Business Finance and Economics: Factors Affecting Business Performance, Accounting Significance, Financial Statements, Ratios for XYZ Plc, and Importance of Management Accounting

This report discusses the external and internal factors that impact the performance of a business enterprise and differentiates whether they are micro or macroeconomic. It also elaborates on the significance of accounting in decision-making within a business and discriminates between the main financial statements and describes the format and terms used in each report. Additionally, it computes the ratios for XYZ Plc for the ending year March 31, 2019, and 2020 sequentially. Lastly, it explains management accounting and its importance in planning, control, and decision-making within a business enterprise.

Business Finance and
Economics

Contents
Introduction.........................................................................................................................................3
Task......................................................................................................................................................3
Discuss the external and internal factors of business performance and differentiate whether they are
micro- or macroeconomic..................................................................................................................3
Elaborate the significance of accounting in decision- making within a business...............................4
Discriminate between the main financial statement and describe the format and terms used in each
report.................................................................................................................................................5
Compute the ratios for XYZ Plc for the ending year march31, 2019 and 2020 sequentially.............6
Explain management accounting and elucidate its importance in planning, control and decision
making within a business enterprise..................................................................................................7
CONCLUSION....................................................................................................................................8
References..........................................................................................................................................10

Introduction
This report looks into the determinants that impacts the results of XYZ Plc company.
Along with this, it also gives a valuable insight on the importance of financial accounts in the
decision-making process. In addition to this, it contains the explanation of different parts of
financial statements and their differences. Moreover, this report encompasses the numerical
data on the different kind of ratio with their interpretations and it also includes the discussion
on the managerial accounting and its benefits in the field of planning, controlling and
decision- making.
Task
1.Discuss the external and internal factors of business performance and differentiate whether
they are micro- or macroeconomic.
The accomplishments and achievements of any organization is grounded on how
efficiently and effectively the business enterprise is handling its functioning, operations, and
utilization of resources and money that they have used for the different purpose in a firm
(Malm, and Sah., 2018) . The company’s functions are performed by analyzing both the
factors i.e., the internal as well as the external as these factors can have direct or indirect
influence on the working of a firm. By interpretation of such elements a firm can get an idea
on the customers needs and preferences. These determinants can be controlled and sometimes
could not be by XYZ Plc.
Below mentioned are the aspects that impacts the performance of a company.
 Competition in market: If the company is not doing something in a unique way, then
it will always have to face the rivalry from the other businesses. Because there are
many existing enterprises that are dealing with the same kind of products and
services. The competencies between the companies and market fights will have an
impact on the business. Organization must come up with something different to stand
in a market for long run and have a close look on what its rivalries are bringing on the
table.
 Advancement and development in technology: For bringing the upgradation in the
business a company must adopt the new methods and techniques. As there are other
organizations that are improving their firms by adopting such changes. XYZ Plc.

Company shall use the mechanism and tools in its firm that are totally new and
advanced in order to gain cost effective advantages against the competencies in
accordance to the cost of commodities and services.
 Suppliers and creditors: These play a major role in the day-to-day activities of a
business concern (Cumming., Johan and Zhang., 2019). The suppliers and creditors
are known as the backbone for any firm because they provide material and credit
facilities to the company. An organization works smoothly and it happens due to the
contributions that they make for any company. For this a business must make sure
that they pay the best price to its suppliers and repay its loan on time so that the
relations can be maintained. A company needs to have good amount of working
capital for this purpose.
 Consumers: These people are the foundation stone for any business and the biggest
assets for any company. The business enterprise shall understand and observe the
needs and preferences of the customers for attracting sales from them. In this case,
XYZ Plc. has made an expansion in the firm on the big level. It is dealing in both B2B
and B2C model, this will help to extend its sales operations across the globe. So, it
should have good understanding of its customer base to bring the positive effects in its
performance.
2.) Elaborate the significance of accounting in decision- making within a business.
Accounting is the procedure used by the business for keeping the systematic-record of
its day-to-day transactions that takes place in a company. It assists recording and observing
the financial performance of a company. It is very important for any business enterprise to
avoid errors and omissions.
Role of accounting:
Accounting has a significant role in any business concern, because it aids the firm to keep
track of its expenditure and income, losses and profits. It also helps the business in getting the
final result on the position of assets and liabilities by preparing the financial statements.
Importance of Accounting in the decision- making process is given below-
 Assists in making the reliable and faster decisions- A company can decide in an
appropriate manner as it can interpret the income statements, cash flow statements

