Financial Decision Making: Functions of Accounting and Finance Departments, Sources of Finance, and Ratio Analysis

This report discusses the duties and responsibilities of the accounting and finance departments of Panini Ltd. It identifies the functions of these departments, sources of finance, and provides ratio analysis. The report also suggests ways to improve the company's performance and profitability.

Financial Decision
Making

Contents
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Identifying the functions of the Accounting and Finance departments......................................3
Sources of Finance......................................................................................................................6
PART B ...........................................................................................................................................7
Calculate the ratios......................................................................................................................7
CONCLUSION..............................................................................................................................14
REFERENCES .............................................................................................................................16

INTRODUCTION
This report focusses on the duties and responsibility of accounting and finance
department of panini Ltd. which basically provide information related to the main
function of these departments and the duties of accounting department is to maintain
the accounts of the firm and the duties of finance department is to maintain the records
of loan and advances of the company and how they make decisions to perform the task
and how its helps the organization to achieve the goals and objectives of panini Ltd
(Anginer, Demirgüç-Kunt and Mare, 2018). On that basis it is important to know the
functions of Accounting and finance in the organization (Ainsworth-Rowen, 2019). On
the other hand, this report aims to calculate the various types of ratios and compare the
ratios with the performance of past year and give reason to change the current
performance of the organization and advice the company some various methods of
improving the performance of panini Ltd.
PART A
Identifying the functions of the Accounting and Finance departments.
(a) Accounting Department: Accounting is define as the system of recording the
transaction, summarizing and analysing the financial statement of the company as well
as verifying and reporting the performance of the organization with these (Demirgüç-
Kunt, Klapper and Singer, 2018.)
(1.) Role of Financial accounting
The functions of the accounting department includes the financial accounting function.
this has to do with managing the past records of transaction to enable an examination
for audits. ( Bina, Schroeder and Tonsor, 2021). They can use it for the preparation of
reports and budgets, helps in reducing costs and increase profits, available for growth
chances and make financial forecasts. Here are some functions of financial accounting:
It maintains the financial records of the company: In this concept accounting help the
organization to keep daily and up- to- date records of financial transaction of the firm. It
includes; sales, purchase, receipt and payment of the organization.
It helps in achieving the company objectives: in this point an accountant can identify the

records to prepare and implement the financial policies and plan in advance for the
company’s goals.
(2.) Role of Management accounting: This function of management helps managers
within a keep organization to make decisions (Franco and et.al., 2022). It also helps to
determining, analysing and interpreting the data and communicating the information to
manger. so, that organization can easily achieving the business objectives. Here are
some importance of management accounting:
Planning and predicting the task: It stated that the planning for the activity is deciding in
advance what to do, how to do and who is to do and it bridges the gap from where we
are and where we want to go (Heng, 2019).
Organize the activity: After make a plan company organize the activity in the
organization and prepare the structure in which it shows the everyone role while for
performing the task in the organization.
(3.) Tax Function: It maintain the data for controlling the tax risk and for other reasons
also like; describing the activity, planning the task, predicting the issues and contributing
to the planned decisions of the group (Bals, 2019). Here are some functions of tax
management:
To Give advice on firm transactions: It is important to suggest the company on the
business transactions. Company need to understand that if company don't want to pay
higher taxes then they do not exceed the transaction limits.
Provide annual report to the company stakeholders: It's important to send the annual
report of the company to stakeholders to show the annual position of the company to
them ( Greenbaum, Thakor and Boot, 2019).
(4.) Auditing Functions: It plays a very important role to identifying the accuracy of
financial statements which prepared by the firm. Basically the accuracy of financial
statements shows the current position of the business (Trakic, Benson and Ahmed,
2019). Here are some functions of Auditing:
Identify the structure of accounting: This function of auditing is the important to
identifying the essence, timing and extension of the audit process.
Confirmation of assets: This point is the another function of auditing that the auditor
should need to confirm the assets of the company. Its concerned with the identification

