Financial Decision Making: Importance of Accounting and Finance Functions, Duties and Roles within a Business Entity

This report discusses the significance, obligations & roles and the functions of accounting and financing in financial decision making. It also explores sources of finances for small businesses and computes financial ratios using the financial statements of Panini Ltd.

Financial Decision
Making

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Critically discussing the importance of Accounting and Finance functions, duties and roles
within a business entity..........................................................................................................3
Sources of finances for small businesses................................................................................6
TASK 2............................................................................................................................................7
Compute the financial ratios...................................................................................................7
By Using the financial statements of Panini Ltd evaluating the ratios highlighted on page 4
and suggesting on the performance of the company..............................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial decisions are those decisions that managers take in relation to the financial
decisions of the company or any businesses. These are the most important decisions for the
growth of the company. These decisions are in terms of raising funds, day to day and expenditure
of management, acquisition of the assets (Alegre, and Moleskis, 2021). Panini ltd is a medium
capitalisation enterprise which is exclusively engaged in the production bread for super markets
in the UK. The company established in the year 2016. The organisation is planning the
expansion of its area of operations due to the success growth in last few years. In this report,
significance, obligations & roles and the functions of accounting and financing are included.
TASK 1
Critically discussing the importance of Accounting and Finance functions, duties and roles
within a business entity.
Accounting and management of finance is the main aspect when controlling a business. If
there is no proper management of the inflow and outflow of cash where it is being utilised than it
will be impossible to gain a proper control over the business. When entity manages its source of
income and knows where it is doing the expenditure than there will be a very strong chances to
potentially grow the business. This can also help in making better strategies for the expansion of
the growth of the business and it can also help in unexpected financial downturns.
Importance of accounting & financing:
 Keeping financial Records - Accounting is necessarily a documentation or recording of
data of the financial activities of the company. The books of records is where accountants
and owners of the small scale business keep track of their expenses and income of day to
day activities (Bach, Krstić, and Seljan, 2019).
 Avoid legal problems - Keeping all the records of finances of the company helps in
following certain important business laws. Slighting a minor detail could have big issues
on the tax management. The people who manages finance need to learn when to pay
taxes, what expenses to deduct and how much taxes to pay. Weak recording of financials
of a company can lead the way of unwanted legal trouble.

 Making a budget - Using the records of finance and considering the cash flow can help
in creating the budget and it is the most essential component to keep the business on
track. A budget gives an exact presentation of finance and helps to directing the future
growth of the business and development. When executing the income of the budget,
expenditures, standards and unwanted consideration of adjustments takes place
(Bialowolski, Cwynar, and Weziak-Bialowolska, 2020).
 Analysing the performance - Successful owners of the businesses always keep a track
on their business. An entity can evaluate their financial position by screening their
previous and current records of assets and liabilities and other financial records. Owners
of the businesses use this information to track the business activities.
 Developing the Strategies- Good accounting and good management of finance indirectly
leads to a good strategy. Once the budget is developed and in detail analysis of the data, it
will be easier to have a clear understanding for the development of the strategy to achieve
the desired targets. After examining the financial records, it will be more enhanced to
make better decisions related to finance on each and everything like staffing to
management of supply.
 External communication - When providing the financial information, it very important
to communicate clearly with the external parties. When the management of finance is
good it makes easier to provide financial statements to its existing shareholders. When
accounting and finance management is very much clear than it can be useful in getting
loans from the bank easily or attracting the potential investors (Demina, and
Dombrovskaya, 2019).
 Internal communication - Report of financial statements also helps the owners of the
business to communicate information properly with the existing shareholders. Financials
records also helps the owners to communicate the weakness and strength of the
businesses. This type of information is very much applicable to the employees who are
interested in compensation based on stock or profit sharing basis.
Functions of accounting & financing:
 Monitoring financial transactions - an accountant has to trace many financial
transactions which are related to the payments that is pending to the company to make
sure that it receives the revenue on time and stay in profits.

