Financial Decision Making: Accountancy, Financial Division, and Sources of Finance

This study material from Desklib covers financial decision making, including accountancy and financial division, sources of finance, and important ratios such as gross profit margin, operating profit margin, return on capital employed, current ratio, acid test ratio, inventory turnover days, debtor's collection period, and creditor's collection period. The content includes a case study of Panini Ltd. and suggestions for improving its financial performance.

BM414 FINANCIAL
DECISION MAKING

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Part A: Accountancy and Financial division...............................................................................1
Part B: Sources of finance for the company................................................................................2
Task 2...............................................................................................................................................3
Part A: Computation of the important ratios...............................................................................3
Part B: Individualized assessment...............................................................................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The Monetary Director makes an investment selection in an attempt to gain knowledge
regarding the company's financing framework. The majority of business decisions revolve
around acquiring and allocating money (Al Ahbabi and Nobanee, 2019). An institution could
raise finances from 2 main elements: its very own investment and inputs external of the
corporation. The accompanying sections describe Panini's duties and activities. It additionally
lists the different accountancy tasks and managerial responsibilities. It likewise aids in
identifying the company's objectives and ambitions. Different ratios are also computed to
estimate Panini Ltd's effectiveness. As well as suggestions on numerous strategies that aid in
boosting the firm's productivity.
TASK 1
Part A: Accountancy and Financial division
Accountancy division:
 Taxation activity as this feature assists in understanding the implications and
repercussions of activities and reporting these activities to users, allowing users to better
understand everything that is happening on and within the firm. Thus it is very crucial as
well as critical for the firm to adhere by the laws and regulations in terms of the taxes that
are implied by the government and thus also has to pay them within a limited time frame
so that it can add value to the company in the longer term and hence the firm can sustain
and survive in the market for a much monger time frame (Bastani and Bayati, 2020).
 The auditors of the organisation performs the reviewing role, which assures that almost
all accounting information’s are correct and fair. Also the auditors must give a true and
precise picture of the company so that it can help the shareholders and other investors to
make contributions that are feasible which can further assist the enterprise to improve its
overall accounting aspects in the market in which it is operational (Boggio, Moscarola
and Gallice, 2020).
 A fiscal accountancy function as the budgetary activities is a component of bookkeeper.
This technique aids in managing the company's prior data. It also aids in the organisation
of previous facts for the purposes of prospective objectives and strategies. It additionally
assists in the management of expenditures and financial numbers. There are only a

handful of components to budgetary: It assists with the organization's financial dealings:
This strategy aids in establishing the connection between accounting and banking in
an attempt to comprehend the company's statistics (Eichelberger, Mattioli and Foxhoven,
2017).
 Accountancy role of administration as mangers assists supervisors in understanding the
true relationship among administration and business. It aids in the dividing down,
determining, decoding, and conveying of facts. The group aids the administration in
achieving their objectives (Higgins and Cornwell, 2016).
Financial division:
 Payout operation as this feature assists in the allocation of earnings to the equity assets.
The size of the payout is decided by the general meeting of shareholders. Dividend
payouts are rewards provided by a firm to its investors in exchange for their investment.
Also the firm must give dividends on a time to time basis so that it can make good image
in front of its investors which can assist it in making all round development and
expansion of the company as a whole as compared to other firms that are also operating
in the similar market conditions (Islam and Awal, 2020).
 Working capital aspect as it is the quantity of money that a company requires to decide
how much money it requires to satisfy its shorter run borrowing obligations. If a
company seems to have sufficient operating capacity, it would be capable of paying its
vendors and workers (Izadi and Safdarian, 2018).
 The acquisition of shareholdings and securities, investments, commodities, and
governmental bonds all fall within the investing activity. Such transactions are only
monetary in nature and do not involve actual assets (Jung, Glaser and Köpplin, 2019).
 Finance activity as this feature is linked to administration and aids in the provision of
finances that are required by companies in particular to support their commercial interests
(Keyser and Duvenhage, 2019).
Part B: Sources of finance for the company
Businesses with a desire for capital have a number of options. Here's a brief summary of the
essential points, and also several of the much more important traits and variables to consider
before determining whichever option is best for Panini Ltd:

