Business Finance: Accounting, Financial Statements, and Management Accounting

This report discusses the drivers of business performance management, the distinction between macro and microeconomics, and the importance of accounting in corporate decision-making. It also explains the types of financial statements and how to prepare them, and calculates the fiscal ratios of XYZ Ltd for the year 2019 and 2020. Additionally, it elaborates on the concept of management accounting and its significance in making effective plans, better decisions, and controlling organizational performance.

Business Finance

Contents
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
1. Give an explanation of the business performance management drivers, as well as the
distinction between macro and microeconomics...................................................................3
2. Explanation of the role and importance of accounting in corporate decision-making......4
3. Explain the types of financial statements and are used to prepare them............................5
4. Calculate the fiscal ratios of XYZ Ltd for the year 2019 and 2020 and give an analysis
for the company......................................................................................................................6
5. Elaborate the concept of management accounting along with its importance...................7
CONCLUSION..........................................................................................................................8
REFERENCES...........................................................................................................................9

INTRODUCTION
Business finance is a phrase that is commonly used during corporate environment for
evaluating the finances that are supplied by the stakeholders and investors to meet the firm's
requirements. These aid in evaluate the effectiveness and productivity of company concerns
based on financial statements, which are the most important aspect of any organization's
financial situation (Coakley and Huang, 2020). The report outlines the internal and external
issues that could influence the company's micro or macroeconomic environment.
Furthermore, the purpose and relevance of accounting, as well as how it aids in business
decision-making. Furthermore, the financial accounts are separated, and the year’s 2019 and
2020 ratios for the corporation XYZ Plc are calculated.
MAIN BODY
1. Give an explanation of the business performance management drivers, as well as the
distinction between macro and microeconomics.
The results and performances of any business enterprise is based on how smoothly a
firm is able to look and control its functions, operations. It is also dependent on how the
company make an optimization of its available resources and money. Because these resources
are used by the various departments and also have alternative uses. The corporate performs
its activities by observing and interpreting both these factors as they have direct and indirect
impact on the profitability of an organization. Internal and external factors are sometimes
controllable and in some cases they are not.
The components that affect the achievements and accomplishments of firm are as
follows:
 Rivalry among the market: It is not possible for any company to stand still in the
market for a long run until and unless they are not doing anything unique to achieve
its position in the industry. There are many businesses that have dealings with the
same type of commodities and services offered to them. So, in order to engage the
audience, it must adopt the unique pricing strategy or offer the products that serves
something different. When there is a tough fight between the various firms it brings
hurdles and disturbance in a company that create an adverse situation to remain
focused and it affects the company’s working and performances (Currie and Pandher,
2020). This can be considered as the macro-economic factor because it does not arise
from within of a firm.

 Advancement in technology: It is an internal factor; this states that the firm must
adopt the upgraded technology for the production. XYZ Plc shall use the developed
and updated methods to meet the competency level from its rivalries and to gain a
cost- effective advantage.
 Creditors and suppliers: They are considered to be the foundation stone for any
business enterprise. No company can survive on the market if they do not have strong
relations with lenders and financial institutions. XYZ Plc. shall make timely payments
to its lenders to maintain its image for getting approval on loans and also the with the
suppliers, so that they get the raw material in the best and negotiable prices (Mielcarz,
Osiichuk and Wnuczak, 2018).
 Consumers: They are the backbone for any company. As XYZ Plc is expanding its
business and thus it shall work on satisfying the customers to improve the
performance of a company. If a company fails to meet the needs and requirements of
its customers that it might result in decrease of the sales revenue and it leads to the
loss of finance. All this can have direct influence on the company accomplishments.
2. Explanation of the role and importance of accounting in corporate decision-making.
Accountancy is a concept that is widely used during businesses to describe the
process of recording transactions that occur on a daily basis. It aids in the recording and
subsequent measurement of a company's annual performance by summarising the company's
investment financing.
Significance of Decision – making in accounting:
 It aids executives in monitoring the corporation's revenues and expenditures in order
to handle daily operations. The corporation presented all accountancy information to
the users through yearly reports, which comprise financial statements that are used to
make and measure the company's profitability. This can also be used to estimate the
business's future trends and financial status (Oostendorp and et.al., 2019).
 Financial transparency: Whenever fiscal information is properly maintained, it
provides transparency to potential investors or stakeholders to control and manage the
company's financial situation and make informed investment decisions. It also aids in
the development and enhancement of trust and integrity amongst the company's
stakeholders and creditors.
 Future expectations: The compliance with accounting information aid in the
management of information utilising the budgeting technique based on the corporate