of value and possession of company asset. The auditor also necessary to check the
existent of assets.
(b) Finance department: It is answerable for prevailing the issues related to the
financial statement of the organization and control the income and expenditure of the
department. so, that the organization need not to face any disruptions in the activities of
the enterprise.
Investment function: It shows the relationship between the interest rate and the
investment of the company (Ranjani, Singh and Revulagadda, 2022). Basically this
function says that the formula to calculate (amount of investment – rate of interest) and
the slope of investment function moves downward. There are some functions of
investment:
Invest money in new and innovative technology: In this point if an investor invests his
money in new and innovative technology then its create a profitable situation for the
investor and it will provide benefits in future ( Grundke and Kühn, 2020). Because if any
technology come and launch into the market for the welfare of the people then its
capture the market very speedily and increase chances of more investment so, if any
investor wants to invest his money and earn more profit then invest the money in new
and emerging technology.
Income level of investors: Every investment relies upon the investors level of income. If
the level of income of an investor is high, then it invest more amount in such type of
companies but the level of income of an investor is low then it invests less amount in
company after checking complete portfolio of the business, like it invest in IPO and
bonds of the business (McFarland, 2018).
Role of financing: This function is also called as financial management it includes the
obtaining and using of resources for the efficient running of business activity. It also
helps to control and plan of financial resources. There are some function of financing:
Planning of investment should be proper: It is very important for the better planning of
investment. If company make an appropriate plan for their investment, then it’s very
important to first check the company's portfolio and who have profitable portfolio and
provide good benefits in long run then invest money in such type of businesses

(Oyedokun and Somoye, 2018).
Use to record loans and advances: If company provide loans to any individual then they
need to make proper record for it. So, it can easy to recover the amount of loan to the
debtors of the firm.
Role of dividend function: It provide the dividend to its shareholders when company
earn surplus profit in a year and decide to distribute the profits among the shareholders
of the company in the annual general meeting of the enterprise.
It provides dividend to its equity and preference holders: it is very important to pay
dividend to the shareholders of the firm. When company earn profit in any year. Firstly,
it pays dividend to the preference shareholders of the company and secondly the
remaining amount of a profit pays to its equity shareholders of the firm
It can pay dividend only from the profits: If company earn surplus profit in any a year
then the company is liable to pay dividend only on the amount of surplus profit
( Guirguis, 2019).
Working capital function: This function is mainly helps to recover all of a business short
term expenses which are due within a one year. It also shows the differences in amount
of current assets and liabilities. On the other hand, it can also help to purchase
inventory, paying short term debts and all the day to day operating expenses of an
enterprise (Ayalew and Xianzhi, 2019).
Develop and expand the portfolio of investment: In this point company use cheap
source of finance for the growth and expansion of business.
High profitability: This is one of the main goal of every organization is to increase
profitability of the business. It only possible when business save the financial expenses
and manage short term assets and liabilities of the enterprise.
Sources of Finance.
Source of business finance is used to establish the business and also for running the
business from raising funds. Different source of finance used by Panini Ltd because
there is no single best source of fund for all.
It is all depending on the situation, purpose, price and risk of association, it is a choice
to be made about the source to be used (Weigand, 2019).
These sources are Equity, Debt, Debentures, Retained earnings, term loans, working

capital loans, etc. Small and medium enterprises help to successfully development
process and use of local raw material.
It also plays a significant role in the economic growth and it provide a wide range of
products from consumer goods to high precision, Sophisticated finished products.
In small scale enterprises decision are taken very quickly and timely and for more
growth and development include marketing, innovation, skills, financial support, Quality
of owner and manager ( Koch, 2018).
There are two main sources of finance:
Internal sources of finance: This sources of finance are for the long term purpose.
Basically investment is done for the long time duration into the business. It includes:
Undertaking business Capital: It is a type of capital equity financing that is provided for
starting up, early stage and upcoming companies that have been believed to high
growth potential (Fattah, 2018).
Personal Investment and Personal reserve: Personal reserve is a type of reserve which
is not included in any business or organization. It focuses on business goals and help to
make better saving and investment.
External source of finance: This source of finance is for the short-term purpose. In
which investment is done for the short time duration into the business It includes:
Commercial saving and loan association: Loans from commercial loan is an easier
application process. It is useful for start -up capital, it a financial institution which grants
loans, accepts deposit, and offer basic financial products. It is also a second important
to trade credit as a source of short term financing ( Lee and Yun, 2021).
Secured loans: This type of loans is completely secured and the creditor provides you
the loan against the security but the ownership of the property is with the bank only and
if debtor is fail to pay the amount of the creditor then it is recover the loan amount
through the property of the debtor.
PART B
Calculate the ratios.
1. Gross profit margin
a. It is the profit of company which comes after subtracting all the