 Collateral financing is a good method to get money for things like vehicles, innovation,
and facilities. The investing management business is a provider of finance since the
facility has high safety. It enables Panini Ltd to defer the expense of extra assets for a
longer period of duration. Because the expenditure is typically steady, budgeting is
simplified, resulting in a predictable yearly rate that has to be charged that promotes
consistency. It enables Panini Ltd to invest in lower expenditure things that will assist the
businesses develop without entangling up with the important assets that can be utilised
elsewhere (Khemakhem and Boujelbene, 2018).
 Angel finance that would be frequently connected with people or the elderly, is funded by
competent persons. Angel investors frequently band together to establish venture capital
monopolies. A professional instructor capable of providing knowledge, counsel, and
financial aid is typically an angel investor. For particular companies, such working
capital might be vital. The idea that even a corporation must give up a large portion of its
control in exchange for money seems to represent a significant difference from the other
methods of financing discussed. Even though no returns were required, the lender had the
option of imposing limits on the goods' usage. Also with the support of angel investors,
Panini Ltd may be able to expand its company. Additional financing possibilities include
public financing, innovative capital, share buybacks, shareholders’ funds, and growth
financing (Krishnan, 2018).
Task 2
Part A: Computation of the important ratios
Gross profit margin Formula:
Revenue−Cost of Goods Sold
Revenue
Year Revenue (£’000) Cost of Goods
Sold (£’000)
Value (%)
2018 10000 6500 35
2019 11500 8235 28.39
Operating profit margin Formula:

Revenue−COGS−Operating Expenses
Revenue
Year Revenue (£’000) COGS (£’000) Operating
expenses (£
000)
Value (%)
2018 10000 6500 735 27.65
2019 11500 8235 960 20.04
Return on capital employed (ROCE) Formula:
Earnings before interest -tax
Total assets−current liabilities
Year Earnings before
interestand tax
(£’000)
Total assets
(£’000)
Current liabilities
(£’000)
Value (%)
2018 2565 9725 970 29.30
2019 2095 10723 512 20.52
Current ratio Formula:
Current Assets
Current Liabilities
Year Current assets
(£’000)
Current Liabilities
(£’000)
Value (%)
2018 1175 970 1.211
2019 2110 512 4.121
Quick ratio Formula:
Current assets−Inventory
Current Liabilities
Year Current Assets
(£’000)
Current Liabilities
(£’000)
Inventory
(£’000)
Value
2018 1175 970 350 0.85:1
2019 2110 512 674 2.80:1
Inventory turnover days Formula:

COGS
Average Value of Inventory
Year COGS (£’000) Average Value of
Inventory (£’000)
Value
2018 6500 350 18.57
2019 8235 674 12.22
Debtor’s collection period Formula:
Accounts receivable Balance ∗365
Total net sales
Year Receivable
amount (£’000)
Total net sales
(£’000)
Days Value (days)
2018 760 10000 365 27.74
2019 1340 11500 365 42.53
Creditor’s collection period Formula:
Accounts payable balance∗365
Total net sales
Year Payable amount Total net sales
(£’000)
Days Value (days)
(£’000)
2018 920 10000 365 33.58
2019 495 11500 365 15.71
Part B: Individualized assessment
Gross profit percentage, often referred to as gross ratio, is a measurement used to assess
performance (Liu, Liu and Chen, 2017). In 2018, the gross revenue percentage was 35%, while
in 2019, the gross profit percentage was 28.39%. The gross profit margin remained less in 2019
than it had been during the year 2018, because the prices of the goods delivered remained higher
in 2019. Panini Ltd. needs minimise its procurement and supply cost to increase its gross revenue
percentage.

