Business Finance and Economics

This report covers determinants of business performance, role of accounting in decision making, financial statements, financial ratios and management accounting in Business Finance and Economics. It includes explanation of internal and external factors affecting business performance, types of financial statements, computation and interpretation of financial ratios for XYZ Plc and importance of management accounting.

BUSINESS FINANCE
AND ECONOMICS

Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
1.Explanation of determinants of business performance along with difference between macro
and micro economics:..................................................................................................................3
2. Elaborate the role and importance of the accounting making decisions within the
corporation...................................................................................................................................4
3.Types of financial statements and explanation of terms that are used in preparation of them:5
4.Compute the following financial ratios and interpret it for the company XYZ Plc of year
2019 and 2020..............................................................................................................................6
5. Define management accounting and its importance................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business finance is a term which is generally used in the corporate world and is utilised for
assessing the funds that are functioned by the owners and shareholders for fulfilling the
requirements of the firm. These helps in evaluating the performance and productivity of the
business concerns based on the financial statement that are considered to the main part of any
organisation for knowing its monetary status. In the report, the internal and external factors
which could influence the micro or macro-economic environment of the company is outlined.
Further, the role and the significance of accounting and how it helps in making decisions for the
firm. Moreover, the financial statements are distinguished and the ratios for the firm XYZ Plc s
computed for the year 2019 and 2020. Also, management accounting is explained by
determining its significance (Bandelj, Sowers and Morgan, 2019).
MAIN BODY
1.Explanation of determinants of business performance along with difference between macro and
micro economics:
The performance of the entity is based on their efficiency and effectiveness to carry out their
operations and utilisation of resources and funds they have employed in their business. The
entity carried out their day to day transactions after considering the internal and external factors
that would affect their business. These factors help them in deciding the need of the customer,
the accomplishment of goals and objective they had made in their business, offering better
products and services to the consumer on regular course of internal etc. These factors sometimes
could be controlled and sometimes not by the business that is XYZ Plc. The factor that would
affect the performance of the corporate are being mentioned under: -
 Market Competition:
The competition will directly affect the business as competitors also sale the similar
product that has been offered by the organisation with the same selling price and
sometimes the price may vary of the same product that created two different scenarios of
the market. The strategy of one competitor would affect the business of other and such
market fight will influence the business of the company (Brush and et.al., 2019).
 Technological Development:

The changes that has been taken place in the form of technological development affect
the business directly and indirectly if business does not adopt such changes accordingly.
It is important for the XYZ company to use that equipment’s in their business which are
completely new and updated that will provide cost effective benefit and advantage
against the competitors in term of cost of the product and services (Buzgurescu and
Elena, 2020).
 Consumers:
XYZ has expended their business on the large scale as they are working in B2B and B2C
model that would enhance their sales volume in household and globally accordingly.
They are majorly affected by those business that have an alternate to purchase from
others. The consumer taste and their preference needs to be consider by every business to
run sufficiently in the long run as revenue majorly depend upon the product the
organisation is making.
 Suppliers and creditors:
The supplier and creditors plays the vital role in operational activities of the business as
they hold the major part in the business and through their contribution the supply chain of
the business will work in an effective manner. In is important for the corporate to take
care for them in terms of giving them best price and taking sufficient credit from them in
term of number of days so that working capital cycle should be maintained.
2. Elaborate the role and importance of the accounting making decisions within the corporation.
Accounting is a term which is widely used in the organisations for recording the
transactions which are done by the companies on the daily basis. It helps in recording and then
measuring the annual performance of the company by summarising the monetary activities
performed by the company.
Role of accounting:
It assists the management in tracking the incomes and expenditure of the company for running
the daily operations. The communicated all the accounting information to the users through its
annual reports, which includes the financial statement and these are utilised for making and
measuring the profitability of the company (Cainelli, Giannini and Iacobucci, 2020).
Significance of Accounting for decision – making:

1. Makes the decisions faster: The accounting of any firm help it in managing the resources
appropriately and this arrangement helps it in making better and faster decisions. It helps
in understanding, measuring and then analysing the fiscal statements of the firm and the
need of improvement is determined. Also, through this the future trends for the business
and its monetary position could be assessed.
2. Financial transparency: When the fiscal information is appropriately managed then it
gives a transparency for the company’s potential investors or the stakeholders to manage
and oversee its financial status and to appropriately make the choice of investing. It also
helps in building and enhancing the trust and integrity between the stakeholders and the
creditors of the company (Gundogdu, 2019).
3. Projections for future: The reporting and the accounting information assists in managing
the information using the budgeting technique on the basis of the past performance of the
business entity. It enables the management of XYZ Plc to make critical and significant
choices for the betterment of the organisation.
4. Debt Management: By maintaining the accounting wisely, it enables and adds an
advantage for the management of the firm to manage and gives a benefit for putting an
insight onto the monetary position of the company. It will help in effectively and
efficiently managing the debt and fiscal obligation of the company XYZ Plc.
3.Types of financial statements and explanation of terms that are used in preparation of them:
The financial statement plays the vital role as shoes the true picture of the company that how
they perform during the financial year. The financial statement shall consist of statement of
financial position, income statement, cash flow statement and notes to accounts. Financial
Statements are the systematically organized summary of all the ledger account heads presented
in such a manner that it gives detailed information about the financial position and the
performance of the enterprise. As seen above, through categorization of Financial Statements
into Income & Position Statement, the profit or loss is measured at two levels that is gross profit
and net profit. The final accounts are being divided into following categories: -
 Balance Sheet:
The balance sheet shows the balance of assets and liabilities hold by the business as on
date. It is prepared as on date and such data is generally to be 31st of march (Kaneda,
2019). The financial position of the business enterprise is judged by measuring the assets,

