the
business - salary rent etc.
Decision making in Revenue expenditure: The decision of the Revenue Expenditure affects the
company in the same year that it is taken. Because these expenses cannot be taken in the
following years, they are transferred to the profit loss account of the same year. Through these,
the benefits of the company in that year can be higher than in previous years.
5. According to some examples in the company, decisions can also be taken by proportions,
which is as follows.
Particular 2016 2017
Gross profit 116000 118000
Total revenue 234000 250000
Cost of Goods sold 133000 138000
Average inventory 502000 579000
Current assets 43000 48000
Current liabilities 48700 52000
Total liabilities 805000 848000
Total assets 1878000 1856000
(A) Profitability ratio: This ratio shows the profitability of the business. Here the profit in 2016 is
higher than in 2017.Which may result in higher sales or higher profits.
Gross profit ratio= Gross profit/ Total revenue 2016 2017
116000/134000 118000/280000
0.50 0.47

(B) Efficiency ratio: This ratio shows the arrival rate of the company. Here the inventory ratio of
the year 2016 is higher as compared to the year 2017, this shows the situation.
Inventory turnover ratio=COGS/Average turnover ratio*365
(C) Liquidity ratio: This ratio shows how
much liquidity is going on in the company here the current ratio of 2017 is showing more
liquidity than in 2016.
Current ratio= Current assets/current liabilities
(D) Solvency ratio: It shows the paid position of the company. Vassar: Here is the payment
position of 2016 for 2017.
6. Key requirements for published accounts: In order to make the big financial companies aware
of the position of the company, to the shareholders, to the investors, etc., the final financial
statements are given in newspapers and magazines have to publish in the beginning. So that
2016 2017
133000/582000*36
5
138000/579000*365
83 87
2016 2017
43000/48700 48000/52000
0.88 0.92
2016 2017
805000/1878000 848000/1856000
0.43 0.45

people have faith in the company and people do not get paranoid without any knowledge. For
this, the company must show the right and meaningful facts. The company needs facts that are
easily taken by any person. The language of financial statements should be simple and
accessible. The financial statements should be given by the company in such a way that any-one
can easily decide from them. The facts of financial statements are neither too detailed nor too
small. Because the excess of these two can cause complexity in them the figures of financial
statements should be such as to present the financial position of the company as a mirror.
Section 3
Accountability for Financial Reporting
Between governance, business ethics and accounting ethics for controls on business
accountability
Governance: It requires a series of government rules and laws that influence companies to carry
out their operations in a lawful way. It is important for organisations to include the authority in
the decision-making mechanism by contemplating governance. Both methods of governance,
whether conducted through some kind of state government, a marketplace or a system, across a
class system (family, tribe, formally or informally entity, a region or through regions) as well as
whether by an organised society's rules, norms, authority or expression. It includes the processes
of communication and judgement amongst these main actors in such a shared question that
contribute to the formation, reinforcing, or maintenance of social rules and traditions" It can be
characterised as the political activities that happen between all those institutional structures in lay
terms (Farashah, Thomas and Blomquist, 2019).
Business ethics these are a collection of principles and guidelines that through their corporate
strategy include the duty of companies relevant to culture, nation, climate and human beings.
The relation of correct or incorrect and better or bad can be calculated strongly. Business conduct
of acceptable business rules and procedures on inherently contentious matters such as financial
regulation, stock dealing, corruption, sexism, CSR and tax obligations. Company ethics are
always guided by the legislation, but business governance at all times offer a clear principle that
organisations can then choose to adopt to achieve public acceptance.
Accounting ethics: This requires a set of moral meaning and decision requirements that shape
the company inside an ethical way to uphold its financial and responsible activities. It is mainly

