Importance of Business Finance and Economics in Accounting and Management Decision Making

This article discusses the importance of business finance and economics in accounting and management decision making. It covers the main determinants of macro or micro economic factors, financial statements, and management accounting. It also evaluates and interprets financial ratios for decision making.

Business Finance
&
Economics

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
1. Explanation about the main determinants of macro or micro economic factors to showcase
the business performance in impact with the competitive environment.....................................3
2. Defining the importance of accounting within an organisation with respect to both reporting
and decision-making...................................................................................................................4
3. Main financial statements.......................................................................................................6
4. Evaluate & Interpret the following ratios by using balance sheet and income statement:......7
5. Explain the concept of management accounting and how it is vital for planning, controlling
& decision-making within the enterprises...................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business economics is related to the shoes of the resources in an effective manner so that they
can contribute to the economy the economy of the country(Wang and et. al., 2020). Business
finance and economics are connected to each other as it focuses on the accounting system and
the economics is focuses on the factor which is directly related to the outcome of an
organisation. XYZ limited also analyze in a certain factors of economy that is impacting the
competitive benefit. This also ends up in the roads and significance of accounting and
management accountant with the layout and calculation of the classrooms which are needed in
the financial statement.
TASK
1. Explanation about the main determinants of macro or micro economic factors to showcase the
business performance in impact with the competitive environment.
XYZ limited is conducting various set of functions in the marketplace which Can be
impacting positively or negatively. This supposed to be an ineffective control level or in
controllable environment for better decision making. There are various factors in relation to XYZ
limited which are explained as follows:
1. Customers: XYZ is targeting a large scaling individual that can be business to business
business to consumer or globally recognized. They are basically influencing the overall
decision making for purchasing the items from outside world(Macellari and et. al., 2021).
These are the internal factors which can be controlled by meeting out the taste and
preferences of the people.
2. Suppliers: There are factors which is consistent In order to control the market area with
various business. If the supplier is setting a monopoly in the large market area then there
is a huge impact in the entire performance of XYZ enterprises. As the production services
become necessary for the business entity in order to offer a final product to the consumer.
3. Demographics: It is the concept of analyzing segmenting and targeting various market
strategies that influence lifestyle region culture then culture and age of the individual.
When the XYZ limited is choosing the appropriate target market by different allocation
strategy than they are in the form of stable performance.

4. Political: Every business are under the effective surveillance of the government and they
are regulating their business with the proper emphasized on rules and regulation which is
imposed by the government. When the XYZ limited is not following following obligation
and rules this mean they are disobeying are disobeying the laws which are showing a
negative influence on the entire business performance.
Economic Factors that affects competitive environment:
These are the factors which is connected to the good services and cash flow. Such factors
are showing the financial status of XYZ enterprises. There are various objectives of the scenario
which are given below:
1. Interest rate: These type of rates for various nations are impactful for its competitive
benefit. It can be changed from one place to another to another as the rating amount
specially shown in the certain banking institution for various transactions on money flow
for large loan in International business as well as the domestic use(Opute and Madichie,
2017).
2. Exchange values: This respective scaling is based upon the important export dealings in
the market which basically focuses on the present timing rates of transaction. Any kind of
variation at the time of important export can directly impact the overall functionality of
the business and also affect the competitive advantage in the target market.
3. Recession: When the recession increases in the economy then the organization had to
drop out their frozen level in order to match match the buying behavior of the customer
install overall profitability of the company.
2. Defining the importance of accounting within an organisation with respect to both reporting
and decision-making.
Accounting system is being used for measuring and summarizing the monetary funding
which is helpful in taking a appropriate decision in order to instantly a good financial position of
the company. XYZ limited is recording the data in their financial statement and income
statement portfolio. This reporting of data has been produced for the disclosure of the annual
performance of the company.
Role of accounting

 As the main significance of accounting is the understand and access the financial
information to their respective shareholders which also includes the creditors, investors
and the management.
 Data accounting basically helps in the effective decision-making within the premises and
if they do not complying effective analysis of firms accounting then this will be easier for
the company to take the appropriate decisions which is directly related to the various
business task(Cruz and Miranda, 2021).
 Accounting also analyse and summarize the entire business tasks and then communicate
the best results to the management and the other interested parties in the target market.
 When the accounting focuses on the strategic in the business organisation as they are
having the better plans by which it will be easy to have the accounting. When the
planning is goods then it leads to have innovation which is provided to help the company.
Importance of accounting
 Effective planning for accounting: This is necessary to have the effective planning of
various factors of accounting. It is necessary to perform the various business functions.
Basically, every business planning, plays the significant role so that appropriate decisions
can be taken. Without effective planning, organisation do not have the better
understanding that what to do, how to do and when to do so that right actions can be
ensured.
 Organise the structure of accounting: After planning the various aspects, organisation
needs to ensures the each task must be done in the organised manner with the right
approach. Appropriate company's structure leads to employees to follow step-by-step
process by which they can reach to their pre-defined goal.
 Vital to influence the employees: Accounting plays the major role in order to ensures
the certain business task which can directly influence the individual's working and also
motivate the employees for their effective working. When, employees are feeling
demotivated at the workplace then it become the duty of the organisation and its manager
to take certain actions in order to influence the employees for their better working within
the organisation.
3. Main financial statements
Basis Balance Sheet Income Statement Cash Flow Statement