and the balance sheet. All this helps the company in providing the basis for various
kind of decisions. The accounting helps in the better management of resources. It also
gives an idea on the areas that needs improvement (Zhitlukhina and Kochetova.,
2021). It aids the firm in choosing the most appropriate asset on which the business
can invest so that it gets good returns. It also gives an understanding on the techniques
that are required to opt for the purpose of increasing sales.
 Monetary transparency: As mentioned above accounting is a tool that provides the
business in keeping the track of its activities on daily basis. When the information
regarding the money is managed then it provides transparency to the creditors and
analysis or the other external user who are willing to make an investment or lend
money to the organization. Thus, it is useful in building and gaining the trust of the
stakeholders and shareholders that are associated with the company.
 Base for the direction in future: It helps the business firm to plan its upcoming
expenses by examining the current records and reports. The accounting reports that
are made in the present will help the XYZ Plc to frame a proper budget policy to
control the expenses and generate the future revenue.
 Management of debts: As accounting is a measure that gives the statements on the
monetary position of any company. By the proper preparation and maintenance of the
reports in wise manner XYZ Plc. can get an idea to deal with the liabilities and the
fiscal obligation that it holds.
3.) Discriminate between the main financial statement and describe the format and terms used
in each report.
The financial statements showcase what a business enterprise has accomplished and
achieved during the particular financial and accounting year. The financial statements hold
three main segments that comprises of the income statement, cash flow statement and balance
sheet. All these financial records are the systemized metric which is the summary of all the
ledger account (Tănase. and et.al., 2020). Ledger account consists has different heads
according to the transactions and these contains detailed information. As it is clear from the
aforesaid pointers that the fiscal reports have three parts i.e., the profit and loss accounts, cash
flow statement and balance sheet. The discrimination between the three can be as following:
Balance Sheet: It portrays the monetary position of a business for the specific period of time.
The purpose of preparing this sheet is to get a demonstration on its potential to meet its long-
term obligations. It includes the things that are controlled and owned by the enterprise and it

adds a value to the business, secondly it contains the data on what a business owes to others
for eg: bank loans and the details of remaining capital that a business owner has to pay. It
helps in the determining that whether the business is in good health or not.
Income statement: This record is maintained to ascertain the profit and loss for the particular
moment of the time. This gives a snapshot on the profit earning capacity of a business. It
comprises of the detailed information on what a business has earned and what it has paid or it
can be said it holds the data on the income and expenses of the company. XYZ Plc shall
prepare this because it is very useful to analyze the expenses and cutting off the unnecessary
expenses in a company to attain the desired or the stated objective.
The statement of cash flows: It gives a representation on cash inflows and cash outflows from
the different kind of activities like operating, investing, and financing. Operating activity
involves the amount of cash that is generated from the daily tasks, in investing amounts
related to the invested is recorded and in financing activity, the cash value from sale and
purchase of assets is recorded. It helps in the reconciliation of the changes in cash that have
occurred from the beginning of the financial year to the end. The report of this kind aids in
the formulating the policies and making long-term strategies.
4.) Compute the ratios for XYZ Plc for the ending year march31, 2019 and 2020 sequentially.
 Operating Profit Margin = (Operating Income / Net Sales) * 100
For Year 2019 = (240 / 2500) * 100 = 9.6 5 %
For Year 2020 = (35 / 2750) * 100 = 1.27 %
Interpretation: From the above calculation it is seen that the operating profit margin for
the years 2019 and 2020 is 9.65 % and 1.27 % respectively. This means that there is a decline
in the operating profit that too its very huge. The reason behind the same can be that the
expenses of the company has increased and the resources are not being used efficiently. So,
in this case XYZ Plc must reduce its expenses for the daily activities.
 Gross Profit Margin = (Gross Profit / Sales Revenue) * 100
For Year 2019 = (650 / 2500) * 100 = 26%
For Year 2020 = (375 / 2750) * 100 = 13.64 %
Analyzation: The GPM has also been decreased in these two years , for 2020 its has
declined to 13.64, which is the clear symbol that the business organization has increase in its
cost of goods sold which had an adverse effect one the productivity of XYZ Plc.

