Role of Accounting and Finance in an Organization

This document discusses the role of accounting and finance in an organization, with suitable examples. It explains the importance of finance and accounting departments in decision-making and financial management. The document also includes the calculation and interpretation of financial ratios to analyze company performance.

Financial Decision Making

Contents
INTRODUCTION...........................................................................................................................................3
TASK 1..........................................................................................................................................................3
Description of role of accounting and finance in an organisation by suitable examples..........................3
TASK 2..........................................................................................................................................................6
Calculation of the ratios to analyze company performance:....................................................................6
Interpretation and analysis of financial ratios:.........................................................................................7
CONCLUSION.............................................................................................................................................10
REFERENCES..............................................................................................................................................12

INTRODUCTION
The phrase "financial decision-making" can be characterized as a procedure of making
choices about overall shareholders, obligations and other economic transactions within a limited
company. It is fundamentally necessary for firms to produce financial decisions efficiently as any
incorrect decisions will influence growth of the business (Alziyadat and Ahmed, 2019). In fact,
on the grounds of careful review of financial reports, companies make economic choices. The
assignment report is divided into two sections where the first assignment outlines the function of
company accounting and financing. While the second task is to measure and interpret provided
Alpha Limited business information. Selfridges firm is also managed to obtain mission one.
Situated in London UK, this company that specializes in the distribution of fashion and beauty
items for men and women.
TASK 1.
Description of role of accounting and finance in an organisation by suitable examples.
Organization overview: Camden Ltd is a United kingdom-based organization that was founded
by Patrick Lavery and Camden in 1983 and is planned for longevity, maximum effect on quality
and, of necessity, energy and security. They have made investments in uPVC recycling, and are
an eco sustainable enterprise. Our first inline position system repurposed by 80 per cent can be
built for us. It ensures that they can get the maximum bid when any doors and windows are from
Camden, and help us build the best performance.
Importance of finance and accounting department
The Finance department offers the corporate strategy with information in making
business choices including the sectors or ventures to undertake, payback times for major
infrastructure acquisitions, and decisions about what can be paid as dividends out from the
company's profits and where to replant into another enterprise (Bauer, 2016).
It is critical that Camden Ltd's accounting department focuses on strategic plan of the
organization. Details available accounting is highly important for the management or making
available of an agency. The supervisors cannot consent to follow up their position with concrete
details. This has to be centered on concrete facts and statistics to come to a conclusion. Data is

key decision-making at all levels of management. Complete financial state reporting documents,
such as revenues and expenditures, deductions and purchases, shares, properties, etc. This is also
why it is highly important for the business accounting.
The administration of Camden Ltd is based upon detailed evaluation and the capable of
functioning by putting into consideration the reasonable decision. The main aim of accounting is
to report financial expenditures on a regular basis in financial reporting, and to figure out an
overall value-loss and money position.
The key functions in reporting have included assessment in profit & loss and financial
position, the review and interpretation of accounts, documents and the creation of accounting
systems, statistical and economical information gathering. This also includes establishing
accounting standards and tracking money management practices on performance according to
plan etc. In the time of modem, reporting is tightly linked to financial management (Deng and
et.al, 2016).
Role of finance department
There are many tasks that Camden Ltd's finance department has to play to boost its
organizational and also financial efficiency. Those will be addressed elsewhere here:
Investment functions: Money invested is a main characteristic of this department
whereby administrators when participating in some project calculate borrowing costs. An
increase in the rate corresponds to a balance in the cash market. Money is being made in a
process and maybe some distributions are generated there. Assessing the investment manager
operating efficiency, they might see return on that investment. This results in increased in
ordinary shares by one additional factor to the annual development. It is one of the important
requirements of the financing squad of Camden Ltd as money consultant has committed to
spending on maximizing their revenues as well as other income in this. When assessing the
viability of each project and the anticipated returns around each account, analysts create
investment-based judgments.
Financial function: Finance is a component of accounting planning that includes data
collection and then using the necessary funds for productive operation. Operations won't operate

