Financial Decision Making: Accounting and Finance Department, Sources of Finance, and Financial Ratios

This report discusses the duties and responsibilities of the accounting and finance departments, sources of finance, and financial ratios for decision making. It covers topics such as financial accounting, management accounting, tax accounting, auditing accounting, investment function, finance function, dividend function, working capital function, long-term and short-term sources of finance, and financial ratios such as gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, debtor's collection period, and creditor's collection period.

FINANCIAL
DECISION MAKING

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Accounting department...............................................................................................................1
Finance department.....................................................................................................................2
Some various sources of finance which are used by the small and medium firms for the
expansion purpose.......................................................................................................................3
PART B............................................................................................................................................4
(a) Gross profit margin................................................................................................................4
(b) operating profit margin..........................................................................................................5
(c) Return on capital employed...................................................................................................6
(f) Inventory turnover days.........................................................................................................8
(g) Debtor's collection period......................................................................................................8
(h) Creditors collection period....................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES .............................................................................................................................11

INTRODUCTION
This report discuss about the duties and responsibility of the accounting and finance
department and the importance of both the sections in panini Ltd. In this case it firstly describe
about the duties and responsibility of the accounting department in the organization it includes
monitoring spending and budgets, prepare accounts and tax returns, financial predicting and
analyse the risk also and the last it analysing and auditing the financial results of the
business(Alghamdi and et.al., 2019). It also discuss about the various source of finance which
mainly increase the funds and helps in accomplishing the activity in the organization in last part
it calculate the financial ratio of the company which helps the organization to know the financial
position of the business.
PART A
Accounting department
This basic function of the accounting department is to analysing the record, summarizing
and interpreting the results of the organization in which they retain data for all the goods and
services. Here are some various kinds of roles and function of accounting department:
(1.) Financial accounting function: This function of accounting department plays a vital role for
maintaining the past records of all the transactions. So, it can make and analyse for the audit
purpose. It can also use it for the creation of reports and budgets. It also includes some various
functions of financial accounting:
It maintain the financial documents of the company and keep the day to day records of daily
transactions of accounting in the firm.
It helps in achieving the organizational goals and assist the accountant of the firm to manage the
documents and perform the financial duty and make strategic plan for firm's goals and objective.
(2.) Management accounting function: It helps the manager within the organization to make
decisions. In general the company helps in determining, analysing and interpreting and
conveying this information to manager(Basile and Neunuebel, 2019). It mainly help the firm for
achieving the goals and objectives. It also include some various functions in management
accounting:
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This function of management accounting helps the firm to make plan and predicting strategy to
execute the operational task into the organization.
Another role of management accounting is to organize the activity After forming a strategy firm
need to organize the structure of performing task It easier them to execute the task.
(3.) Tax accounting function: Its helpful to manage the data for controlling the tax related risk
and for some other purpose also which includes: Task planning, predicting the issue and inform
about the planned decisions to the staff members of the company(Döring and et.al., 2018). It also
include some tax functions:
It mainly advise the firm for entity's transaction, if firm don't want to pay more taxes then it's
important for them to more focus on their transaction limits.
It provide annual report of the company portfolio to their stakeholders of the company because
they have right to know the annual performance of the business.
(4.) Auditing accounting function: It determine the essence, time period and development of the
audit process. So, the auditor necessary to analyse the accounting of organization.
It analyse the proper structure of accounting, the auditor of the company necessary to check the
assets of the business along with the identification of value and also required to check the
existence of assets.
The another main function of accounting department is to identify the accuracy of financial
documents which are basically prepared by the firm .
Finance department
This finance department is mainly answerable for creating the issue which is actually
depends upon the financial report of the organization.
(1.) investment function: The basic purpose of investment is to express the comparison between
the value of interest and the company's investment. It also includes some roles and functions of
investment function(Huang, 2020).
The main function is to invest money in those technology which are new in market and it helpful
for the people in the economy and the welfare of the society.
In this function of investment if invest money is high then it invest more otherwise it invest less
amount in the company.