Summary This financial account
shows the entire
financial position of
the company in the
end of the accounting
year.
This statement shows
the net profit or loss
within the specific
period of time. This
can ensures the better
working of the
company.
Through this
statement, this shows
the cash of an
organisation in the
particular period of
time.
Purpose As the purpose is to
analyse the financial
position of the end of
the accounting year.
This basically helps in
meet its ability in long
term obligation of the
financial factors.
This is the statement
which shows the entire
profitability of the
company as it is being
analysed that before
the balance sheet with
the given balance
sheet.
Cash flow statement
shows the cash inflow
and outflow in various
business task which
also includes the
financial and operating
tasks.
Data Included Assets, liabilities and
equity.
As the entire data is
being considered is
income and the
expenses of the given
business(Birch, 2017).
All the data includes
the main consideration
which is directly
related to the entire
operating activities
and also includes the
cash generated and
with the help of cash
available, investing
activities which is cash
sent on the new
equipment and various
financial task is being
related to the debts and

dividend paid to the
investors.
Importance As the given balance
sheet shows that the
overall strengths and
weaknesses leads to
have the future
planning for the
business.
Income statement
leads to have the better
understanding about
the availability of the
funds in which income
is being generated and
how it is being used.
This particular
statement shows in
business and how the
specific business is
operating. This
particular cash flow is
accessible in long term
planning which can
modify the business
strategies.
4. Evaluate & Interpret the following ratios by using balance sheet and income statement:
1. Operating Profit Margin-
Operating Profit Margin = Operating Income / Sales Revenue
In 2019 = 222 / 1850
= 0.12
In 2020 = 15 / 2375
= 0.006
Interpretation: when the firm is ensuring the profit market in the given efficiency of an
organisation and also leads to tell how the entire business of an organisation is leading to the
success of the company. This is being known to analysed the entire financial health. Within the
company, XYZ Plc, they are generating more profits in the year of 2019 in relation to 2020.
2. Gross Profit Margin -
Gross Profit Margin = Gross Profit / Revenue
In 2019 = 650 /2500 * 100
= 26
In 2020 = 375 / 2500 * 100
= 15

Interpretation: this is being shows that given profit of the business after ensuring the
needful adjustments. The higher the value of the gross profit market that is more effective in
generating higher revenue in which the huge cost is involved.
3. Current Ratio -
Current Ratio = Current Assets / Current Liabilities
In 2019 = 595 / 190
= 3.131
In 2020 = 690 / 295
= 2.33
Interpretation: t is ration that is being used to ensure the entire liquidity of an business
enterprises. By which they can rightly meet the debt obligation which are arising in the financial
year. In the given case, financial statement of XYZ Plc, current assets is higher than the entire
liabilities in both the financial years.
4. Acid Test Ratio -
Acid Test Ratio = Total Current Assets – Inventories / Total Current Liabilities
In 2019 = 595 – 350 / 190
= 1.28
In 2020 = 690 – 410 / 295
= 0.949
Interpretation: It is the effective tool that is being used to measured the short term
liquidity of an business organisation. This basically shows the capacity of an enterprises in order
to pay off the recent liabilities with the direct use of liquid assets. In consideration to XYZ Plc,
the ability to pay current liability that also helps the liquid assets with their better in 2019.
5. Earnings Per Share(EPS) -
EPS = Earnings available to equity shareholders / Weighted average no. of shares
In 2019 = 167 / 800
= 0.208
In 2020 = 12 /800
= 0.015
Interpretation: this basically shows and indicates the earning that is completely based
on each share and they are earning as per the share of the company which is beter in its

