Business Finance & Economics Study Material with Solved Assignments

This study material covers major determinants of business performance, role of accounting in decision-making, major financial statements, and calculation of ratios. It also discusses economic factors affecting competitive environment of an organization. Subject: Business Finance & Economics. Course Code: Not mentioned. Course Name: Not mentioned. College/University: Not mentioned.

Business Finance &
Economics

Table of Contents
Business Finance & Economics.......................................................................................................1
Introduction......................................................................................................................................3
1) Outline the major determinants of business performance and distinguish whether these are
micro- or macroeconomic. Discuss the economic factors that affect the competitive
environment of an organisation..............................................................................................3
2) Explain the role of accounting within an business organisation and highlight its key
importance in accordance to both reporting and decision-making.........................................4
3) Distinguish between the major financial statements and explain the layout and terms used
within each Statement.............................................................................................................6
4) Calculation of ratios along with their interpretations.......................................................10
(5) Define management accounting and discuss how this is important for planning, control
and decision- making within an organisation.......................................................................12
Conclusion.....................................................................................................................................13
Books & Journals.................................................................................................................13

Introduction
Business finance and economics are considered as vital part of a hierarchical working of
a firm. Finance assists an association with examining the raw numbers that will at last assists an
association with dealing with all the monetary business activities to upgrade the presentation of
the business organization. In context to the report, monetary variables, economic techniques and
monetary handling of finances are clarified with a significant reasoning in accordance to the
dynamic business environment. This will basically be enlightening the use of application of
business finance and economics in a respective business organization so that it can attain the
business objectives in a more efficient way.
1) Outline the major determinants of business performance and distinguish whether these are
micro- or macroeconomic. Discuss the economic factors that affect the competitive
environment of an organisation.
A compelling business performance is profoundly significant for every one of the
organizations which fundamentally targets working of the business tasks and activities as per
adjusting the groups, supporting the advancement of the employees just as upgrading the general
performance of the firm (Mayer, 2018). The significant determinants of business performance
are referenced beneath that aides in accomplishing the goal of the associations are explained in
context to Tesco:
 Leverage: It can be characterized as a methodology for venture that can be utilized to
build the expected profit from the speculations through various monetary instruments and
acquired capital. It can likewise be called as a sum utilized by an organization to back
resources. It is considered as a micro factor since all the decisions are identified with
expanding or diminishing influence of the organization like TESCO.
 Liquidity: It can be characterized at the rate at which the monetary protections can be
purchased and sold in the commercial centre. It helps the firm to change over the
resources in to cash. Additionally, in context to Tesco liquidity can be considered as the
micro factor since this determinant is majorly concerned towards the inner matter of the
association.
 Inflation: It helps in the increment in the costs of the labour and products. Fundamentally
a part might impact the increment or decline in the buying force of a cash throughout
some stretch of time. In context to TESCO, this determinant is large scale or macro in

nature. The purpose for that is any fluctuation in the value of price levels will at last
influence the economy's buying power.
Economic factors influencing the competitive environment:
These variables are considered as most significant in the business. It assists a business
organization with understanding that these elements influence the competitive climate drastically
(Hasan, 2020). For various organizations, keeping a check on these variables and break down
them an opportunity to time to forestall a wide range of possibilities which might emerge in
future. The diverse economic factors are explained underneath in context to Tesco:
 Demand: It is one of the significant component that expresses that whether the item or
administration is needed by the clients on the lookout or not. In context to Tesco,
organizations is utilizing its different systems that can assist the organization with
utilizing various procedures in the competitive environment.
 Market Size: It is exceptionally significant for the organizations to have a major market
size as it will assist with getting enormous number of clients which will assist the
organization with expanding its overall revenue in the cutthroat business sectors. In
context to Tesco, a greater market size will assist the organization with getting greater
benefits to determine achievement in long run among the contenders.
 Suppliers: In order to stay in the tough competition in marketplace, it is highly
significant that the providers of the natural substances should be reliable with the quality
material which will at last assist the organization with giving the finished products to the
clients with next to no sort of deterrent. This will assist the organization with remaining
in the market competitively with consistent inventory with next to no obstructions.
2) Explain the role of accounting within a business organisation and highlight its key importance
in accordance to both reporting and decision-making.
Accounting can be characterized as the most common way of making records of the monetary
exchanges that are the result of the business' monetary activities (Wang and Zhou, 2021). All of
the monetary activities of a particular monetary period are recorded with the assistance of the
accounting.
Roles of Accounting

