Financial Decision Making - Role of Accounting and Finance in Company
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This report discusses the role of accounting and finance in Alpha Ltd company. It includes the calculation of five ratios for two years and the reasons behind possible cause and effect for the changes observed in calculated ratios for 2 years.
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FINANCIAL DECISION MAKING
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TABLEOFCONTENTS INTRODUCTION...................................................................................................................3 TASK......................................................................................................................................3 Task 1:....................................................................................................................................3 Explain the role of accounting and finance in company...................................................................3 Task 2:....................................................................................................................................5 Calculation of five ratios for two years are as under:.......................................................................5 b) STATE the reasons behind possible cause and effect for the changes observed in calculated ratios for 2 years................................................................................................................................6 CONCLUSION...........................................................................................................................9 REFERENCES...................................................................................................................................10
INTRODUCTION The report has been prepared for a time span of 10 years keeping in mind working of the Alpha Ltd company. It takes into account the accounting and finance related elements in each business association (Atiah and Helbig, 2019). This has important implications for better organizing work in the long run and will help generate adequate income and benefits. It helps to schedule events in advance and work the same. It presents an idea ofhow an organization should design its mission in the future. It is helpful to understand the convenience of the ratios determined below, such as capital utilization ratio, net gross income, current ratio, debtor classification period, and general expected time span of creditor instalment period. Therefore, it helps to compare the execution and development of an organization over a period of time. Several elements of bookkeeping are essential to every association, these include the preparation of cost financial plans, the control of funding strategies, and the development of successful and productive readiness. It also serves as a tool to assess how well a company representative is performing over an undefined time frame. TASK TASK1: EXPLAINTHEROLEOFACCOUNTINGANDFINANCEINCOMPANY. Accounting and finance plays a significantpart in organizations, associationsand businesses as it assists with evaluating what has been the development and progress of Alpha assembling organization throughout some undefined time frame. It assists with overseeing retainment of financial backers, it likewise assists with utilizing information and data which would direct in planning choices. It fills in as a choice which would help in partners in looking at the exhibition among present and earlier years. Finance assists with overseeing and control subsidizes in an Alpha restricted organization likewise assists with gathering required assets from the market(Byrum, 2022). Role of Accounting: It assumes a significant part for dealing with the existing pattern of business. It helps Alpha ltd company to design its activities, execute systems and approaches, screen the exhibitions over years additionally find what are the potential purposes for it. A few jobs are made sense of as under: ď‚·Reducing errors and frauds: It assists in minimizing how frequent errors noticed and recorded in Alpha ltd company throughout a time span. It assists the chief managers with figuring out the purposes for such mistakes and issues and find a successful answer for something very similar before it makes a significant issue. ď‚·Planning futuristic projects: Accounting helps to Design activities that can take place in the near future and plans that will ultimately yield results in the near future. It helps to
plan in advance what to do and what to do. Alpha ltd organizations can use bookkeeping as a model for future goals that will give them the upper hand in the long term. Having a proper monitoring over activities and assessment of performance: It assists with having a legitimate checking of exercises relegated to individuals working in Alpha ltd organization. Accounting fills in as a base in controlling exercises which are not valuable and productive for the working of firm. Evaluating employee’s performances:Each organization must have a look at the standard set of exhibits and real performance records by representatives who have contributed to the progress of the Alpha ltd organization. Bookkeeping also helps to grasp why the market organization is lagging behind. Role of Finance: Finance plays an important role in an organization as it helps to determine the monetary position of the organization in the economy. Finance helps in planning finance-based records and statements that can be evidenced under regulations. It also helps monitor the reserves that companies have