Finance for Managers: Importance of Financial Records, Reporting and Ratio Analysis

FINANCE FOR MANAGERS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
ACTIVITY 1...................................................................................................................................3
ACTIVITY 2...................................................................................................................................6
ACTIVITY 3...................................................................................................................................9
ACTIVITY 4.................................................................................................................................11
ACTIVITY 5.................................................................................................................................16
ACTIVITY 6.................................................................................................................................17
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................21
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INTRODUCTION
The report is on Finance for managers. It emphasizes on various aspects of finance required in
report. The purpose and requirements of business organization maintaining financial records has
been given. The techniques of accounting systems have been illustrated. The organizational and
legal requirements for financial reporting in business organizations has been discussed. The
financial statements usefulness for range of stakeholder groups has been emphasized. The ratio
analysis for the working capital components of competitor has been described. The ways in
which organizations can manage working capital effectively has been illustrated. The difference
between financial and management accounting was provided. The budgetary control was
explained. Numerical of absorption and marginal costing has been done with evaluation of
techniques of costing used for pricing purposes. The project appraisal techniques have been
assessed with recommendation of the best investment analysis method. The internal and external
finance sources used for financing the project have been emphasized.
ACTIVITY 1
Purpose and requirements of business organisation maintaining financial records
Financial recording is procedure used by organisation for finance controlling and accountability.
The process involves recording, timely reporting of transactions affecting revenues, liabilities
and assets. For developing business financial records have to be maintained. There are
techniques used for recording of financial information such as:
A) Double entry book keeping: This accounting technique records each transaction as debit
and credit.
B) Day books and ledgers: A book having account of sales and purchases each day is called
day books (Power, M., 2021).
C) Trial balance: The total of debit and credit balance for making the total debit equalling
total credit. From the trial balance figure, organisation can make balance sheet of the
business for depiction of financial position at the moment.
 Manual and computerized systems: Manual systems mean the transactions which are
entered manually in the systems. It is risky for business as there are lot of chances for
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making mistakes. On one hand the transactions which are entered by computer is known
as computerized system. It is a very safe system and does not make errors. Now most
businesses are computerized systems. As it can also keep more records than manual sys-
tem.
In business there are many requirements and purposes to keep financial records among of those
this three are mainly important. That’s are:
 Legal requirements: It says when people start a business they require to follow business
rules, laws and regulations and laws for running their businesses. Almost every firm has a
legal ruling of some sort. To begin, specific paperwork, licences, and other documenta-
tion are filed with state and municipal government authorities. These documents could in-
clude tax paperwork, shareholder agreements, and payments, among other things. You
may decide not to open if you don't have this documentation.
 Tax requirements: Every firm must pay tax, and the amount of tax varies depending on
the business structure. This tax is referred to as a tax requirement. This tax is sometimes
determined by the profit of the business, the type of business, and the quality of the busi-
ness, among other factors.
 Requirements for internal controls: Internal controls are policies, procedures, and
methods that are utilised to reduce corporate risk. Control must be extensive and
widespread in order to prevent employees and members from engaging in dishonest
behaviour. It assists businesses in running smoothly and achieving their objectives, as
well as fostering positive relationships among all employees (Power, M., 2021).
 Financial reporting standards exist in the business world, and these financial reporting
obligations apply to single traders, partnerships, limited corporations, and public limited
companies, among others. Financial reports are documents and records that show how
much money your business makes or does not make, how much money your business has
to pay or has already paid, and so on. Essentially, it is the documentation of all money
transactions for all reasons in which your company invests money. Financial reports and
statements come in a variety of formats.
These financial statements can include a cash flow statement, which is a summary of a
company's real cash inflows and outflows during a given accounting period (month,
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quarter, or year), as well as a profit and loss account, which shows how much money
your company makes or loses. The balance sheet is the final statement. It focuses on the
assets that the company possesses, how much it paid for them, how much profit or loss it
made, and so on. At the conclusion of the year, this statement is prepared. The goal of
financial reporting is to get this information to your business's lenders and shareholders
(stakeholders). Because there are two types of stakeholders in business: internal and
external. Internal stakeholders are those who reside within the organisation, such as
managers, employees, and board members. External stakeholders, on the other hand, are
those who are not directly affiliated with a company, such as shareholders, consumers,
and suppliers. Financial reporting must be a requirement of your contract with them. The
lenders and investors have a right to know whether their money is being used properly
and profitably. Furthermore, financial statements are useful in the following ways: As a
result, stakeholders are aware of the amount of profit or loss, how assets are allocated to
liabilities, where the company obtains cash, and how money is spent efficiently, how
much cash flow from net profit did the company generate throughout the time, does it
reinvest all profits, and does it have enough money to expand in the future.
The balance sheet shows the assets and liabilities. Current and long-term assets are included in
assets, and current and long-term liabilities are included in liabilities. Assets and liabilities are
equal according to accounting principles. Fixed assets, such as land and buildings, as well as
machinery, are considered assets of a company. Recognized accounts receivable and payable,
which show the company's credit and liabilities, are also included on the balance sheet. Before
making an investment decision, investors look at the balance sheet's current assets and liabilities
for the last five years (Herath, S.K. and Albarqi, N., 2017).
The income statement is a financial statement that displays the profit and loss of a firm. It shows
how much money was made, how much the corporation spent on products, and how much
money was made. It details variable and fixed expenses, as well as overhead, sales, and
administrative costs. Finally, the net income is computed after all expenses have been deducted
from receipts. Because net profit is a major factor in assessing investment and the company's
efficiency in regulating operational costs, this statement is critical.
The cash flow statement shows how much money comes in and goes out, as well as the sources
of revenue and expenses. It shows how well a company spends money and whether cash inflow
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surpasses cash outflow, demonstrating that funds are sufficient to run the business. It also
displays which ventures have yielded investment returns and which are now seeking funds or
cash outflow.
ACTIVITY 2
Relevance of financial information reporting for stakeholders
There are two types of stakeholders such as internal and external stakeholders. Internal
stakeholders mean stakeholders dwelling in the company for instance: employees, managers,
board members etc. On another hand there are stakeholders who are not directly part of the
company and are called external stakeholders for example: customers, suppliers etc. The
shareholders would like to see their investment use and assess the management through
financials. Financial statements are useful for the business.
Stakeholders of company have requirement of the financial information for the reasons
following:
a) To assess the performance of the company.
b) To know the earnings of the company more than their spending.
c) To know an idea about tactical and strategic management plans.
d) To give information for making decisions about investment.
e) Avoiding dissimulations within organization (Herath, S.K. and Albarqi, N., 2017).
The use of financials for different stakeholders is as below:
Managers and Directors
 About continuing and discontinuing operations.
 Dividend decision-making.
 New investment and decision of project appreciation.
 Business decision that is diversified.
 Decision winding up.
 For establishing periodical targets and objectives overall.
 For avoiding dissimulation.
 For increasing organisation’s level of productivity.
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