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(PDF) Financial Decision Making - Assessment
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Added on 2021-02-21
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FINANCIAL DECISION MAKING
INTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................3Evaluating the role of accounting and the finance functions within an organization..................3TASK 2............................................................................................................................................5a. Calculation of ratio analysis from the financial statements of Alpha Limited........................5b. Commenting on the financial performance of Alpha Limited.................................................6CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................10
INTRODUCTIONFinancial decision making refers to the decisions that are taken by the finance manager inrelation to the allocation and the acquisition of the funds that are needed for making the investment decision. It is the process that involves decisions concerned with the liabilities and the equities of the stockholders. Majorly financial decision making include three main types of decisions that are investment, dividend and financing decisions. The present study is based on Tesco and Alpha Limited, where Tesco is a multinational grocery retailer while Alpha Limited isthe mechanical company. Furthermore, the role and the importance of the accounting and the finance function in the Tesco have been described. Moreover, the financial ratio has been evaluated from the financial statements of Alpha Limited and a deep insight has been thrown on its financial performance. TASK 1Evaluating the role of accounting and the finance functions within an organizationAccounting refers to the practice that involves communicating financial results of the business operation of Tesco to several internal and the external users such as mangers, investors, creditors, government authorities and suppliers. Accounting function plays a crucial role in keeping the systematic record of the financial transaction and in revealing the performance and position of the company in the overall market. On the other side, finance function referred as the major part of the financial management. It is the practice which is concerned with the planning and the control of the financial resources. This activity involves the procurement and the utilization of the funds that are necessary for running the operations efficiently and effectively. Finance function act as the lifeblood for the business of Tesco which helps in smooth functioningof the organizational activities as it provides for the information relating to the sources from which the funds can be raised and larger profits can be generated. Accounting and the Finance function plays a vital role in the working of the Tesco and in reaching to the set vision with efficiency. Role of Accounting Function- There are various roles that the accounting function plays within the operation of Tesco as follows-Financial accounting- under this, accounting department records the financial transaction and translating into the resulting information in form of preparing the financial statements. The primary role of accounting function under the financial accounting is to formulate the financial statements and the material disclosures which reflect the true and fair view of the financial condition of Tesco across the globe(Quattrone, 2016). This helps the users in making the suitable decisions regarding in respect of their investment made in the enterprise.
Management accounting- This accounting function examines the operational and the financial results of Tesco Company. This enables the organization in looking for the new opportunities in order to enhance financial position and the result of an entity. It also helps the management of an enterprise in fixing up the most suitable prices which leads to increases in sales and profitability. Tax accounting- This is the most important role that of accounting function which looks for the company that its business complies with all the tax related regulations which in turn means that timely payment of the tax returns has been made correctly or not. It provides for the tax planning with the foremost intention of eliminating and deferring the payment of tax. Internal auditing- This role relates with the examination of the processes of Tesco and ensure proper controlling by spotting the weaknesses, waste, mismanagement and fraud. It has been considered that this function advice on the adopting the best control system that could be applied towards different processes of the company and in modifying its existing control system. Internal auditing is an accounting function that benefits management team as well as the investors. Role of Finance function-Finance function plays an important role in making several important decisions within the work environment of Tesco that are as follows-Investment decision- These decisions relates with the working capital management, capital budgeting, mergers, leasing or purchasing of assets decisions and other major decisions that creates revenue, saves the cost and generate profits (Cleary and Quinn, 2016). It is very important that the finance manager of Tesco takes effective decisions regarding the channels where the funds of the company need to be invested. This in turn results in gaining larger profits and growth in the business of Tesco.Financing decisions- The primary role of the finance function is to make decisions relating to the sources from which the funds are to be raised. Specifically there are two major sources that involve equity and the borrowed funds which is been considered by the Finance manager. Raising of the funds from these two sources depends largely upon the duration that is short term financing and long term funds need to be procured. Thus, selection of the best source of financing is one of the most important finance functions that help the business in expanding, diversifying and modernizing into various profitable ventures.Dividend Decisions- Finance function include the decisions in respect of distributing the dividend to the shareholders. Under this, it is been decided that in what proportion the profits are to be distributed and to what extent the profits are to be retained in the business so that it could be reinvested into other projects for generating higher returns (Loughran and McDonald, 2016). This function helps Tesco in creating the wealth of its shareholders and inviting other investors
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