Financial Management: Reporting, Analysis and Decision Making

This report focuses on finance for managers, emphasizing financial record maintenance, accounting techniques, and organizational requirements for financial reporting. It discusses the usefulness of financial statements for stakeholders, performs ratio analysis on a competitor's working capital, and illustrates effective working capital management strategies. The report also differentiates between financial and management accounting, explains budgetary control, and includes numerical examples of absorption and marginal costing. Project appraisal techniques are assessed, and recommendations for the best investment analysis method are provided, along with an emphasis on internal and external finance sources.

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
2

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
3

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
system.
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
documentation are filed with state and municipal government authorities. These
documents could include 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
business, 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,
4

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
5

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.
6

Shareholders
 For determination as to whether investment shall be sold, halted or buying shares of
the organization.
 For deciding the fairness of investments’ return.
 For determining the organisation’s going concern.
 For obtaining knowledge widely about activities of organization.
 For comparison of investing and benefits with competitive industries and
organisations.
Employees
 For knowing the profitability and stableness of the organization.
 For knowing about salary, benefits of retirement and opportunities of employment in
organization.
 For ensuring job security with current organization.
 For ensuring the fairness of wages and earnings obtained from the company.
 For having a view which is clear of other operations of organization.
Suppliers
 For ensuring the supply of payments which shall be received on due.
 For ensuring the customers’ stability.
 For having knowledge about suppliers of organization and other products.
 For comparison of transaction with existing and other companies (Lambovska, M.,
Rajnoha, R. and Dobrovič, J., 2019).
 For finding competitive suppliers and contribution towards organization.
 For finding opportunities for supplying more.
Government
 For collection of accurate tax and amount from organisations on due dates.
 For providing government benefit for improving their business.
 For obtaining non-financial and financial help for government development projects.
7

 For ensuring organisations overseeing the employees in reasonable way.
 For ensuring compliance of organisations with rules and regulations of government
and acts government has established.
Consumers
 For having knowledge about products’ cost structure that the organization has been
producing.
 For ensuring organisation’s stability.
 For knowing about profitability of organization, as profitability helps to know about
product improvements, best customer service and strategic implications that are of
low price.
 For knowing about CSR programs organization has conducted.
Public
 For being aware about substantial contribution of organization towards society.
 For knowing about opportunities for linking with organization (Lambovska, M.,
Rajnoha, R. and Dobrovič, J., 2019).
 For knowing about CSR contribution towards country.
 To make conscious activities that can be affected to nature’s interest and of the
country.
ACTIVITY 3
Ratio analysis of Competitor Alpha Limited
2019 2020
8

Current Ratio=Current
Assets/Current Liabilities
757.50/322.50=2.34 1035/1110=0.93
Average receivable
days=Receivables/Sales*365
450/2400*365=68.43 600/3000*365=73
Current ratio
It's a liquidity ratio showing the current obligations which are current and company’s assets. It
demonstrate that if an organisation can satisfy its obligations of short-term in a year while also
increasing current assets for offsetting current liabilities and debt, results in working capital.
Current assets are ones which have to be used or sold in a year for keeping operations taking
place in smooth manner. Cash, accounts receivable, stock inventory stock are a few examples.
Accounts payables, short-term loans are instances of current liabilities which have to be paid off
in a year (Mack, S. and Goretzki, L., 2017).
Current ratio of Alpha Limited has been close to 1 in 2019, which is a good sign for the
liquidity of organisation. This gives indication that current assets of the company are almost
equal to the current liabilities.
Average receivable days
The average receivable days refer to time taken for collection of receivables from owers. The
quicker a loan gets repaid, more cash becomes available for working capital and also payback of
debt. The denominator of sales is utilised for calculating the ratio since the rate of recovery of
receivables depends on generated sales. As sales is calculated yearly, the numerator’s product
and the sales’ product gets multiplied by 365.
Alpha Limited receivable days have decreased which is a good sign for the company and its
working capital.
Accounts payable period
Speaking of account payable, it can be said that organisation should be using the period of
period for its advantage. It may assist in increasing operations, for opening up branches that are
9