liabilities and capital of the enterprise and the same is communicated to the users of
financial statements. Financial position of the enterprise can be known through the
preparation of the Position Statement i.e., Balance Sheet.
 Income statement:
The Profit and Loss Account starts with gross profit on the credit side. If there is gross
loss, it will be written on the debit side. After that all those expenses and losses, which
have not been entered in the Trading Account, will be written on the debit side of Profit
and Loss Account. Incomes and gains, other than sales, will be written on the credit side.
If the individual understand word ‘expenses’ properly, there should be no difficulty in
distinguishing between items that will be debited to the Profit and Loss Account and those
that will be shown as Assets in the balance sheet. Further, it may be noted that the
expenses which are personal in nature will not be charged to Profit and Loss A/c. Only
those revenue expenses and losses which are related to the current year, are debited to
Profit and Loss Account (Li and et.al., 2019).
4.Compute the following financial ratios and interpret it for the company XYZ Plc of year 2019
and 2020:
 Operating Profit Margin = (Operating Income / Net Sales) * 100
Year 2019 = (240 / 2500) * 100 = 9.6 5 %
Year 2020 = (35 / 2750) * 100 = 1.27 %
Interpretation: From the Above calculation it can be assessed that the operating profit
margin in the year 2019 is 9.65% whereas it took a major decline in the year 2020 and reached
only 1.27%. The reason behind it is that the operating expenditure of the company XYZ Plc has
inclined majorly. This is the reason of declining the profit and it will affect the profitability of the
firm adversely.
 Gross Profit Margin = (Gross Profit / Sales Revenue) * 100
Year 2019 = (650 / 2500) * 100 = 26%
Year 2020 = (375 / 2750) * 100 = 13.64 %
Interpretation: The GP of XYZ Plc is 26 % and 13.64 % in the year 2019 and 2020. It has
declined and has affected the productivity of the company. It is because the cost of gods sold has
increased a lot and resulted in decreasing the efficient has well of the firm to maintain a
profitability margin for the company.

 Current ratio = Current Assets / Current Liabilities
Year 2019 = 595 / 190 = 3.13: 1
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
Year 2019 = (595 – 350) / 190 = 1.29: 1
Year 2020 = (690 – 410) / 295 = 0.95: 1
Interpretation: This ratio helps in determining the quick liquidity for the company and it
justifies that the organisation's liquidity is highly dependent on the stock position of the business.
 Earnings per Share = Net profit / Number of outstanding shares
Year 2019 = 167 / 800 = 0.21 per share
Year 2020 = 12 / 800 = 0.015 per share
Interpretation: The EPS of the firm could be calculated by the shares holding by the
shareholders of the company. It has also decreased it means that the efficiency of the firm has
decline in comparison from the year 2019 of XYZ Plc.
5. Define management accounting and its importance:
It is the process of determining, calculating, analysing and interpreting of accounting details that
helps the superior of XYZ Ltd to create its own financial decisions and efficiently direct the daily
activities of the business. The main objective of the other branches of accounting is to
concentrated on internal information convoying and reporting. Basically, they don't take an
advice for external customers (Moosa, 2020). On the other hand, management accounting
concentrated on their firm's cash flows, financial transaction of business, operating expenditure
and internal rate of return. Once this information collected and determined by the superior of
XYZ Ltd these accounting details is converted into records and presentations that helps the firm
XYZ Ltd to take capital budgeting and future investments decisions making.
In other words, management accounting use large variety of technical skills and identified the
techniques which helps to make accurate financial statements, it also predicts future expenditures
and identify cost saving chances.

Importance of management accounting:
 It assists the organization to make better plans: In this point it clearly shows that every
organization need to make plans before performing any task. In managerial accounting
planning plays a very important role it sends all the financial and non – financial data to
the management of XYZ Ltd on day-to-day basis. The complete information of the data
helps the management for good analysing and predicting the information. It easier for the
management to make better plan according to the information. So, basically this point
state that the planning is also important in every organization (Mukhlisin and Komalasari,
2018).
 It helps the organization to take better decision making: In this step if an organization
want to achieving the goals and objectives of the company on time that it is very
important to take better and efficient decision making. It only possible if the XYZ Ltd
company collect the data accurately and analyse it properly and create a good
presentation in form of pie charts, bar graphs and tables then it is easier for the
management for better comprehension of organization issues and on the basis of it they
can take correct decision on right time and save the enterprise for the happening of future
losses.
 It helps to control the performance in the organization: In this particular point every
organization achieve the goals and objectives when employees of the organization not
facing any problem in work and if they are facing then the leader of the organization help
the employee to remove that problem so, the working in the organization goes smoothly.
In other words, if XYZ Ltd proper monitoring and control the activities in the firm and
assist in measuring the performance of the employee and if any problem is arriving into
the business and create disruption in work then it will be better for the firm to remove
that barrier on right time to take right decision (Pan and Yang, 2019).
 Provide good service to their clients: The most important significance of management
accounting is they mainly concentrate on better service to customers. Because if XYZ Ltd
company providing good quality product to their customer then it creates goodwill of the
organization and increase its demand for the products or services.

CONCLUSION
As it is concluded from the above report that the managerial accounting is identifying,
determining and analysing the accounting details. It assists the business leaders to take financial
decisions and efficiently organize the day to day activities of the organization. So, that company
achieve its goals and objectives with full efficiency. In other words, managerial accounting use
various technologies to show the accuracy in financial statements. The above report also
concluded that if every organization use proper planning, Better decision making and proper
control the activities then these importance of managerial accounting assist the firm for the
expansion and growth of the business.

REFERENCES
Books and Journals
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Yesilay, R. B. and Halac, U., 2020. An assessment of innovation efficiency in EECA countries
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