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(2.) Finance function: This is the main function of finance department which helps in retaining
and using of financial resources for the efficient growth and development of company task along
with it control the planning of financial funds.
This finance function mainly helps to create an appropriate strategy of investment.
This is another one major function of finance is that it need to record loans and advances of the
company which they provide any individual in form of loan.
(3.) dividend function: The basic function of finance department is if any of the firm earn profit
in any year then the profit first distribute among the partners and board members of the firm
after that equity and preference shareholders of the organization(Khemdoudi, 2018).
Distribution of dividend among the equity and preference shareholder of the firm if any company
earn profit then share the dividend among them.
company can pay dividend only from the profits of the company. It only possible when company
earn enough profit in any year.
(4.) Working capital function: This is the main function of finance which basically assist to
recover all of a firm short-term expenses which are basically due with in a year. It includes some
various functions of working capital:
This process of working capital function use cheapest source of finance for the development and
expansion of the business.
Every company wants higher profit into the organization. So, they need to concentrate on the
activities of the firm and try to decrease the level of expenditures.
Some various sources of finance which are used by the small and medium firms for the
expansion purpose
Every organization needs funds in their business for performing the task. So, on that basis
they use some various sources of finance which helps the company to generate more funds in
their firm(Kindornay, 2018). There are two sources of finance such as:
Long term source of finance: This source of finance is basically for the long term purpose. In
which company can borrow the loan from the public or bank for the long-time period.
 Commercial bank: if any company wants to generate some source of finance then they
approach commercial bank for this and bank lend the money only when the company
portfolio is good enough and provide some collateral against the bank loan.
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 By issuing of equity shares: The another long term source of finance is equity shares
company can raise funds by issuing equity shares from the public.
Short term source of finance: This source of finance is usually for the short term purpose
within a year. In this source of finance firm borrow the money from the public and relatives for
the short-time period(Miroshnychenko, Bozzi and Barontini, 2019).
 Family and friends: In this source of finance company can approach their family and
friends in their business for investing money.
 Crowdfunding: In this method company can generate funds from a large group of
members and fulfil the demand of funds in their business.
PART B
(a) Gross profit margin
This financial ratio assist the company to calculate the amount which are remain after
selling the goods and services. It also calculated through one formula which is sales minus cost
of goods sold(Rowan and et.al., 2019). There is one formula to calculate gross profit margin of
the company:
Gross profit margin = Gross profit / sales revenue *100
Year 2018,
= 3500/10000*100
= 35%
Year 2019,
= 3265/11500*100
= 28.35%
Compare the performance of the ratio 2018 and 2019
The above calculation of ratio clearly explain about that in comparison of 2018 company
perform less in 2019 and not able to generate more gross profit in 2019 .
Reason to change the ratios of 2018 and 2019
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The very big reason to change in the ratio of 2019 is company having more cost of sales as
compare to the 2018 that means they spend more in cost. So, on that reason company having less
gross profit in the year 2019.
Interpreting the ratios of the firm 2018 and 2019
The above calculation of the ratio show that company having more cost of sales as compare to
2018 that means company is less efficient to achieve the gross profit in 2019.
(b) operating profit margin
This type of financial ratio also assist to calculate its profit after subtracting operating
expenses into non-operating expenses(Tan, 2019). It also helps in increasing the interest of
investors long with creditors.
operating profit margin : operating profit / net sales *100
Year 2018,
= 2765 / 10000*100
= 27.65%
Year 2019,
= 2305 / 11500*100
= 20.04%
Compare the performance of the ratio 2018 and 2019
The above calculation of the operating ratio show that in 2019 company earn less operating
profit as comparison to 2018 because company having high operating expenses in 2019.
Reason to change the ratios of 2018 and 2019
The very big reason to change the operating profit ratio of 2019 is its high operating expenses in
the company and perform in a very unproductive manner to achieve the task.