entity's prior performance. It helps XYZ Plc's management to make essential and
major decisions for the company's benefit (Rigatos, Siano and Ghosh, 2019).
 Debt Management: By properly maintaining accounting records, the company's
current management is able to monitor and get insight into the company's financial
status. It will assist the company XYZ Plc in successfully and efficiently managing its
debt and fiscal obligations.
3. Explain the types of financial statements and are used to prepare them.
The financial statement is crucial since it depicts the genuine image of the company's
performance throughout the fiscal year. Statement of financial position, income statement,
cash flow statement, and notes to accounts must all be included in the financial report.
Financial Statements are a logically ordered overview of all ledger account heads provided in
such a way that it provides complete information about the company's financial situation and
performance. As shown above, the profits and losses is assessed at two levels: gross profit
and net profit, thanks to the segmentation of Financial Statements into Income & Position
Statement. The finalized accounts are sorted into the categories below:
Balance Sheet: The balance sheet depicts the current state of the company's assets and
liabilities. It is prepared as of the date specified, which is usually the 31st of March. The
financial situation of a business enterprise is assessed by calculating its assets, debts, and
capital, and the results are presented to financial statement users. The financial situation of
the company can be determined by preparing a Position Statement, often known as a Balance
Sheet (Torre and et.al., 2019).
Income Statement: On the credit side, the Profit and Loss Account begins with gross profit.
If there is a gross loss, it will be recorded as a debit. Then, on the debit column of the Profit
and Loss Account, any expenditures and losses that were not recorded in the Financial
Statement will be written. Other than sales, all income and gains will be credited. If the
person understands the term "expenses," differentiating between things which will be debited
to a Profit and Loss Account as well as those that will be listed as Assets on the balance sheet
should be simple. Additionally, personal expenses would not be recorded to the Profit and
Loss Account. The Profit and Loss Account is only debited with revenue expenditures
relating to the current year.

4. Calculate the fiscal ratios of XYZ Ltd for the year 2019 and 2020 and give an analysis for
the company.
 Operating Profit Margin: (Operating Income / Net Sales) * 100
Year Calculation Answers
2019 (240 / 2500) * 100 9.65 %
2020 (35 / 2750) * 100 1.27 %
Analysis: According to the foregoing computation, the operating profit margin in 2019 is
9.65 percent, while it drops dramatically in 2020 to only 1.27 percent. The explanation for
this is that XYZ Plc's operating expenses have increased significantly. This is the explanation
for the decrease in profit, and it will have a negative impact on the firm's profitability.
According to the foregoing computation, the operating profit margin in 2019 is 9.65 percent,
while it drops dramatically in 2020 to only 1.27 percent. The explanation for this is that XYZ
Plc's operating expenses have increased significantly. This is the explanation for the decrease
in profit, and it will have a negative impact on the firm's profitability (Wang, Li and Wang,
2021).
 Gross Profit Margin = (Gross Profit / Sales Revenue) * 100
Year Calculation Answers
2019 (650 / 2500) * 100 26 %
2020 (375 / 2750) * 100 13.64 %
Interpretation: In the years 2019 and 2020, XYZ Plc's GP is 26 percent and 13.64
percent, respectively. It has deteriorated, affecting the company's productivity. This is
because the cost of goods sold has risen significantly, reducing the firm's efficient has well in
order to sustain a profit margin for the corporation.
 Current ratio = Current Assets / Current Liabilities
Year Calculation Answers
2019 595 / 190 3.13: 1
2020 690 / 295 2.33: 1
Analysis: In the year 2019 and 2020, the current ratio is 3.13 and 2.33, respectively. It
means that current assets are greater than and about equal to current liabilities. As a result of
the foregoing assessment, it can be concluded that XYZ Plc's current ratio is adequate for
sustaining the company's liquidity situation. It implies that a corporation with a larger short-
term asset ratio has a greater ability to pay out liabilities. The amount of debt owed in 2019 is
three times that of the previous year, and the amount owed in 2020 is two times that of the