Assortment and arrangement of the monetary information: Accounting is considered as an
important element in gathering the monetary information that will at last help in providing the
assistance in the extricating the monetary information in an effective way and making the records
so that it helps the supervisors in the association to take specific monetary choices. In context to
Tesco, a proper assortment and arrangement of the monetary information must be done through
the application of accounting.
Legal and Regulatory Frameworks: Accounting is considered as one of the significant element
which assumes an essential part in consenting to the legitimate and administrative systems
(Foster, 2019). This incorporates various guidelines that surfaces with specific arrangement of
rules and guidelines based on which budget summaries are ready. Similarly, in consideration to
Tesco, all the accounts and book keeping is performed in context to legal and regulatory
frameworks.
Budgeting: Accounting plays an important role in giving the investigation of the multitude of
monetary figures that helps the money supervisor to foster the financial plans. This aid the
accounting managers to play out the income projections as per the bookkeeping reports. In
relation to Tesco, the task of preparing budgets is done with the help of accounting.
Provide data to the concerned clients: Accounting assists the association with setting up the
budget summaries that are significant in giving the monetary data of the organization to the
concerned clients who are the piece of the association inside or remotely. In context to Tesco,
when the data needs to provided to the potential clients the tool of accounting is utilized.
Efficient Control: Accounting helps in keeping a mind the general working of the organization
and keeping up with more elevated level of productivity. Accordingly, undeniable degree of
proficiency will assist the organization with going the ideal usage of the assets. In relation to
Tesco, the level of efficiency are maintained with the application of accounting in the
organization to achieve the ned objective of the company.
Significance of Accounting in Reporting and Decision making
 Effective Planning: Accounting is an instrument that is significantly worried about the
smooth working of the multitude of monetary activities of the business (Floro, 2019). In
this way, accounting helps a business organization with arranging in a compelling way so

the association can accomplish the targets. Likewise, it will help in the successful
revealing and taking the choices in regards to the plans in the most ideal way.
 Professional exhortation: Accounting is considered as a significant movement which
helps the administrators and the bookkeepers to give the expert counsel with respect to
some significant monetary issues. In this way, bookkeeping information helps the
bookkeepers in offering viable expert guidance.
 Defining Budgets: Budgeting is considered as extremely fundamental for the
organization since it includes the choice dependent on the information of deals and
records (Agrawal, Gans and Goldfarb eds., 2019). Here, bookkeeping is considered as a
significant part as all the records are arranged in an effective manner which at last helps
the organizations like Tesco to define an effective budget.
 Mitigating Errors: Accounting is something that helps an organization with making
future projection which will eventually result in taking care of the unforeseen
circumstance. Likewise for Tesco, the significant choices with respect to how to alleviate
the risks can be taken into consideration.
3) Distinguish between the major financial statements and explain the layout and terms used
within each Statement.
Financial statements can be characterized as formal reports that remembers all of the monetary
activities of the business in such a way that it can help in depicting authentic and reasonable
monetary status of the organization (Vogel, 2021). They help in imparting this data to the
financial backers on the grounds that the fiscal summaries of the organization address all types
incomes, productivity, expenses just as the obligations of the organization. There are
significantly 3 financial statements that helps in recording and dissecting monetary exchanges
referenced beneath alongside the arrangements:
1. Balance Sheet: It is considered as one of the centre budget reports which addresses all
the resources, liabilities and investors' value of the organization in an appropriate
configuration. It gives the monetary status with the organization unmistakably in
accordance to the facts and figures. Money supervisors, experts and business
administrators frequently use asset report as a significant instrument to discover the

accounting proportions of the organization to dissect its monetary capacities in various
ways (Yang and Wu, 2019) The significant parts of accounting report are Assets and
Liabilities which are clarified underneath:
 Assets: It can be characterized as the asset alongside the monetary worth that an
individual or an organization might claim with an assumption for accomplishing more
significant yields.
 Liabilities: All of the elements falling in this class are having an obligation on the
organization to consider which it owes in financial capacity.
1. Income Statement: It is one of the budget summary of the organization that addresses
the benefits and loss of the organization for a particular time period. It is considered as a
significant assertion since it incorporates all the salaries and costs identified with the
business activities of an association (Chen and Wang, 2021). The cycle conveyed in a pay
explanation is tied in with deducting all the costs from the amount of all incomes of the
business including working and non-working exercises. It is utilized both in corporate
Illustration 1: Format of Balance Sheet