Interpreting the ratios of the firm 2018 and 2019
The above computation of ratio interpret that company earn high operating profit in 2018 as
compare to 2019 because company spend high in operating expenses and less focus to
accomplish the task that is the reason company not able to generate more operating profit in the
business.
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(c) Return on capital employed
This financial ratio is used to evaluate the company profitable condition and capital
productivity in the firm(Truby and Ismailov, 2022). Here is one formula to calculate return on
capital employed:
Return on capital employed = Earning before interest and tax / capital employed
Capital employed = Fixed assets + working capital
Year 2018,
= 2765 / 8755
= 31.58 %
Year 2019,
= 2305 / 10211
= 22.57 %
Compare the performance of the ratio 2018 and 2019
In this ratio the performance of the company 2018 is high as compare to the 2019 that means
company performing the task less efficiently.
Reason to change the ratios of 2018 and 2019
The reason to change the ratio of 2019 is company perform less effectively and showing less
productivity to performing the task.
Interpreting the ratios of the firm 2018 and 2019
The above calculation of ratio indicates that in 2019 company less recover the return on capital
employed as comparison to 2018 because in the year 22019 company not working so efficiently
to accomplish the task and not fully utilize the money they are invested in the business.
(d) Current ratio
This ratio assist in calculating the liquidity stage of the firm. In this financial ratio it
compare the current assets to the current liabilities of the company(Unerman, 2020). A very
important motive to measure this ratio is to understand that how many times a firm can meet
their current liabilities to feel their current assets in a form of cash.
Current ratio = current assets / current liabilities
Year 2018,
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= 1175 / 970
= 1.21 : 1
Year 2019,
= 2110 / 512
= 4.12 : 1
Compare the performance of the ratio 2018 and 2019
In the year 2019 the current ratio of the company is high as compare to the 2018 that means
company current liability is less as compare to the 2018
Reason to change the ratios of 2018 and 2019
The important reason to change the ratio of 2019 is company having less current liability that
means firm success to decreases its debt obligations.
Interpreting the ratios of the firm 2018 and 2019
The above calculation of the ratios indicates that in 2019 company having good current ratio as
compare to the 2018 that means the debt obligations of the company is less and it shows the good
position of the company in the current ratio.
(e) Quick ratio
It mainly calculate to analyse the ability to pay its current debt without necessary to sell
it stock or adopting the another source of financing(Vitor Jordão da Gama Silva, Brandalise
Santos and Portes Pereira, 2019).
Quick ratio = Current assets – stocks / Current liabilities
Year 2018,
= 1175 – 350 / 970
= 0.85:1
Year 2019,
= 2110 – 674 / 512
= 2.8:1
Compare the performance of the ratio 2018 and 2019
In the year 2019 company quick ratio is high as compare to the 2018 that means in 2019 it is
more efficient.
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Reason to change the ratios of 2018 and 2019
The reason to change the ratio of 2019 its company ability to pay its liability is good as compare
to 2018.
Interpreting the ratios of the firm 2018 and 2019
On the basis of above calculation it show that the debt obligations of the company is high as
compare to the 2018 which means company position is good in 2019.
(f) Inventory turnover days
It helps to show that how much time it takes to sell and take out the stock during a
specific period of time(Woodroof and Thumann, 2021).
Inventory turnover ratio = Cost of goods sold / average inventory
Year 2018,
= 6500 / 512
= 12.6 times
Year 2019,
= 8235 / 512
= 16.08 times
Compare the performance of the ratio 2018 and 2019
In 2019 company take more time to sell the stocks as compare to 2018. it means company less
efficient in 2019
Reason to change the ratios of 2018 and 2019
The reason to change the ratio of 2019 is company not works productively to achieve the targets
of selling the goods with in a minimum time.
Interpreting the ratios of the firm 2018 and 2019
The above ratio of the express that company takes high time to achieve the target that means in
2019 its less efficient to perform the task. So, on that basis they need to improve its productivity
in future year.
(g) Debtor's collection period
It helps to measure the collection of liability. It shows the productivity when it takes less
time to collect the liability and high time shows less efficiency.