new and expansion of business. Although, it has to be kept in view that financial leverage
financial has to be not high and the ratio has to be in accordance with equity capital. More Debt
can initially help however it may become burden as to when it has interest alongside to pay for
longer periods. This may raise issues of solvency for the organisation. Also it has to be bore in
mind that organisation ethically pays dues following ethics. This can assist in maintaining a
relationship that is good with the creditors and may be of help when organisation need to
increase the credit limit from them. Banks shall lend to an organisation if there is a credit history
that is good and overdraft limit is extended (Mack, S. and Goretzki, L., 2017).
Ways of Working capital management
Working capital is the money used in daily operations of the company. It can fluctuate with the
operations of the company going on. Thus, there is a need to maintain balance of working capital
in the organization. Working capital is the difference of current liabilities from current assets.
The ideal working capital ratio is said to be 1 where current assets equal current liabilities
meaning current assets are sufficient enough to cover current liabilities. Current assets thus,
being maintained and current liabilities kept in check can help maintain working capital
(Boisjoly, R.P., Conine Jr, T.E. and McDonald IV, M.B., 2020). Cash in hand, cash at bank are
some of the current assets while accounts payable are one of the current liabilities. The ways in
which working capital can be maintained is:
a) The company has to look for measures to increase liquidity which can be done by
increasing source of funds. By making investment options attractive, more investors can
be joined and company would benefit in raising capital.
b) Measures like IPOs can be a way of getting investment from the public and can help in
solving working capital issues. A successful IPO can boost capital many times and
company can expand its operations too.
c) Trading in bonds and securities that are risk-weighted can help in getting capital in short
and long term. The interest money can serve as monetary value for the working capital.
d) Credit policy has to be checked of the company. If the debtors are defaulting or extending
credit period largely, it is time for credit policy renewal for the management of the
organization. Credit will then have to be given by checking on the credit rating of the
individual and history of credit payments. This will help in minimizing the risks and help
10

to get credit back on time thus, it will help in the working capital get increased and also
receive money with interest to help further in daily operations of the company.
e) Company taking credit for own operations has to use the credit period judiciously as
working capital. Credit taken has to be for a term that is enough for the duration of
project’s operations. This way, project reaping benefits in monetary value can be paid
back as credit repayment and rest profits can be used for investors and organization. A
small credit period can affect the working capital and is not appropriate. The company
can earn profits and also repay the creditors back on time, with the right deal.
f) The company has to maintain the right financial leverage of debt and equity. Piling debt
can be a cause of concern to repay later. Thus, focusing on equity increase can help
maintain the solvency and working capital balance too of the organization.
g) Stock control measures of inventory have to be taken in a way which improves working
capital condition. Inventory if bought in excess, can be cause of monetary concern for the
company. There are costs of storing inventory and also if there is a damage, company has
to bear the loss. Getting right amount of inventory using method of Economic Order
Quantity can help in maintaining the stock with getting just the right amount of inventory
needed and thus saving on the additional costs of storage which can decrease cash in
current assets. This will increase working capital as inventories add to current assets
without bearing losses. Company can also go for the Just in Time Inventory approach as
per the requirement (Boisjoly and et.al.,2020).
h) Overdrafts taken from bank can help in increase for working capital. Company’s
management has to get in touch with the bank in this aspect so, credit limit is increased
and also there is sufficient time period in which company can repay the same through
profits earned by the projects.
ACTIVITY 4
Difference between financial and management accounting
Financial accounting concerns with financial transaction and statement which have taken
place already. It implies information gathering about transactions of business. For instance:
loss and gain. The process is controlled by manager of finance.
11

Management accounting is providing organisation’s management with recommendations
that are accounting information based, in order for assisting in day-to-day decision-making
and in planning of long term. The process is controlled by finance manager. Financial and
management accounting gives information in two different user groups. Financial accounting
provides information for accounting data’s external users of data of accounting like creditors
and investors. On other hand, management accounting provide information for accounting
data’s internal users. Internal users have inclusion of managers, executives and employees of
the company. Financial accounting reports on information which is historical. Information is
regularly reported. It is broken in quarterly, annual and monthly periods of reporting. On
another aspect, information of management accounting is reported on continuous basis.
Internal users need evaluation of present, past and future information potential in order for
making decisions. Thus, these users need information on continuous basis for making
decisions which are appropriate. These two accounting systems have their own importance in
business. Without these businesses cannot operate smoothly and make profits (Nastiti,
P.K.Y., Atahau, A.D.R. and Supramono, S., 2019).
Financial accounting presents reports annually while management accounting reports are of
long and short durations. Financial accounting covers entire organization whereas
management accounting are prepared for organization as well as segments.
It emphasizes facts’ accuracy while management accounting require quick and on time
reporting of facts if they are less accurate.
Focus- Financial accounting emphasizes accounting data’s external use and main focus of
this form of accounting is on balance sheet preparation and resources and obligations’ state.
The purpose of management accounting reports and collects information which is relevant
for making of decisions for ensuring firm’s resources being used optimally.
Principles- The financial accounting adherence is for the generally accepted accounting
principles. This gives introduction to consistency and data meaningfulness from view point
of investors. Inter firm comparisons of performance and performance trend is analyzed over
period of time when some set of GAAP is followed by firms. Management accounting is not
based on the set of rules that are accepted. Each enterprise, depends on requirement for facts,
evolving own principles and procedures for preparation of reports for internal uses. The
information has to be of relevance and help management in decision-making.
12