The operating efficiency of a corporation indicates how lucrative its core operations are.
Higher percentages are desired as compared to poor margins, and they could be compared across
sectors but not across rivals. The operating profit percentage was larger in 2018 than it was
during 2019. Resulting in higher item prices and operating expenditures, Panini Ltd. does have a
lower operating profit margin. Panini Ltd. should lower its operating and item supply prices in
order to increase its operating profit percentage (Lloyd-Sherlock, Penhale and Ayiga, 2018).
Returns on capital employed measures the income that could be used to retain enough
possessions competently. Finance executives, traders, and prospective borrowers can use the
return on capital employed percentages as one of several effective measures to evaluate a firm's
investment success. Return on capital employed is primarily utilised in capital-intensive
businesses such as production and logistics to monitor the validity of trades. Although
comparable problems, such as return on equities, which primarily measures a company's
effectiveness based on the holding of its stockholders, ROCE considers both stockholders and
creditors. This may be beneficial to businesses with substantial financial performance
assessments which really are negating responsibilities. Panini Ltd.'s return on capital employed
was significantly higher in 2018 because earnings before interest and taxation were higher.
Panini Ltd. may be able to increase its earnings before interest and taxation in the near future
(Nusron, Wahidiyah and Budiarto, 2018).
The current ratio is a liquidity metric which determines if a business has sufficient cash on
hand to satisfy its current obligations. It is okay to have a current ratio which is equivalent to or
significantly greater than the firm's average. A firm's ability to pay current or shorter
run obligations (interest expense and trades due) over current or shorter run assets is measured
by the current ratio. In 2019, the current ratio was 4.121 percentage, although in 2018, it was
1.12 percentage. Panini Ltd. appears to have experienced a stronger season in 2019. To improve
its percentage, Panini Ltd. should increase its current assets (Roychowdhury, Shroff and Verdi,
2019).
The acid test ratio assesses a firm's capability to handle immediate requirements with its
most marketable assets. The acid test ratio is calculated by dividing the financial value of a firm's
readily available liquidity holdings by its current obligations. Current assets are commodities that
may be turned to cash rapidly and have minimal influence on the wider sector's efficiency,
whereas current obligations are a company's payments or undertakings owing to lenders in much

less than a year. In 2019, the quick ratio was much more as compared to than in 2018. Variations
in ratios were induced by changes in liquidity assets. To improve its acid test ratio, Panini has to
increase its liquidity holdings (Schwab, Gold and Reiner, 2019).
Over a specific time period, inventory turnover is a quantitative measure of how often a
corporation acquires and substitutes stocks. By dividing the days in the time by the turnover ratio
approach, the number of days needed to market the products in stock may be computed. A small
stock turnover rate implies slow sales and surplus stock, whereas a higher inventory turnover rate
suggests too much or too little stockpile (Shelton, Smith and Panisch, 2019).
Stock turnover is frequently largest in industries with large volumes and low earnings, such
as retail and groceries. Stock turnover is a metric that measures how rapidly a firm's items are
exchanged. Minimal inventory turnover suggests poor sales and maybe too much inventory,
sometimes known as surplus inventory. It might be the consequence of inadequate advertising or
a fault with the items being swapped. Panini Ltd.'s inventory turnover day’s ratio is higher in
2019 than it was in 2018. In addition to distribute goods rapidly, Panini Ltd. should focus on
advertising. The period it would require to recover all business liabilities is known as the
creditors payment period (Tumataroa and O'Hare, 2019).
The shorter the duration it would need to repay these obligations, the more successful a
corporation looks to be. A prolonged duration suggests the presence of difficult accounts payable
s or a drop in overall effectiveness. Most experts assume that if a corporation is offered free
credit for two months, this should return within 60 days. This is the time it requires for a
monetary transaction to turn into a credit transaction (Valizadeh Larijani and Behbahaninia,
2019).
A shorter debtor collection period shows that a corporation is collecting cash earlier, which
would be typically viewed as desirable. The debtor collection period fraction is derived by
multiplying the amount owing by 365 times the annual sales on credit rate. Panini Ltd.'s debtor
collection period became lower in 2019. Because 2019 collections are greater than 2018, the
modifications were applied. The business should communicate with its supplier concerning
postponed payment in addition to improving its share (Vrbka and Rowland, 2019).
The overall length of days it needs a corporation to recover its debtors is known as the
average collection period. Businesses look at the average collection period to make certain they
have had sufficient cash in board to pay its financial liability. To calculate the average collecting

period, split the standard trade receivables amount by the total aggregate credits and multiplied
by the amount of days in the current period. This time reflects the success of a firm's
tarde receivables managing processes. A company with a lower average collecting period
acquires resources more quickly. Panini Ltd.'s debtor collection period was greater in 2018 than
it was in 2019, which was damaging to the company. The alterations are made primarily by
changes in the payout amount. In the near future, Panini Ltd. should focus on debt amounts
(Walczak and Pieńkowska-Kamieniecka, 2018).
CONCLUSION
Accounting and finance departments are essential to any team's operations. The key
purposes of the accounting department are financial policy, taxes, and audits. The main focus of
the finance section is on investing, profits, as well as other monetary problems. For corporate
growth, borrowings, personal contributions, personal loans, as well as other financing options are
all accessible. To evaluate and examine the company's performance, various ratios might be
employed. Investors may choose to invest in Panini Ltd. due of its strong track performance.
Operating profit, net earnings, net working capital, and other variables are beneficial for
financing.