previous year, both are good. The 3.13 condition, on the other hand, is more favourable
because XYZ Ltd pays a considerable amount of long - term debt at once (Ziegler and et.al.,
2021).
 Acid Test Ratio = (Current Assets – Inventory) / Current Liabilities
Year Calculation Answers
2019 (595 – 350) / 190 1.29: 1
2020 (690 – 410) / 295 0.95: 1
Interpretation: This ratio aids in measuring the corporation's quick liquidity and
demonstrates that the organization's liquidity is strongly dependent on its stock position.
 Earnings per Share = Net profit / Number of outstanding shares
Year Calculation Answers
2019 167 / 800 0.21 per share
2020 12 / 800 0.015 per share
Interpretation: The EPS of the business concern can be determined using the shares
held by the directors of the company. It has also declined, implying that the firm's efficiency
has decreased since the year 2019 for the organisation XYZ Plc.
5. Elaborate the concept of management accounting along with its importance.
It is the method of deciding, computing, assessing, and interpreting accounting facts
to assist XYZ Ltd is superior in making financial choices and efficiently directing the
company's daily operations. The other divisions of financial reporting are mostly concerned
with internal information gathering and reporting. Basically, they don't listen to outside
customers' suggestions. Management accounting, but at the other hand, focused on their
company's cash flows, financial activity, operating expenses, and internal rate of return. After
this information has been gathered and determined by XYZ Ltd. is superior, the accounting
facts are translated into documents and reports that assist the firm in capital planning and
long term investment decisions (Arner and et.al., 2020).
In other words, management accounting employs a wide range of technical abilities
and methodologies to assist in the preparation of accurate financial accounts, as well as
forecasting future expenditures and identifying cost-cutting opportunities.
Significance of Management Accounting:
 It aids the organisation in making more effective plans: This fact clearly demonstrates
that every firm must plan ahead of time before taking on the responsibility. In

managerial accounting, planning is critical since it communicates all financial as well
as non – financial data to XYZ Ltd's management on a daily basis. The entire data
information assists management in performing effective data analysis and forecasting.
It is easier for management to build better plans based on the data. So, in general, this
point states that planning is necessary in any business (Ivanovich, 2020).
 It assists the organisation in making better decisions: In this stage, if an organisation
wants to meet its goals and objectives on time, it is critical to make better and more
efficient decisions. It is only feasible if indeed the XYZ Ltd company collects the data
accurately, analyses it properly, and creates a good presentation in the form of pie
charts, bar graphs, and tables, so that management can have a better understanding of
organisation issues and, as a result, make the right decision at the right time, saving
the company from future losses.
 It aids in the control of organisational performance: Every organisation achieves its
aims and goals when its employees are not experiencing any difficulties at work, and
if they are, the company's leader assists the employee in resolving the issue, ensuring
that the firm's operations run smoothly. In other statements, if XYZ Ltd properly
monitors and controls the operations in the organisation and assists in measuring
employee performance, and if any problem enters the business and causes work
disruption, it will be preferable for the company to eliminate that hindrance at the
appropriate time to make the appropriate decision (Saiz, 2020).
 Provide excellent service to their customers: The most significant aspect of
management accounting is that it focuses on providing superior customer service. But
if XYZ Ltd provides a high-quality product to its customers, the company will gain
goodwill and raise demand for its products or services.
CONCLUSION
The aforementioned report concludes that managerial accounting is the process of
locating, determining, and analysing accounting facts. It aids corporate leaders in making
financial decisions and properly organising the organization's day-to-day operations. As a
result, that company achieves its aims and objectives to the best of its ability. To put it
another way, management accounting uses a variety of technologies to demonstrate the
correctness of financial accounts. The aforesaid report also found that if every organisation

uses good planning, good decision making, and proper control of activities, then managerial
accounting is beneficial to the firm's development and progress.
REFERENCES
Books and Journals
Coakley, J. and Huang, W., 2020. P2P lending and outside entrepreneurial finance. The
European Journal of Finance, pp.1-18.
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Mielcarz, P., Osiichuk, D. and Wnuczak, P., 2018. Working capital management through the
business cycle: Evidence from the corporate sector in Poland. Contemporary
Economics, 12(2), pp.223-237.
Oostendorp, R., and et.al., 2019. Inclusive agribusiness under climate change: a brief review
of the role of finance. Current Opinion in Environmental Sustainability, 41, pp.18-
22.
Rigatos, G., Siano, P. and Ghosh, T., 2019. A nonlinear optimal control approach to
stabilization of business cycles of finance agents. Computational Economics, 53(3),
pp.1111-1131.
Torre, M.L., and et.al., 2019. Business models for sustainable finance: The case study of
social impact bonds. Sustainability, 11(7), pp.1-23.
Wang, M., Li, X. and Wang, S., 2021. Discovering research trends and opportunities of green
finance and energy policy: A data-driven scientometric analysis. Energy Policy, 154,
p.112295.
Ziegler, T., and et.al., 2021. The global alternative finance market benchmarking
report. Available at SSRN 3771509.
Arner, D.W., and et.al., 2020. Digital finance & the COVID-19 crisis. University of Hong
Kong Faculty of Law Research Paper, (2020/017).
Ivanovich, K.K., 2020. About some questions of classification of institutional conditions
determining the structure of doing business in Uzbekistan. South Asian Journal of
Marketing & Management Research, 10(5), pp.17-28.
Saiz, A., 2020. Bricks, mortar, and proptech: The economics of IT in brokerage, space
utilization and commercial real estate finance. Journal of Property Investment &
Finance.