 Paying employee salaries - all the companies use accounting to payroll the payments
from the funds of the company and manage the benefits and issues the bonus of the
employees.
 Auditing finances - accountants have to conduct financial audit of the companies which
helps them to identify differences and appliance in the corrective solutions (Ersin, 2020)
 Investment decision - It is one of the most important function of finance is to wisely
diversify capital to long term assets and investments. It can also be termed as capital
budgeting. The two main components of investment are evaluation of every new
investment in terms of profitability, difference between the cut off rate of the previous
investment and current investment.
 Financial Decision - It is yet another very important function which is performed by the
financial manager. It is used wisely to make decisions about when, where and how a
business should acquire funds. The firm favour to benefit most when the market value of
the company's share reached its peak this represents that the wealth of the shareholders
has also increased.
 Dividend Decision - Earning profit is the main reason to start a business. But the
important function a manager of finance performs is to determine whether to give all the
profits to the shareholder or to recover all the profits and invest in the business.
 Treasury Management - In this, risk management can be imitated by the company at
any point of time. The functions of the treasury department are controlled by the assistant
finance manager meanwhile, the finance manager handles the financial aspects of
accounting (Oehler, and Wendt, S. 2018).
 Investment appraisal - In accounting and finance by applying the capital budgeting
techniques and investment appraisal techniques which aids the organisation to succeed
every major project through certain tests to make sure that it will worthy.
Roles & duties of accounting and finance:
 Obeying the Law: When accounting practices are sufficiently good enough it can have a
practical merit that it keeps the consent of the company with the law. Without the help of
accounting any company can violate any laws, like not paying the sufficient amount of
taxes.

 Creating budgets and financial records - By knowing the inflow and outflow of the
money through your business with proper practices of accounts budgeting can be done. In
budgeting, estimate of the revenues and knowledge to make the decisions about the
expansion of the business.
 Analysing the financial performance - It is difficult to improve the business if there is
no mean to understand from the past experiences and learn from it. By going through the
financial records of the company, one can easily determine that what kind of good work
or performance the company has given in the long run (Scott, and et.al, 2018).
 Developing Business strategy - The motive of most of the companies is to make big
profits, but the road to get there is built by the management of the company itself.
Financial data of the company comprises one of the main component in setting up the
landscapes of the market.
 Essential for any company/entity - To design the cost of goods and services in the
business, and accomplishing a budget for functions and operations of the business and
presentation of financial reporting for the decision of the business and all the areas of
accounting. Reports can be presented in a way to provide specific information of
financial management approach for the individual or different sectors of the business.
Sources of finances for small businesses
 Equity - It is the sum of capital which is invested by the owner of the company. The
equity is derived by the comparison between asset and liabilities which are noted down
on the balance sheet of the company. The importance of equity is totally dependent on the
current market price of the share or the value it has provided to its shareholders and
investors. It can also be termed as the stockholders or shareholders equity. There are two
types of equity book value and market value (smith and Dhillon, G., 2019).
Book value is the value which is listed in its book value and it can be calculated by the records of
financial statements and the equation of the balance sheets. The equation is used to calculate the
book value of equity is – EQUITY = ASSETS – LIABILITIES.
Equity is represented as the market value in the world of finance, which can be sometimes higher
or lower than the book value. The market value of the equity is the total market capitalisation of

the stocks of the company. Market value of equity is calculated by multiplying the total no. of
stocks of the company listed per current market price.
 Venture Capital - It is the framework of equity and kind of financing that the investors
serve to the start-ups and different kinds of small businesses that have the potential to
grow in the long period of time. Venture capital is usually generated from potential
investors, investment bankers and some other kinds of financial institutes. Although, it
does not always come in the monetary form sometimes it comes in managerial and
technical forms also (Tiwari, Schaub, and Sultana, 2019).
TASK 2
Compute the financial ratios.