collected over time, and how some issues can lead to gambling and uncertainties. Some important work can be understood as follows: Measuring success: Like accounting, finance also helps in the success of an organization. As such, it helps the Alpha ltd organization to quantify the success journey of its specific term and express an explanation of such issues and problems. Finance helps to understand where the organization is and where it can reach, and what potential progress should be made for something like that(Chen and Xu, 2018). Examine unwanted incurred expenses in business: It assists with assessing the causes behind unwanted costs caused in a business for a while. It in this manner cause the firm to comprehend what could be the potential issues that are driving towards such costs that should be controlled. Alpha ltd organization assists with inspecting potential causes behind the event of costs which influence the productivity of business. Work according to guidelines and manage payment of taxes on time: Finance undertakes a significant part, which includes completing Alpha ltd's related activities based on the assumptions of customers and financial backers. It helps to prepare the records and announcements related to the funds in a timely manner, which will facilitate the smooth performance of duties and work in accordance with the established rules. Predict risk and uncertainties: Financial-based reporting helps Alpha ltd organizations anticipate unfortunate events and situations that may occur at any time. In this way it helps the organization plan financially ahead to manage such situations and conditions. It provides steps that help limit the dangers of winning in an organization. Focus on areas which can reflect growth and expansion: It works in areas that require consideration and guidance to work and work better. The Alpha ltd organization needs
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this direction to expand its functional work and strengthen its development(Davidson, 2020). TASK2: CALCULATIONOFFIVERATIOSFORTWOYEARSAREASUNDER: (i)Return on capital employed = Earnings Before Interest and Tax / Capital Employed *100 In 2017 = (675 / 1912.50) * 100 = 35.29 % In 2018 = (750 / 2925) * 100 = 25.64 % (ii)Net profit margin = Net Profit / Total Turnover * 100 In 2017 = (300 / 2400) * 100 = 12.5 % In 2018 = 262.50 / 3000 = 8.75 % (iii)Current Ratio = Current Assets / Current Liabilities In 2017 = 757.50 / 322.50 = 2.35 Times In 2018 = 1035 / 1110 = 0.93 Times (iv)Debtors Collection period = Account Receivables / Total Sales * 365 In 2017 = (450 / 2400) * 365 = 68.44 Days. In 2018 = (600 / 3000) * 365 = 73 Days. (v)Creditors Payment Period = Account Payables / Total Sales * 365
In 2017 = (285 / 2400) * 365 = 43.34 Days. In 2018 = (1050 / 3000) * 365 = 127.75 Days. B) STATETHEREASONSBEHINDPOSSIBLECAUSEANDEFFECTFORTHECHANGESOBSERVED INCALCULATEDRATIOSFOR2YEARS. There are many changes which took place in organizational presentation which also have many powerful purposes within some undefined time frame. The profit on the capital employed indicates how much work is paid for every penny invested. A higher ratio reflects better results and helps in estimating the growth of the organization compared to others in the market, which will serve superior thinking. Net income helps to calculate net purchases related to income level. It's even more important to organizations because it shows the principal business location, and it also helps financial backers assess the precise amount the association has purchased over some undefined time frame(Durband, Law and Mazzolini, eds., 2018). The on-going ratio helps estimate an association's ability to complete temporary errands or assignments that are completed withinayear.Thebookkeepingandcurrencydebtholderclassificationperiodshelpto understand the normal timing of expected payment of exchange obligations. It helps to further develop the capabilities of the organization. Loan Boss Instalment Period can be understood as a term that helps outline how much time it may take to remain abnormal in current liabilities. The following are plausible reasons for a particular percentage change: Return on capital employed: Return on capital employed denotes amount which is earned over a period of time for the quantity invested in a business. Reasons for decreasing ROCE: ď‚·Rise in debts and liabilities: The funds used by Alpha ltd over a considerable period of time have many purposes of decline, and reasons for such things as the decline in ROCE. There may be reasons, for example, the expansion of liability measurement from 2017 to 2018. ď‚·Inefficient use of capital resources: In some cases, this can be triggered by the ways company is using assets, for example, the capital used by the Alpha ltd organization has been reduced as a result. If associations utilize assets in an inadequate manner, it could lead to situations where productivity will not be generated in the near future. ď‚·Decline in sales: One reason for the declining profit on the use of capital is that there have been no transactions organized by Alpha ltd for two years. The organization is