smoothly with money, since it's the company backbone. Within Camden Ltd, the finance
department describes the sources used for financing and fined sources from that they can then
fulfill their funding requirements. This function plays a crucial role in economic pillar need for
organizational development, both within the division and the field (Dickason and Ferreira, 2018).
Dividend function: In this task this principle was used to generate taxes from the
business entity's income and then distribute it to the shareholders. It is a kind of incentive for
stakeholders who have participated in organizations to accommodate their requirements relating
to financial. Company has often distributed dividend payments in respect of Camden Ltd to its
owners, since it plays an essential part in the financial department as it helps organizations to
decide the amount or expense they have to charge.
Inside the sense of Camden Ltd, the Finance department's role is to control distributions,
spend for gain, and undertake certain central value to manage the agency's resources. Camden's
management can make essential strategic or consumers purchase or plans that help the company
increase both its sales and income.
Role of accounts department:
The department of accounting also needs to play several big roles by gathering data and
representing Camden Ltd's company goals in a positive way. These are the follow-ups:
Financial accounting: It is essential to keep track of financial transactions from every
corporate organization, and to establish them adequately. It is managed by the institution's
manager who collects data and produces income reports. Just as Camden Ltd is a grocery retailer
that issues annual reports showing the company’s financial. Following this logic, lenders and
investors will assess the financial results and make a determination and repay. Financial
accounting is therefore necessary in order to obtain reliable financial statements which could not
be underestimated (Dong, 2018).
Management accounting: This implies management accounting which is used by the
company to prepare reports and recommendations and statements purpose of providing real and
reliable financial records. Just as Camden Ltd boss uses financial details to plan executive results
and make long term decisions. Executives can get financial decisions that will benefit to run

additional business for business expansion. This is critical as the management can make lengthy-
term financial strategies and through the management of customers can grow the company.
Auditing function: Its task performs to guarantee that expenditure relation to the
business year would be documented, classified and explained in compliance with the accounting
standards adopted by Camden Ltd., by performing audit procedures administrative workers play
a significant role in the organizations. This also assists the organisation to test whether or not any
one of the accounting instructions given satisfy. This agency's purpose makes sure that the
accountant complies with accounting principles such as GAAP, and thereby supports to
understand.
Camden Ltd carries out its operations through business intelligence or successful
decision-making to achieve corporate goals, above most of the function of the Division of
Accounts or Finance. Camden's representative has to evaluate results to help that financial
statements are enforced properly, and this will affect the company if regulation interacts in
internal audit company documents. Financial or accounting administration needs to produce
financial results and making more realistic steps to ensure organizational goals & objectives
(Gardoni, Guevara-Lopez and Contento, 2016).
TASK 2
Calculation of the ratios to analyze company performance:
Ratio Formula 2017 (£’000) 2018 (£’000)
Return On Capital
Employed (ROCE)
= (Operating Profit
/Capital Employed)
*100
= 375 / 1,912.50 *100
= 19.60 %
= 412 / 2,925 * 100
= 14.10 %
Net Profit Margin = Net Profit / Revenue
* 100
= 300/ 2400 * 100
= 12.5 %
= 262.50 / 3000 * 100
= 8.75 %
Current Ratio = Current Assets /
Current Liability
= 757.50 / 322.50
= 2.34 Times
= 1035 / 1110
= 0.93 Times