profitability. In an business, XYZ Plc., the company is earning better profitability in 2019 with
0.28 in comparison to the year 2020.
5. Explain the concept of management accounting and how it is vital for planning, controlling &
decision-making within the enterprises.
Management accounting is the major concept which is directly helps in the effective
supervision of the business and they are assigning the reports in which, there is the huge impact
of certain business activities with the help of the capabilities of the firm by which they can reach
to their desired goals and objectives. For example, when the company is analysing target profit
for financial compliances then it generally analyse the entire consideration in the given
marketplace. For instance, when the business is effectively analysing the target profit of the
business for the given financial year then it needs to analyse and make the strategy in context
that how they can attain the target of business enterprises. In other words, as the management
accounting is defined as the overall planning, organising & the structure of the various task of
the business.
 Planning to lead to reach the goals of the company: Planning is the process of thinking
before hand and it plays the signifiant role in order to attains the goal of the business in
an appropriate manner. As it is known that every business organisation without taking
any step and make the plan which is related to the target of the company so that all the
working can be ensures to reach the set target(Grossmann Mooney and Dugan, 2019).
This also helps the company in framing appropriate strategy which is also leading to have
huge success and profitability. This also includes the enterprises that is leading to have
the effective consideration in the target market and also ensures the effective working of
the company in the target market by completing the various task in the given business.
This generally complete the given task and it is clear that in order to attains the certain
targets with the firms, they neds to plan before starting the particular business so that they
can rightly sustain in the market in long run.
 Organizing helps in creating way to attains the goals: After focuses on organizing, this
is the factor of the management accounting. This generally helps in attaining the overall
objectives of an organisation. After completion of certain planning process, business
needs to make the appropriate structure that is directly related to the certain activities of
firms. It is basically easy for the business by which they can analyse the entire structure

so that they can go through and move in the right direction by which all the goals can be
achieve. Due to some times, this generally creates some issues in the given task that also
leads to happen due to the ineffective and poor structure of the task. Hence, on the basis
of this, they have to make the back up plan so that they can come out easily for the
specific issues that is directly related to the better consideration in the target market. On
the basis of this, an organisation have to establish the backup pan so that they can resolve
the particular situation.
 Decision-making process ensures the effective management accounting within the
organisation: It is necessary to have the effective decision-making which plays the
significant role in order to attains the objectives of an enterprises. With this, decisions
are related to the company and it is vital to take the appropriate actions. Every decisions
within the company get the perform the important task in order to take the right
decisions(Borg, 2019).
CONCLUSION
It is concluded from the above report that organisation is discussed further which is
directly related to the entire profitable situation that says that one year of an organisation is more
efficient. With the help of rations, overall scenario of the business can be analysed and these
rations are gross profit, operating profits, acid-text ratio, current ratio and the entire profit
generation so that effective functionality of the business and their financial position can be
analysed. Moreover, accounting plays the significant role and this directly affects the entire
working of the company. This directly helps the decision-making process of an organisation
which is vital for the management accounting.

REFERENCES
Books and Journals
Borg, A., 2019. Financial statements .(2017 and 2018).
Arnold, V., 2018. The changing technological environment and the future of behavioural
research in accounting. Accounting & Finance. 58(2). pp.315-339.
Grossmann, A., Mooney, L. and Dugan, M., 2019. Inclusion fairness in accounting, finance, and
management: An investigation of A-star publications on the ABDC journal list. Journal
of Business Research. 95. pp.232-241.
Birch, K., 2017. Financing technoscience: Finance, assetization and rentiership. In The
Routledge handbook of the political economy of science. (pp. 169-181). Routledge.
Cruz, C. and Miranda, E., 2021. Damping ratios of the first mode for the seismic analysis of
buildings. Journal of Structural Engineering. 147(1). p.04020300.
McGaughy, K. and Reza, M.T., 2018. Recovery of macro and micro-nutrients by hydrothermal
carbonization of septage. Journal of agricultural and food chemistry. 66(8). pp.1854-
1862.
Opute, A.P. and Madichie, N.O., 2017. Accounting-marketing integration dimensions and
antecedents: insights from a frontier market. Journal of Business & Industrial
Marketing.
Macellari, M. and et. al., 2021. Exploring bluewashing practices of alleged sustainability leaders
through a counter-accounting analysis. Environmental Impact Assessment Review. 86.
p.106489.
Rugman, A.M., 2019. From globalisation to regionalism: The foreign direct investment
dimension of international finance. In Shaping a new international financial system.
(pp. 203-219). Routledge.
Wang, Z. and et. al., 2020. Evaluation of the effects of Hg/DOC ratios on the reduction of Hg
(II) in lake water. Chemosphere. 253. p.126634.
Aisy, H.R., Mulyono, I. and Susilowati, K.D.S., 2017. Compilation of Financial Statements and
Financial Analysis for Non Profit Organizations. Jurnal Mahasiswa Akuntansi
Manajemen. 3(1).
Bikfalvi, A., 2017. History and conceptual developments in vascular biology and angiogenesis
research: a personal view. Angiogenesis. 20(4). pp.463-478.
Modell, S., 2020. Accounting for institutional work: a critical review. European Accounting
Review. pp.1-26.