costs that are related to the selling and manufacturing of its goods and
services.
b. This ratio indicates about the company’s performance: In this
point basically it indicates the how much gross profit earned by the
company after deducting the direct expenses or cost of revenue from
operations from the net sales of the firm and this also represents the
company performance (Lokin, 2019).
c. Compare 2018 figures with the 2019 figures calculated below:
Gross profit margin = Gross Profit / sales * 100
Year 2018,
= 3500 / 10000 *100
= 35%
Year 2019,
= 3265 / 11500 *100
= 28.39%
d. Reasons for changes in the ratio between 2018 and 2019: The
reason to change the ratio of 2019 is because company performance is
not so much efficient in comparison to the performance of 2018 and in
2019 the net sales of the company is high but the cost of goods sold of the
company is also higher and that was the reason to decrease the gross
profit of the.
e. Ways to improve the value of the ratio in the future: The need
of improvement in the company is it clearly stated from the above figure of
gross profit margin of the company. In 2019 the biggest reason which
create disruption in gross profit is high cost of sales which automatically
decrease the gross profit margin of the business. In that case organization
need to use less cost and try to utilize more resources with no wastage
and work efficiently towards the achievement of objectives.
2. Operating profit margin

1. This profit margin is a main part to calculate the overall profitability
of businesses from activities.
2. This ratio indicates about the company’s performance: In this
particular step basically this ratio calculates the business overall results
and check whether the company is in the profitable situation or not and it
also check about the company efficiency in long run and profit it create
from the business ( Muhtar and Baki, 2021).
3. Compare 2018 figures with the 2019 figures calculated below:
Operating profit margin: operating profit / Net sales *100
Year 2018,
= 2765 / 10000 *100
= 27.65 %
Year 2019,
= 2305 / 11500 *100
= 20.04%
4. Reasons for changes in the ratio between 2018 and 2019: The
basic reason for the changes in the ratio of 2019 is in this year company
incurred high operating expenses and work with low efficiency in the
business as compare to the year 2018.
5. Ways to improve the value of the ratio in the future: In the year
2019 organization also need to reduce in their operating expenses
because it reduce the profit of the company. It also necessary to use
proper utilization of fund with no wastage of resources so, that company
can save the money and reduce its expenses.
3. ROCE (Return on capital employed)
a. This ratio is also helps the company to determine the business
profitability and capital efficiency of the firm. Basically it can also say
that this can also assist to recognize how company very nicely
generate profit from its capital.
b. This ratio indicates about the company’s performance: From the

above definition clears that the company is use to assist the profitable
situation of the company and efficiency of the firm’s capital and how
company develop profit from its capital for put to use ( Parikh, 2019).
c. Compare 2018 figures with the 2019 figures calculated below:
ROCE = Earnings before interest and tax / capital employed
Capital employed = Fixed assets + working capital
Year 2018,
= 2765 / 8755
= 31.58 %
Year 2019,
=2305 / 10211
= 22.57 %
d. Reasons for changes in the ratio between 2018 and 2019: In this
step organization earn less return on capital employed because they
can't generate enough profit from the business capital as compare to
the 2018 because in 2019 organization not showing their best
performance in the business and also it decreases their efficiency in
work.
e. Ways to improve the value of the ratio in the future: company need
to earn more profit and decrease the expenses of the firm because of
that company low earnings before interest and tax its return on capital
employed also decreases and it also improve the efficiency in their
work so, they can perform well and earn more.
4. Current ratio
a. This ratio is also called as current ratio that helps to measure the firm’s
capacity to pay short- term duty or those due within 1 year. This ratio
shows the comparison between the business current assets and
liabilities.
b. This ratio indicates about the company’s performance: This ratio