Debtor Collection
Period
= Receivable / Sales
*365
= 450 / 2400 * 365
= 68.43
= 68 Days
= 600 / 3000 * 365
= 73 Days
Creditor Collection
Period
= Payable / Purchase
* 365
= 285 / 1350 * 365
= 77.05
= 77 Days
= 1050 / 2400 * 365
= 159.68
= 160 Days
Interpretation and analysis of financial ratios:
Financial ratios are the statistical tool that will offer businesses with a tool to compare the
success of their businesses and to equate it to other major businesses in that industry. Ratios are
calculated by the analysis of the Financial Statements components. This is most widely used
when systematically reviewing research. This assists in risk and impact assessment, measures
productivity and uses efficiency and liquidity feature. It makes it easier to
recognize developments that acquire these over the course with one-year ratios.
Review of the ratios offers comprehensiveness in all aspects of financial report study. It
is quite straightforward for companies to measure the impact of current issues and recognize
unpredictable threats by evaluating the various financial ratios. It also encourages amicable
settlement of them to produce the results and stabilization for development. Analyzing
fundamental analysis is important for investors and government leaders to make rapid financial
decisions (Inani and Gupta, 2017). The knowledge acquisition listed in the sense of the results of
ALPHA LTD based on the ratio exam:
Return of capital employed: It is a financial ratio which results in increasing the
companies' efficiency by using capital and growth. To some of the most efficient investment of
the stockholder is applied as during estimation of the productivity ratio. This calculation involves
2 essential points from the calculation, including the EBIT and the equity Net hires. Under this
case, EBIT is added to profits until taxation and interest balance is deducted. It is known to be
operating income. By removing the aggregate with all current liabilities from the value of its
assets, the labor worked is determined.

Net profit of ALPHA Limited by financial statements was calculated above measurement
assists in determining is £375,000 in 2017 and £41,2000 in 2018. This is calculated by the gross
profit deduction and description of operating expenditures. The corporation's investment costs
was £2925000 in 2018, and £1912500 in 2017. In 2018 and 2017, the returns on the project or
investment were 14.10 per cent and 19.60 per cent annually. The decline in this ratio implies a
decrease in the contribution from either the money invested in profitable in order. By improving
its net income, the manager can boost this production ratio by controlling its operating time and
boosting the resources engaged as compared with the company.
Net profit margin: The formula for the gross margin ratio could be derived by
calculating net revenue by net revenue. Gross revenues are determined by the subtraction of any
gross revenue refunds or returns. Net income is equivalent to net income less the expenditures,
which is typically the very last number recorded on the statement of income (Kudrna, 2016).
Since all operating expenses on ordinary shares including such depreciation, taxes and
distributions are excluded then the resulting price is calculated to be earnings. In order to
ascertain the net margin, every one of these components is deduced from the total company
revenue. The amount of net income is expressed as a percent form and can even be interpreted in
decimal number with ease. It shows whether each pound of profits it generates turns a business
into money. This is one of the main financial security concerns of the corporation. Through
monitoring development and decrease in the net revenue market, strategies can evaluate it or not
they are delivering any advantages (Roychowdhury, Shroff and Verdi, 2019).
While calculating the net profit margin, Alpha Ltd was measured as representing its 2018
share, which dropped from 2017, which would be a negative number for the company. The
profitability was 12.5 per cent in 2017, while 8.75 per cent in 2018. Alpha Ltd can improve its
net profit margin whilst eliminating exterior costs are not involved in the functional areas, by
decreasing semi-deliverable products or services, by generating profits, market conditions and
resources and, at moments, by higher costs that could be challenging but necessary for
profitability in businesses.
Current ratio: The liquidity ratio contrasts the capability of the organization to fulfill short-
term commitments, with its current assets. It is a big move, since within the year it will assess
client liabilities. It assures the company that its current short obligations will be offset by ample