advised to look for ways in which it can build a trading edge in the market. It also helps to improve the monetary status and liquidity of the organization. It also helps keep up with the liquidity of businesses in the economy. Increase in costs and expense: As you can imagine, the rising expenses and costs won in the Alpha ltd association bring risky situations such as reduced income age, misfortune, and increased fees. Organizations must pay attention to this situation to generate benefits and monitor future related tasks and activities. Net profit margin: It can be described as net income generated after elimination of all costs and taxes. Reasons for declining net profit: Pricing strategies/ policies: The diminishing margin of net returns in the Alpha ltd organization may be due to the ill-advised valuation strategies and rules they have followed over the years. Therefore, it is critical for organizations to further develop assessment procedures and understand what might be useful to the business. Inefficient management: Another explanation that could be considered responsible for the decline in net income is the unwise management of assets collected by an organization over some undefined time frame. It is critical for the Alpha ltd organization to oversee accessible and satisfactory assets and use them for the most desirable purposes and areas where the required reserves can be generated. Current ratio: It helps to compute amount of current assets over current liabilities. It is helpful to understand its positioning in market and its liquidity status. Reasons behind decrease in current ratio: Increasing short term debts: It can be seen that the ongoing proportion of the Alpha ltd organization is decreasing, and the purpose in this complex situation is to increase the obligation, which should be covered and compensated fairly and promptly by the enterprise to monitor current resources. It is in this way that it should zero in on expandingcurrentresourcesandreducingcurrentliabilitiesinrunningoperations (Gatchair, 2018). Decreasing current assets: The amount of current resources is expected to increase as it makes commitments in environmental stewardship, for example, distorted or when an organization needs resources that help to produce reserves. The current ratio is then determined with the help of current resources and current liabilities, therefore, Alpha ltd is significant in expanding current resources and reducing current liabilities. Debtor’s collection period: It helps to assess the time required to collect exchange obligations. Assuming it goes up, it reflects that the organization is keeping up with efficiency. The purpose of expanding the classification period of indebted individuals:
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Customer’s not financially feasible: Indicates that the client is connected to Alpha ltd. Organizations do not have the capacity to take on obligations and credit. So it gives a view of what's going on, it's not that hard to deal with, and also suggests that the association should reduce credit transactions and thus reduce the time it takes for customers to request processing Inadequate collection process: Another explanation leading to the expansion of the classification of debt holders can be said to be insufficient classification of cash provided by the Alpha ltd organization to its associated customers. The organization should really have legal control and look for activities that help reduce the time for such classifications. Worse credit policies: The purpose of expanding the account holder classification period is arguably because the Alpha organization may be following a poor credit-based strategy. It should be developed further, thereby helping organisations to further develop their account holder classification period in the market(Himanshu, Singh and Kumar, 2020). Creditor’s payment period:The amount of time an organization expects to repay its loan boss is meaningful. It is also known as the execution ratio and it reflects the effectiveness of the business. The explanation for extending the credit instalment is: Lack of communication: Creditors classification periods can lead to unbelievable situations and should be dealt with in advance by the Alpha ltd organization. If an organization requires more investment than expected or is expected to lose its economic standing and market image in the eyes of buyers, it can often be understood that the time requested by the organization is followed by payment of its obligations. Businesses should have a legitimate channel media that will help teach them information and ideological lessons and launch their campaigns ahead of their competitors. Strict bill collection process must be followed: Alpha organizations are encouraged to adopt a strict bill sorting process that will help them collect debt on time and pay off debt and credit before time comes. It will help them keep up with liquidity and position themselvesaboveeveryoneelseinthemarketrightnow.Itisnormalforthe organization to further develop its functions over the next year, which will attract more possible customers from the market(Kanduri, 2021).
CONCLUSION The prepared report above illustrates how the work of Accounting and money can help companies work better and run their business in the long run. It understands the importance of having financial plans ahead of time, arranging businesses and events. The report also fills in a manual that serves as an evaluation note to expand liabilities, expenses, costs and how to control them in a timely manner. It helps to grasp the importance of proportion and what it shows. It also outlines the potential purpose of observing monetary performance and managing waste in an organization. It also helps to organize activities based on the organization's monetary position in the market, as well as potential developments that may be taken that could contribute to similar work. It also helps to frame checks between different organizations over time to get a better, clearer picture.
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