shows that the company's ability to pay its short -term obligations or
the amount due within one year basically it also shows the relation
among the current assets an current liabilities of the firm so, that
company get current relation between them ( Salisu and et.al., 2021).
c. Compare 2018 figures with the 2019 figures calculated below:
Current ratio = Current assets / Current liabilities
Year 2018,
= 1175 / 970
= 1.21:1
Year 2019,
= 2110 / 512
= 4.12:1
d. Reasons for changes in the ratio between 2018 and 2019: The
reason to change the current ratio of 2019 is because of its less
current liability company short-term commitment also less.
e. Ways to improve the value of the ratio in the future: In this step
company short – term obligations are less so, it's no need of
improvement in current ratio but they need to improve in profit and
decrease the cost of business.
5. Quick ratio
a. This ratio also helps to calculate the business ability to pay its current
liabilities without necessary to sell its stock or acquire additional
financing is known as quick ratio.
b. This ratio indicates about the company’s performance: This ratio
also shows the company performance by showing the percentage of a
company's debts that could be pay off by speedily conversing assets
into cash
c. Compare 2018 figures with the 2019 figures calculated below:
Quick ratio = Current assets – stocks / Current liabilities

Year 2018,
= 1175 – 350 / 970
= 0.85:1
Year 2019,
= 2110 – 674 / 512
= 2.8:1
d. Reasons for changes in the ratio between 2018 and 2019: The
reason to change the ratio of 2019 is in this year firm ability to pay its
debts obligations is high.
e. Ways to improve the value of the ratio in the future: In this year
2019 company need to improve for their efficiency in profit not in quick
ratio because company debt commitment is good enough in 2019
6. Inventory turnover days
a. This financial ratio show that how much time firm sold and replaced
stock during a given period of time.
b. This ratio indicates about the company’s performance: This ratio
also shows the company performance basically the results of the
company depends upon the higher inventory turnover ratio enjoy more
liquidity ( Spetz, 2020).
c. Compare 2018 figures with the 2019 figures calculated below:
Inventory turnover ratio = Cost of goods sold / average inventory
Year 2018,
= 6500 / 512
= 12.6 times
Year 2019,
= 8235 / 512
= 16.08 times

d. Reasons for changes in the ratio between 2018 and 2019: In the
above calculation of 2019 there is higher inventory turnover ratio in
relation with the ratio of 2018. it means it incurred high liquidity.
e. Ways to improve the value of the ratio in the future: from the above
calculation of inventory turnover ratio show no need of improvement in
2019 because its having high liquidity in 2019 as compare to the 2018.
7. Debtor's collection period
a. This ratio calculates the time period for the collection of debts. Less
time for the collection of period shows more efficiency of the business
and high time shows the less efficiency.
b. This ratio indicates about the company’s performance: This ratio
shows company performance if organization take less time for the
debt collection then it means its high efficient.
c. Compare 2018 figures with the 2019 figures calculated below:
Debtor collection period = 365 / sales on credit / accounts receivable
Year 2018,
= 365 / 10000 / 760
= 27.74 days
Year 2019,
= 365 / 11500 / 1340
= 42.54 days
d. Reasons for changes in the ratio between 2018 and 2019: The
above figure show that the comparison between the both 2018 and
2019 ratio. Basically in 2019 takes high time for debt collection.
e. Ways to improve the value of the ratio in the future: The above
ratio of 2019 needs improvement in their debt collection period it takes
more time in the collection of debt and its decrease the efficiency of
the firm also.

8. Creditors collection period
a. This ratio calculates the time period for the recovery of loan if its take
higher time then it will be the beneficial for the company.
b. This ratio indicates about the company’s performance: This ratio
also measures the performance of the company through collecting the
loaned funds.
c. Compare 2018 figures with the 2019 figures calculated below:
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
d. Reasons for changes in the ratio between 2018 and 2019: The
above calculation show the decrement of number of days in 2019 as
compare to the 2018. Because the company become less efficient in
this year (Wang and et.al., 2022).
e. Ways to improve the value of the ratio in the future: The need of
improvement in this year is company need to improve in their efficiency
in work. Because higher days of collection shows high efficiency and
lower day of collection shows less efficiency in business.
CONCLUSION
As it is concluded from the above report that the company panini Ltd use various
types of functions to improve the performance of the business. Because of these
function company try to become more efficient in future and expand their business in
long run. In other words, it can also say that organization use various sources of

financing so that it creates good portfolio of the business and more investors invest in
their business (Clifford, 2020). After this it also conclude that panini Ltd also calculate
the various ratios and check the company performance and find the area of
improvement which helps to heal the business in near future.

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