liquidity. Current indicators of properties such as money, liquid cash, and statement of financial
position based on their incremental transformation into cash. Present liabilities can be
comfortably financed by businesses with strong expense investment portfolio and have no need
to sell great long term investments (Lai, 2016). It is a simple measure, determined by dividing
existing assets with current liabilities. The optimum current ratio is 2:1 and every company will
hold that proportion. It will be more advantageous for the organization considering the present
liquidity position. It is claimed that the ratio is 3:1 which indicates that in relation to the existing
obligations the net assets are 3 times solvent.
Compared to Alpha Ltd, observations showed that the current ratio is 2.34 times in 2017 and
0.93 times in 2018, proposing that it was much more flexible in 2017 and extremely illiquid in
2018. The current ratio can be strengthened by making the required measures to boost debtors or
bills payable, remove existing debts, minimize under-performing assets, increase lenders' capital
to fulfill their mortgage obligations and, lastly, clean up unpaid transactions.
Debt collection period: On balance, the time that a company is taking to recoup the amount
its trading borrowers owing to it. When a corporation then offers the credit for one period, on
averages it will recover the debt inside 45 days. The ratio of the debtor recovery period is
computed by subtracting the payment owed by trade debtors by the total credit revenues and by
multiplication by 365. In a company, management can effectively use the debtor collation ratio
to build credit policies (Lee and Kim, 2018). Business needs to analyze this blend to be capable
of working regularly. The credit management department calculates the total amount to be
obtained from the payables corporate accounts or the borrower's account. Complete amount
obtained is exacerbated by the full amount of months to produce results. This is a system where
lenders can find arrangements or weeks to compensate company. That method would ensure
effectively that the money is adequate to fulfill commitments made. It basic amenities debtors
are going to go broke in the short future. By identifying possible bankruptcy debt holders early,
company can monitor the number of floors borrowing and dubious provisions.
Alpha Ltd was identified as having accounts receivables of £450000 in 2017 and
£600000 in 2018. The corporation's revenues are 2,400,000 in 2017 and 30,000,000 in 2018;
then it reports the total sales number as cash income. The cash conversion cycle for Alpha Ltd in
2018 is 73 days, and 2017 is 68 days. A reduction in the overall recovery process is reported

here, figuring out is that Alpha Ltd 's productivity required to retrieve amounts from its
borrowers has deteriorated and the business can face inadequate cash available to conduct its
activities in the foreseeable term. This proportion can be achieved by decreasing borrowing and
maximizing the trade credit provided to its lenders.
Creditor’s collection period: The Company decides the total amount to be paid out to its
creditors and payable accounts. Here lenders include retailers, suppliers and other short-term
lending outlets. The difference is measured on a monthly subscription basis which shows how
the company conducts its revenue outlays. It would enable the Business further time to adjust its
numerous accounts with higher creditors. It shows the company's liquidity potential, which
suggests that productivity is diminished or lenders are unable to pay. Shareholders implementing
this process also influenced the word payment (Li, Jin and Duan, 2018).
By the formula's calculation, Alpha Ltd's reported trading payables in 2017 and 2018
were projected to be £285000 and £1050000 accordingly. Purchase by the company for the years
2018 and 2017 is £2400000 and £1350000 overall. It's suspected all payments were on account
around. The amount due period for the organization is 160 days in 2018, and it was 77 days in
2017. There is an increase reported over the total payable duration which demonstrates the
willingness of the organization to make payments to its particular payable consumers.
Overall review of Alpha Ltd's results, it is decided that Camden Ltd will not award
mortgages as that of the current output decreases for the business from 2017 to 2018. ROCE, net
income or current ratio are both expenses which Camden does not agree to invest in a company
which reduces its production through the year (Liu, Jin, Xie and Skitmore, 2017).
CONCLUSION
As per the above report it has been concluded that investment choices are very vital to
obtain initiatives for the institution and mainly concentrated on the entity's financial specifics.
Payments and financial services function plays an important role in the generation of financial
statements whenever it comes to producing appropriate choices. It also assists employees to
execute strategies based on collected data. Profitability statement is yet another effective metric
for calculating company efficiency. Financial ratio methods used against the companies to judge

the effectiveness of every other stage and it is further useful for leadership to form their opinions
appropriately or to establish initiatives to maximize the necessary efficiency and productivity.

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