REFERENCES
Book and journals
Al Ahbabi, A. R. and Nobanee, H., 2019. Conceptual building of sustainable financial
management & sustainable financial growth. Available at SSRN 3472313.
Bastani, H. and Bayati, M., 2020. Online decision making with high-dimensional covariates.
Operations Research, 68(1), pp.276-294.
Boggio, C., Moscarola, F. C. and Gallice, A., 2020. What is good for the goose is good for the
gander?: How gender-specific conceptual frames affect financial participation and
decision-making. Economics of Education Review. 75. p.101952.
Eichelberger, B., Mattioli, H. and Foxhoven, R., 2017. Uncovering barriers to financial
capability: Underrepresented students’ access to financial resources. Journal of Student
Financial Aid, 47(3), p.5.
Higgins, E.T. and Cornwell, J.F., 2016. Securing foundations and advancing frontiers:
Prevention and promotion effects on judgment & decision making. Organizational
Behavior and Human Decision Processes, 136, pp.56-67.
Islam, M. A. and Awal, M. A., 2020. Factors Influencing Physicians' Clinical Decision-making
at Upazila Health Complexes in Bangladesh. Global Journal on Quality and Safety in
Healthcare. 3(4). pp.125-133.
Izadi, M. and Safdarian, A., 2018. Financial risk constrained remote controlled switch
deployment in distribution networks. IET Generation, Transmission & Distribution,
12(7), pp.1547-1553.
Jung, D., Glaser, F. and Köpplin, W., 2019. Robo-advisory: Opportunities and risks for the
future of financial advisory. In Advances in Consulting Research (pp. 405-427).
Springer, Cham.
Keyser, N. and Duvenhage, C., 2019. Construct validity of a financial literacy instrument.
Journal of Psychology in Africa. 29(5). pp.460-465.
Khemakhem, S. and Boujelbene, Y., 2018. Predicting credit risk on the basis of financial and
non-financial variables and data mining. Review of Accounting and Finance.
Krishnan, P., 2018. A philosophical analysis of clinical decision making in nursing. Journal of
Nursing Education, 57(2), pp.73-78.
Liu, P., Liu, J. and Chen, S.M., 2017. Some intuitionistic fuzzy Dombi Bonferroni mean
operators and their application to multi-attribute group decision making. Journal of the
Operational Research Society, pp.1-26.
Lloyd-Sherlock, P., Penhale, B. and Ayiga, N., 2018. Financial abuse of older people in low and
middle-income countries: the case of South Africa. Journal of elder abuse & neglect.
30(3). pp.236-246.
Nusron, L.A., Wahidiyah, M. and Budiarto, D.S., 2018. Antecedent Factors of Financial
Management Behavior: An Empirical Research Based on Education. KnE Social
Sciences, pp.437-445.
Roychowdhury, S., Shroff, N. and Verdi, R. S., 2019. The effects of financial reporting and
disclosure on corporate investment: A review. Journal of Accounting and Economics.
68(2-3). p.101246.
Schwab, L., Gold, S. and Reiner, G., 2019. Exploring financial sustainability of SMEs during
periods of production growth: A simulation study. International Journal of Production
Economics. 212. pp.8-18.

Shelton, V.M., Smith, T.E. and Panisch, L.S., 2019. Financial therapy with groups: A case of the
five-step model. Journal of Financial Counseling and Planning, 30(1), pp.18-26.
Tumataroa, S. and O'Hare, D., 2019. Improving self-control through financial counseling: A
randomized controlled trial. Journal of Financial Counseling and Planning, 30(2),
pp.304-312.
Valizadeh Larijani, A. and Behbahaninia, P.S., 2019. Investigation of Effective Items on Stock
Return: Different Aspects effecting on Decision Making. Journal of Financial
Accounting Knowledge. 5(4). pp.69-102.
Vrbka, J. and Rowland, Z., 2019. Assessing the financial health of companies engaged in mining
and extraction using methods of complex evaluation of enterprises. In Sustainable
Growth and Development of Economic Systems (pp. 321-333). Springer, Cham.
Walczak, D. and Pieńkowska-Kamieniecka, S., 2018. Gender differences in financial behaviours.
Engineering Economics. 29(1). pp.123-132.