an area of applied philosophy as well as the examination of universal principles and decisions as
they refer to accounting is part of doing business ethics as well as professional ethics.
Evaluation of the position of the business manager as a protector of corporate governance
According to the ethical principle, it is critical that the finance manager provide reliable,
qualified information. Timely details relevant to revenues, spending, income, performance and
net profitability towards their managers and shareholders (Day, 2005). For this, user has to
preserve a secret deposits in compliance with the leadership's data privacy legislation. Selling
and purchasing sensitive business-related details to boost asset valuation is a legal crime that
must be removed also by firm's earnings officer.
Promote the making of legal and rational choices
The Board maintains that perhaps the Bank facilitates ethical and prudent decision-making then
using the Organisation's ethics and guiding standards, compliant with all applicable rules,
legislation, legislation and standards of professional commercial conduct. The ethics and
operational standards cover the following issues: conflicts of interest, business incentives,
secrecy, good faith, the security of use of the properties of the Company, full disclosure, and the
advancement of illegal/unethical conduct reporting (Kimmel, Weygandt and Kieso, 2018).
Protect truth in financial statements
The Company has a process in place to objectively validate and maintain the credibility of
financial statements of the standing firm, such as the executive management directed by the
senior independent consultant as well as the formation of the internal auditors, as mandated by
statute, with which the supreme internal audit function report. As an essential part of good
financial regulation, the presence of even an audit committee is acknowledged globally and is
mandated by the Investment Funds Act. The independent auditor of the Company is therefore
regulated by a document setting out even the duties and obligations of the auditing firm, the
ethical requirements to be practiced, the personnel and corporate bodies and stressing the
integrity of the independent investigation within the organization's structure of that same Bank.
Through internal audit too is directed by all its constitutional arrangements and controlled by
them.
Establish prompt and balanced disclosure
The Company shall facilitate the publication in an appropriate and measured way of all relevant
matters affecting the Bank. In order to do this, the Bank has developed mechanisms established

to maintain conformance to specifications regulations as well as to ensure measures to comply at
the senior level, like:
Both shareholders have fair and timely to access to just the business's material details, such as its
financial condition, results, corporate ownership. In a transparent and fair way, bank reports are
accurate and portrayed. Balance demands that all positively and negatively facts be revealed
(Mesa, Molenaar and Alarcón, 2019).
Respect for shareholders' interests
The Company values the profit maximization and finds it possible to exercise those rights
efficiently. Towards this purpose, it's really the duty of the Board to ensure that there is a
meaningful discussion with customers. The Board encourages shareholders to pursue this task
by:
 Effectively interacting with them
 Making them immediate access to reliable and comprehensible bank details
 Made it simple for them to take part in annual general
Key concepts and principles of corporate governance.
At the time of policy making, companies are expected to recognize ethical principles while
addressing the stockholders. Organizational administration should not make choices that violate
the requirements or legal aspects of the legislature (Coles, Lemmon and Meschke, 2012). For eg,
the price strategy should be put in line with the item's amount and quality. In addition, for greater
sustainability, companies need not lose efficiency.
In addition, several stockholder efforts to alter business strategy (for example, through spin-offs)
or capital investment strategies (through equity repurchase programmes show that shareholders
insight on such topics has also been received throughout the corporate world in some situations,
at minimum. This increase in investor control is seen as necessary by some analysts, claiming
that investors are the corporation's real owners. A few doubt that whether targets of investors are
too suitable for short public investment uses, like equity financings or unique dividends. Capital
management techniques focused on short-term interest, type and duration of the equity portfolio,
can be perfectly reasonable for an investor. Whereas when contemplating the effective use of
resources for the business and its many owners, the company has a really different position
(Mihăilă, 2014).

In fact, the management must continuously weigh between long-term and short-term
resource uses (e.g. essential or artificial capital investment, financial performance, and then also
assess the optimal allocation of that resources in accordance with the corporate plan of the
corporation as well as the long-term value growth objective. Management presents financial
reports that reasonably describe the financial performance of the firm and the performance of
activities under the supervision of the management and also the auditor's report, which allows the
daily report investors require to determine the business's financial and operational soundness as
well as risks. The committee's internal auditors conducts and handles the information to the
external auditor, supervises the financial statement report analysis of a company and external
revenue recognition measures, as well as monitors the risk assessment and regulatory systems of
the organization (Reckers and Samuelson, 2016).
Key national and international financial reporting standards
In 2001, the IASB (the Board) is an autonomous normal entity including its IFRS
Foundation, an autonomous, non-profit, private industry agency activities in the retail interest. Its
ultimate objectives seem to be:
To establish, in the general sector, a given model of IFRS Standards of excellent quality,
accessible, actionable and internationally agreed, with well-articulated principles. Such
requirements should include high-quality, accessible and equivalent financial impact on revenues
reporting documents to assist investors, other players in global financial markets as well as other
business information consumers in making economic choices:
 Promoting the use of certain criteria and their thorough application.
 To consider responsibility for the impact of a variety of sizes as well as categories of
company in various economic environments, as needed, in achieving the objectives.
 Promoting and supporting the implementation, thru the integration of local accounting
principles and of IFRS guidelines, which are the guidelines and meanings given more by
Authority (Nielsen, Mitchell and Nørreklit, 2015). The administration and supervision of
the operations performed by the Conceptual Framework as well as its requirement body
shall be carried out by a group of directors, internationally and technically representative,
who shall also be committed to protecting the integrity of the Company as well as for
maintaining that the institution is funded.