money just as bookkeeping through expanding the deals or diminishing the expenses. The
format of income statement is given underneath:
 Revenue: It comprises the aggregate sum of labour and products that an association has
offered to the clients to acquire benefits.
 Expenditure: This is one of the main part that incorporates all the costs that are needed
to deliver and offer the merchandise to the clients.
 Profit: One of the main part of this assertion is profit. It incorporates all the sum that is
left after reducing all the costs from the earning of the company.
 Loss: Here, loss implies the overabundance of cost that was caused by the organization
on account of which the organization couldn't acquire benefits.
2. Cash Flow Statement: It is an explanation that assists an organization with keeping up
with its incomes of the business tasks. It fundamentally incorporates all the money
approaching and active from the association through the business tasks. The significant

goal of fostering an income proclamation of the organization is that it helps in dealing
with the money position of the organization alongside the ability of the organization to
produce adequate measure of money that is exceptionally needed to pay all the obligation
commitments (Dupont and Karpoff, 2020) It fundamentally incorporates three significant
parts specifically working, contributing and financing exercises based on which entire
income proclamation is created. Likewise, to draft an income explanation there are two
strategies namely, direct and indirect.
a. Cash from operating activities: It essentially incorporates the money emerging
from the business activity of the association. To put it plainly, it tends to be
considered as the money created from the items and administrations.
b. Cash from investing activities: It remembers all the sources and venture of
money for the organization's speculation. It can incorporate buy and offer of
resources and credits, consolidations and acquisitions related instalments.
c. Cash from financing activities: These exercises essentially incorporates every
one of the exercises identified with the money inflows from financial backers and
banks just as the employments of money given to the investors.
4) Calculation of ratios along with their interpretations.
a. Return on ordinary shareholder’s fund: The profit from investors' value proportion
shows how much cash is gotten back to the proprietors as a level of the cash they have

put or held in the organization. The higher the rate, the more cash is being given back to
financial backers.
CALCULATION:
Formula: Net income / Shareholders Equity
(2019): 167 / 675 = 0.24
(2020): 12 / 645 = 0.018
Interpretation: The performance was comparatively better in the year 2019 as compared
to the year 2020. It is always advisable that a higher ratio is profitable for the business as
it helps in increasing the efficiency levels to a greater level. Therefore, the performance
on 2019 is better as the there was a steep fall in the net income of the company from 2019
to 2020.
b. Return on capital employed: Return on capital utilized (ROCE) is a monetary
proportion that actions an organization's productivity as far as the entirety of its capital.
Return on capital utilized is like profit from contributed capital (ROIC).
CALCULATION:
Formula: EBIT / Total assets – total current liabilities
(2019): 240 / 1115 – 190 = 240 / 925 = 0.259
(2020): 35 / 1295 – 295 = `35 / 1000 = 0.035
Interpretation: In the year 2019, the ROCE was 0.259% stating a higher value of the
company showing the capability to return back to the shareholders as compared to the
year 2020 with 0.035% indicating lower capacity to return back to the investors.
c. Operating profit margin: The operating profit margin demonstrates how much benefit
an organization makes subsequent to paying for variable expenses of creation like wages,
unrefined component. It is likewise communicated as a level of deals and afterward
shows the effectiveness of an organization controlling the expenses and costs related with
business activities.
CALCULATION:
Formula: operating profit / net sales * 100
(2019): 240 / 2500 = 9.6%
(2020): 35 / 2750 = 1.2%