By Using the financial statements of Panini Ltd evaluating the ratios highlighted on page 4 and
suggesting on the performance of the company
 Gross profit margin – in the given evaluation of gross profit margin, it is observed that
the profit margin of the year 2019 has decreased nearby 7.61%. The reason behind that is
the cost of goods sold of the company has upsurge in the revenue of the company panini
Ltd.
 Operating Profit Margin – the operating income and revenue are inversely proportional,
as the operating income decreases the revenue of the business increases. In the year 2018,
the calculated margin is 27.65% and in the year 2019 the margin increased by 20.04%. It

represents that operating costs and the expenses which are non-operating are extended in
the business. So for obtaining the margin and increasing the expenditures which are
unwanted in the business entity should be reduced (Zhao, and et.al, 2021).
 Current Ratio – The optimum current ratio for any entity should be always in the ratio
2:1. In the year 2018, it was 1.21:1 and in 2019 it was 4.12:1 which clearly indicates that
in 2018 the company Panini doesn't have adequate assets of to fulfil its requirements but
in the year 2019 the company has sufficient amount of resources to fulfil each and every
requirements and commitments of the company. The reasons for the that can be: the
decline of the resources in the year 2018 which can result in inventory errors. Moreover,
the entity has an authorized principal of receiving the cash from its account holders. The
main reason of the expansion of the company in the year 2019 could be because the
company has reduced the cost and sold the resources which are pointless or not very
much useful. Panini ltd has increased its capability for generating the capital and to meet
temporary advances.
 Quick Ratio – The most ideal quick ratio should be 1:1. In the year 2018 it was below 1
and in the year 2019 it was around 2.80:1 which clearly states that the entity was not
doing that great in terms of liquidity whereas, in the year 2019 the company commercial
is doing great. The turnover percentage is decreased in 2018 because in some cases there
is a need of framework of the entities for the provisional commitments to resolve their
issues. On the other side, there is a requirement of the more earning potential in the
company. The rise in the volume of transactions is because of the limited technology,
promotions and many more. It shows Panini with more existing resources which help to
carry out its ongoing roles without selling the shares of the company.
 Return on capital employed – an issue which is related to the decrease in the capital
return employed may be that the business has increased its regulations and liabilities for a
given period of time. The motive is to adjust the situation is that associations will focus
on those factors that will help in increasing the productivity of the organisation. If panni
start to reduce its commitment than it will surely help in the expansion of the business.
The situation points that the organisation is using its capital assets in the business. It
clearly shows that Panini Ltd is wasting its capital resources. Businesses should be

properly being done strategy wise to take full advantage of its assets and to achieve the
most desirable targets of the company.
 Inventory turnover ratio – the growth can be recorded these days, and the idea is that the
business has to sell more stock. There are many causes for this, the first reason will be the
organisation become bigger and stronger in advantageous areas to handle inventory
efficiently. The second reason is that there is no inventory which help such a costly
transaction. From the above explanations, Panini Ltd. Should have to support the old
transaction of the stocks and sell its shares using the valuation methods.
 Receivables collection period - There was a growth of the change period supply which
states that the Panini Ltd. was not able to collect the cash from its account holders on
time. For the reduction of the number of days’ businesses can provide their consumers
with the policies of instalments payments and made some easy time frame for the
costumers.
 Payable payment period - There is a diminished, which concludes that the organisation
can pay off its liabilities on time. This can be valuable to organisations as a more limited
instalment within a limited frame work can help in organisations to make better
preferences based on financial backers, suppliers and banks. By this way, companies can
easily apply for advances and assets without any hesitations.
CONCLUSION
From the above report, it can be presumed that accounting function are significantly used in
all the business concern which are connected with the activities of the business organisations.
Also, the obligations and functions of accounting and finance are briefly explained in the report.
Furthermore, the financial ratios are evaluated with the remarks on the performance of the
company

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