Debtor collection period = 365 / sales on credit / accounts receivable
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Year 2018,
= 365 / 10000 / 760
= 27.74 days
Year 2019,
= 365 / 11500 / 1340
= 42.54 days
Compare the performance of the ratio 2018 and 2019
In the year 2019 company takes high time to collect the debts in the firm as compare to 2018.
Reason to change the ratios of 2018 and 2019
The big reason to change the ratio of 2019 is company is not performing very efficiently to
accomplish the task.
Interpreting the ratios of the firm 2018 and 2019
The above calculation indicate that in 2019 company takes more time to collect the debt that
means company less productive in 2019.
(h) Creditors collection period
It helps to measure the time to recover the loan amount. If company takes high time then
its more beneficial.
Creditor's collection period = 365 / cost of sales / trade payable
Year 2018,
= 365 / 6500 / 920
= 51.6 days
Year 2019,
= 365 / 8235 / 495
= 21.94 days
Compare the performance of the ratio 2018 and 2019
In the year 2019 company takes less time as compare to 2018 that means it is less efficient in
2019.
Reason to change the ratios of 2018 and 2019
The reason to change the ratio of 2019 is company takes high time to recover the loan amount of
the organization.
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Interpreting the ratios of the firm 2018 and 2019
The above calculation indicate that in 2019 company less productive to recover its loan amount
in 2019 in comparison to 2018. If company want to perform good in future then it need to focus
on their efficiency.
CONCLUSION
As it is concluded from the above report It mainly discuss about the duties and
responsibility of accounting and finance department of the Panini Ltd. In this case it properly
explain about the meaning of accounting and finance which helps to manage the work of the
firm. At the another part in this report which is very important to describe that is sources of
finance of small and medium enterprises it briefly discuss about the various finance which create
funds in the company to invest in the operational task of the business. In another part it also
calculate the various financial ratios which helps to know the performance of the business and
also compare the ratios of 2018 and 2019 and interpret that ratios of the company.
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REFERENCES
Books and Journals
Alghamdi, A.K and et.al., 2019. Theories linking Capital Structure with Financial
Performance. Australian Academy of Accounting and Finance Review. 4(4). pp.142-
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Döring, S and et.al., 2018. Global cash flow sensitivities. Finance Research Letters. 25. pp.16-
22.
Huang, M., 2020. New sources of housing market risk: Asset pricing for the US state‐level
housing markets. International Finance. 23(1). pp.135-174.
Khemdoudi, P., 2018. Securities Financing Transaction Regulation: Implementation and impact
on the securities finance post-trade reconciliation. Journal of Securities Operations &
Custody. 11(1). pp.55-69.
Kindornay, S., 2018. Progressing national SDGs implementation: An independent assessment of
the voluntary national review reports submitted to the United Nations High-level
Political Forum on Sustainable Development in 2017.
Miroshnychenko, I., Bozzi, S. and Barontini, R., 2019. Firm growth and legal
environment. Economic Notes: Review of Banking, Finance and Monetary
Economics. 48(1). p.12116.
Rowan, P and et.al., 2019. Regulating alternative finance: Results from a global regulator survey.
Tan, C., 2019. Creative cocktails or toxic brews? Blended finance and the regulatory framework
for sustainable development. In Sustainable Trade, Investment and Finance. Edward
Elgar Publishing.
Truby, J. and Ismailov, O., 2022. The role and potential of blockchain technology in Islamic
finance. European Business Law Review. 33(2).
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Anniversary Celebrations, British Accounting and Finance Association Annual
Conference, London. The British Accounting Review. 52(5). p.100910.
Vitor Jordão da Gama Silva, P., Brandalise Santos, J. and Portes Pereira, G., 2019. Behavioral
Finance in Brazil: A bibliometric study from 2007 to 2017. Latin American Business
Review. 20(1). pp.61-82.
Woodroof, E.A. and Thumann, A., 2021. How to Finance Energy Management Projects: Solving
the" lack of Capital Problem". CRC Press.
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