 The Trustees are collectively responsible to the state governments' Oversight
Commission. The Board is an impartial body of professionals with an adequate blend of
recent related expertise in establishing financial statements, in the planning, audit or use
of financial reporting, as well as in the area of management accounting.
Fair description and adherence with IFRS: Fair summary creates a reasonable description of
the impacts of purchases, other activities and circumstances in full compliance mostly with asset,
liability, revenue and expense interpretations and identification guidelines laid out during the
IFRS framework (Tuo, Feng and Sarpong, 2019).
Going concern: On a continuing remains a major, financial reports remain present until
company either plans to repossess the company or stop trading, and therefore has no reasonable
choice but doing so.
Accrual accounting basis: Whenever a company satisfies the concept and recognition
requirements for certain components throughout the IFRS system, it considers the products as
properties, liabilities, equity, revenue and expenditures.
Materiality and aggregation: It is important to individually present any material class with
related products. Objects of a certain type or purpose shall, if they are irrelevant, be viewed
differently (Paton and Andrew, 2019).
Section 4
Sources of Finance
1. Financing is an essential part of any business. Few companies might need some of the
financing to pay the assets and other important products. Financing can be classified as
long term or short term.
Long term financing – The long term financing is commonly needed for the gaining fresh
items, R and D. cash flow progression and the expansion of the company,. Few methods for
long term financing are equity financing, corporate bond, capital notes.
Working capital needs- the working capital is being utilized by the lenders to help the
capacity for the company to compare the tough financial needs of the business. Working
capital is measured by reducing the current liabilities from the recent trades. The working
capital is used to give short term acquisitions like those accounts which are payable and to
buy inventories. If the working capital goes low the company is at risk from running out of

the cash. Though the businesses which are facing good profits can run into problems if they
are failed at meeting the short term obligations.
2. Long term sources of finance- any part of working capital which permanently remains
along with the business is also being financed with regards to the sources of long term
finance. The sources of long term finance can be in any of the forms mentioned:
Share capital and the equity sharing, the preference capital or the shares of preference, the
retained incomes or the initials accruals, the debenture, term loans drawn from the financial
organizations, or the government or commercial banks, the funding systems from the ventures,
securing the assets etc.
Working capital sources for business- The sources for the working capital can be either
spontaneous or short and long term. The spontaneous working capital involves the trade credit
like the sundry creditor, the bills which can be payable and the notes which are payable. Short
term sources are the provisions for tax, the provisions for dividend and the bank overdraft, the
credit for cash and deposition of trade , public deposition, the discounts for bills and the short
term loans, inter corporate loans and the commercial paper. The sources for long term are the
retaining benefits, depreciation provisions.
3. The working capital signifies the company’s short term financial stability which is
estimated by reducing the recent liabilities from the ongoing trades of the company. The
working capital matters as it indicates a company’s transparency, the effectiveness of the
company and the short term aspects. It not only helps in providing the confidence and
courage to the businesses and the investors in order to run with the company on the basis
of its financial status but also represents the company’s management details. If there are
situations which are becoming crucial and developing the challenges for the business
finances and there is a need to look after a new way in order to maintain the working
capital. In absence of the working capital, the money required to fix the short term
demands and the activities, the businesses could not continue to accomplish. It is
essential for the companies for the appropriate management of the cash flows and the
expenses to make there that there sufficient working capital to manage the business
continuity.