Interpretation: Although, the operating profit margin of both the years is higher than
15% which is considered as good. In case of critical comparison between both the years,
the operating profit ratio was higher and better in the year 2019 stating that the company
was earning enough money to handle to pay for all the business operations costs in
comparison to the year 2020.
d. Current ratio: It can be defined as an effective ratio that helps in assessing the
liquidity position of the company so that it can analysed that whether the firm has enough
resources so that it can meet its short term financial obligation.
CALCULATION:
Formula : Current Assets / Current liabilities
(2019): 1115 / 190 = 5.86 : 1
(2020): 1290 / 295 = 4.37 : 1
Interpretation: The current ratio in the year 2019 was very much effective for the
company with less risk as the current assets were higher than the current liabilities. While
on the other hand, there was downfall in the ratio in the year 2020 which shows that the
company was left with lesser assets than current liabilities as compared to previous year.
e. Earnings per share: It is basically Income per share (EPS) is determined as an
organization's benefit separated by the remarkable portions of its normal stock. The
subsequent number fills in as a mark of an organization's productivity. The higher an
organization's EPS, the more beneficial it is viewed as.
CALCULATION:
Formula : Net income – Dividend Paid / Number of shares outstanding
(2019): 167 – 40 = 127
(2020): 12 – 40 = (28)
Interpretation: The earning per share was higher in the year 2019 stating that the
company was performing really well and was highly and efficiently capable of providing
good dividends to its shareholders considerably. Also, the performance in the year 2020
was very much unsatisfactory.

(5) Define management accounting and discuss how this is important for planning, control and
decision- making within an organisation.
The management accounting can be characterized as the method involved with making an
association's objective by distinguishing, estimating, breaking down, deciphering and
assessing data gave to the troughs to take significant business choices. It's one of the
significant goal which follow costs for the organization which are related with the
developments of labour and products.
The management accounting is a significant idea which is utilized by organizations to
practically deal with the utilization of cash in an arranged and effective manner. The
administration management accounting framework detailing is identified with one another
on the grounds that they are reliant on one another (Sarker, Khatun and Alam, 2019). This
will ultimately help the business organization in developing the business with higher
efficiency levels along with the improvised financial performance of the business.
Significance of Management Accounting
 Evaluation of execution: Management Accounting is considered as a powerful method
which can assist an association with assessing its monetary presentation. It additionally
mirrors the functional and monetary situation of the business firm among the contenders.
This ultimately helps in taking decision for the company in different matters.
 Filing monetary statements: It is vital for any business association to record the budget
summaries in context to the Registrar of Companies. This helps in keeping all the records
clear and absolute which ultimately helps the organization in controlling the business
operation based on the financial statements.
 Future Projections: A business association works by extending the future possibilities
as per the current monetary information which directly helps in planning for the future
business operations. This assists the organization with examining the productivity levels,
an organization can accomplish. With the assistance of a clear cut bookkeeping structure,
future projections can be made viably.
 Statutory Compliance: The presence of a powerful bookkeeping framework will
guarantee legal consistence. This will helps the organization in keeping a check on all the
liabilities that the company is accountable to payback and comply with the statutory
authorities.

Conclusion
From the above report, it has been inferred that business money and financial aspects
assumes a vital part in demonstrating the application that helps an organization and its
administration to examine, decipher and take choices. The emphasis comes on
accelerating the administration and grouping of the organization's different kinds of cost
which brings about working on the administration and control of funds in an extremely
powerful way.
References
Books & Journals
Mayer, C., 2018. Prosperity: Better business makes the greater good. Oxford University Press.
Hasan, Z., 2020. Leading Issues in Islamic Economics and Finance. Springer Singapore.
Foster, C. D., 2019. Politics, finance and the role of economics: an essay on the control of public
enterprise. Routledge.
Agrawal, A., Gans, J. and Goldfarb, A. eds., 2019. The economics of artificial intelligence: an
agenda. University of Chicago Press.
Yang, Z. and Wu, S., 2019. Land acquisition outcome, developer risk attitude and land
development timing. The Journal of Real Estate Finance and Economics, 59(2). pp.233-
271.
Chen, T. and Wang, S., 2021. Incomplete information model of credit default of micro and small
enterprises. International Journal of Finance & Economics.
Dupont, Q. and Karpoff, J. M., 2020. The trust triangle: Laws, reputation, and culture in
empirical finance research. Journal of Business Ethics, 163(2). pp.217-238.
Floro, S. L., 2019. Informal credit markets and the new institutional economics: the case of
Philippine agriculture. Routledge.
Wang, C. and Zhou, T., 2021. Trade-offs between asset location and proximity to home:
Evidence from REIT property sell-offs. The Journal of Real Estate Finance and
Economics, 63(1). pp.82-121.
Sarker, M. N. I., Khatun, M. N. and Alam, G. M., 2019. Islamic banking and finance: potential
approach for economic sustainability in China. Journal of Islamic Marketing.

Vogel, H. L., 2021. Travel industry economics: A guide for financial analysis. Springer Nature.