 Current ratio = Current Assets / Current Liabilities
For Year 2019 = 595 / 190 = 3.13: 1
For Year 2020 = 690 / 295 = 2.33: 1
Interpretation: The current ratio is 3.13 and 2.33 in 2019 and 2020. It represents that the
current assets are more and approximately more than double of the current liabilities. So, it
could be said from the above calculation that the current ratio which is presently incurred by
XYZ Plc is good for maintaining the liquidity position of the company.
 Acid Test Ratio = (Current Assets – Inventory) / Current Liabilities
For Year 2019 = (595 – 350) / 190 = 1.29: 1
For Year 2020 = (690 – 410) / 295 = 0.95: 1
Interpretation: The liquid ratio is less than 1 which signifies that the company will have
to sell its stock for paying off the current obligations.
 Earnings per Share = Net profit / Number of outstanding shares
For Year 2019 = 167 / 800 = 0.21 per share
For Year 2020 = 12 / 800 = 0.015 per share
Observation: This metric evaluates the figure that describes the profit in relation with
each share. It is calculated by dividing the business’s annual net income by number of
outstanding shares. The lower EPS reflects the poor condition of company’s financial health
in future prospects.
5.) Explain management accounting and elucidate its importance in planning, control and
decision making within a business enterprise.
Managerial Accounting: It is the procedure which is used by the internal team of any
organization. In this kind of accounting financial invoices and statements are given to the
management by the finance administration. The objective behind sharing of financial records
is that the management takes better and accurate decision for the betterment and development
of the business organization. Simply, it can be defined as the framing the accounting
information in such a manner that it will help the firm in planning, decision- making,
controlling the operations of a company (Druta., 2019).
To prepare such accounting report no specific format or structure has to be followed.
The tools that it uses to frame the policies are economics, costing and business analytics. The
goal of management accounting is to improve the quality of business operations measures.

XYZ Plc’s superior shall opt for management accounting process to take reliable decisions
for bringing efficiency in the day to day operations.
Following are the points that justifies the significance of managerial accounting in planning,
controlling and decision- making:
 Decision- making: It is the most crucial benefit and key role that is given by the
accounting of this kind. XYZ Plc should collect the financial information from the
administration head of its company and analyze them by drawing in the pie- charts,
tables or graphs. This will help the XYZ Plc getting a good knowledge on the
company’s affairs and finding out the areas that needs improvement so the correct
decision measures can be taken at the right time to avoid the upcoming losses.
 Planning: Management accounting provides with all the financial and non-financial
data to the analysts on a regular basis which helps them to frame the policies for the
activities are going to take place in the future (Wan and et.al., 2020). As all these
details are available with the associated people, this will guide XYZ Plc in forming
the plans in a correct manner.
 Controlling: XYZ Plc can control the activities by making a budget. As this
accounting tools has a segment of budget. The XYZ Plc. can match the actual
performance with the planned one and find out the differences. Not only this, it will
also help the company in finding out the reason for such deviations which will result
in control in activities of different departments.

CONCLUSION
It can be concluded from the above report that the financial accounts have huge
significance on the keeping the track on the financial health of the business enterprise. It has
given the clarification that the internal and external factors both are responsible of the
changes in the activity of any firm. Additionally, it has given the clear presentation on the
importance of calculating the ratios along with the observations. Lastly, it has also stated the
how the management accounting is beneficial for any company to form plans in order to
reduce its expenses and get a good rate of return on the investment that an organization has
made.

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