4. Techniques for the management of cash flow and the impact of cash flow on the
business: The better outcomes of business is dependent on the cash flow and how it is
managed. There are some best techniques which are found effective to manage the flow
of cash (Lusardi and Mitchell, 2017).
First and the foremost technique is to have the best details on the status of cash flow in a way to
manage it. This means keeping a tight monitoring on every aspect of the business wherein the
money is in the role, and to have regular inspection on how much the money has been spent. The
other is cutting out the inefficiencies which are taking over the cash flow. The third technique is
to keep on investing on the people and the resources. To raise up the payments and by using the
invoice financing techniques (Callahan, Smith and Spencer, 2013).
5. Methods which are used in capital decisions: There are companies which use few
techniques to identify if it is liable to invest the funding system in a capital expenditure
project. The most frequently used methods for capital decisions are the payback time, the
net present value and the examination of the inner rate of return (Masini and Menichetti,
2012).
Payback period- it is the most popular method as it is easy to measure. It is the calculation of
how much long time it takes to get back to the natural investment.
Net present value- the net present value is concerned with the value of time for as much long as
the projects produces the cash flow.
Internal rate of return – it is the method for simple detection of the net current value. The internal
rate of return make in use the discount rate which makes the recent value of cash flow equalling
to zero.
6. Benefits and drawbacks of off balance sheet financing :
The advantages of off balance sheet financing is it enables a company or an institute to
improve its leverage term and the return on investment and to ignore the breakage of any
loan deal.
It operates and helps in creation of transparency in the business along with neglecting the
extra leverages.
The off balance sheet financing also help in saving the borrowing ability.

Disadvantages: by preserving debt the off balance sheet enables the company to show more
creditworthy but it does not represents the financial figure of the company to the creditors,
shareholders and to the audience outside. The collapse of the Enron organization in large
excess to the company’s off balance sheet financing by various partnerships.
Section 5 - Ownership Structures and Financial Performance
Analyse critically the financial implications of different business ownership structures
There are several types of business ownership structure which have different financial
implication that impact on their decision making. So it is essential for every company to
understand their financial implications while developing decision as that provide them
opportunities for growth successfully (Choi, Taleizadeh and Yue, 2020). Below some of the
finical implication of different business ownership structure are mentioned below:-
 Sole proprietorship – the financial implication of sole proprietorship is minimum as it is
based on the income as well as saving of the owner as they have to operate their business
alone. There are several ways through which a sole proprietorship business owner can
arrange funds such as bank loan, loan from friend, family or dear one and many more.
 Partnership – in this business ownership structure financial burden is divided on two or
more partners. So in this financial implication is based on the partners who are ready to
conduct business in together manner. In partnership it is essential for partners to
understand each other and agree on each other factors.
 Corporate entity – organization is considered as artificial person thus it have separate
legal existence from its members. In respective types of ownership structure of business
members has limited amount which are payable for the capital contribution.
These are the main types of business ownership structure and its financial implication. So it is
essential for company manager to develop or adopt structure according to their requirement,
budge, cost and many more.
Analyse the corporate governance, legal and regulatory environments of different business
ownership structures
In sole proprietors ownership structure there is no legal obligations as there is less or
minimum responsibilities towards the stakeholders. They are generally obliged to conduct their
business in the fair way by developing legislator provisions properly or effectively. On the other

hand an individual who is operating in Partnership Company needs to operate in accordance
along with its partnership deed (Curtis, Kross and Stapleton, 2020). In addition to this they need
to comply along with the partnership provision related to partnership law. Furthermore there is
also another type business ownership structure who have high or huge responsibility due to
mandatory corporate governance strategy.
Compare and contrast the stakeholder interests of owners and managers in decision making
Within a company there are several stakeholders who perform different roles as well as
their interest is also different according to which they perform their task or job role. It is also
considered that stakeholder interest of owner as well as manager is different in decision making
procedure (Fischhoff, 2020). This is so because both have different responsibilities as well as
interest in the company as manager is interest in profit as that will help them in increasing their
pay whereas owner is to sustain in market for long time duration. On the other hand owner
stakeholder interest is related to earn more profit as well as by the minimum or limited expenses
whereas the stakeholder interest of manager is to accomplish work in proper manner for which
they do more expenses. In addition to this, another major different in stakeholder interest of
manager as well as owner is that owner are always take part in every meeting but there are some
meeting or conferences in which company’s owner as well as boards members are invited.
Using examples evaluate the significance of Return on Capital Employed (ROCE) and other
overall performance measures for the long-term sustainability of businesses
Return on capital employed is considered as an accounting ratio which are used in
finance, accounting as well as valuation. It is generally determined as essential measure which is
used in comparing the relative profitability of companies. This is generally happen after
considering into account or analyse the amount related to capital used. There are several
significance of Return on capital employed (ROCE), from which some main are mentioned
below:-
 Through high ROCE an organization can determined that they are using their capital in
proper manner. It is essential that a company ROCE must be greater than the capital cost
of firm (Killen, Geraldi and Kock, 2020). If it is not than organization is not considering
its capital properly as well as it is not generating shareholders value properly.
 Return on capital employed is generally used when comparison is done among the
performance of companies within the capital intensive sectors like telecom as well as

utilities. It is generally happen because Return on capital employed is directly or
indirectly related to the company equity.
Furthermore, there are several performance measures for the long-term sustainability of
businesses as those measures help a company management in developing effective strategies as
well as plans effectively. This will also help in developing strategies or plans that leads to
attainment of goal which leads to business growth. Below some of the main performance
measures for the long-term sustainability of businesses are given:-
 Business reporting models – through this performance measure tool a company
management able to evaluate their business as well as it also help in understanding the
business situation in effective manner so that they can attain the desire goal (Kumar and
et.al., 2020). In addition to this it also aid in analysing the environmental performance as
well as environment condition which help in developing decision in long term.
 Global reporting initiative – this is another major performance measure which is used by
a company manager in order to ensure long term sustainability in the potential
marketplace. It will be possible because through it manager able to understand several
aspects such as vision, strategy, profile, government structure, management system and
many more.
These are the main performance measure methods which are adopt by a company in order to
understand their performance as well as it also help in understand strategies as well as plans
effectively.
Using examples examine the importance of earnings per share (EPS) as a measure of business
performance
Earnings per share (EPS) is an essential financial measure that showcase the profitability
of an organization. This is generally calculated by the dividing an organization’s net income with
the total numbers of shares which are outstanding (Mitchell, Woolridge and Johnson, 2020).
Along with this, the higher earnings per share of an organization is better for its profitability
ratio. The rating of EPS are taken into consideration the growth as well as stability of an
organization’s earnings over the previous three years along with extra weighting put on most
recent two quarters. There are several importance of earnings per share as a measure of business
performance, from which some main importance are given below:-

 It helps measure if putting resources into an organization would assist financial
specialists with creating more pay. To detailed, a higher EPS demonstrates a productive
status, which thus, recommends that the organization may expand profit pay-out over the
long haul.
 Additionally, helps contrast the exhibition of promising organizations with assistance
pick the most reasonable speculation choice.
 Also, with the assistance of EPS speculators and other money related techniques, one
can decide an organization's current and foreseen stock worth. Further, investigates if its
stock cost is esteemed according to its market execution. For example, speculators utilize
the Price Earnings Ratio alongside Price Earnings Ratio to quantify the equivalent
(Zhang, Wang and Ma, 2020). In the Price income recipe (P/E), 'E' represents profit,
which is processed with the assistance of the EPS equation.
 EPS not just helps measure an organization's present money related standing yet in
addition helps track its previous exhibitions. For example, an organization with a
consistently expanding EPS is regularly viewed as a solid speculation choice. Moreover,
organizations with wavering or unpredictable EPS are generally not favoured via
prepared speculators.
CONCLUSION
From above discussed point it can be summarised that in order to conduct effective
decision making it is essential for company manager to understand their financial aspects. It is so
because through that they able to determine their assets and liabilities which help in taking
effective decision for the growth of business successfully as well as effectively. In this respect, it
is necessary for an organization to understand role of financial information and analysis as that
help in developing decision. Moreover it will also help in characterising business risk which may
impact on financial as well as business decision. Along with this it is also essential to understand
financial statement as that help in understanding main situation or condition of company
according to which development of decision is done. Accountability of financial reporting is also
necessary for a company as that directly or indirectly influenced by governance, ethical as well
as accounting standards. In addition to this while developing a decision it is necessary for a
company manager to determine source of finance so that they conduct all business operations as
well as functions successfully. Furthermore, in decision making ownership structure as well as

financial performance plays necessary role as that provide guidance in developing decision
effectively.

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