ProductsLogo
LogoStudy Documents
LogoAI Grader
LogoAI Answer
LogoAI Code Checker
LogoPlagiarism Checker
LogoAI Paraphraser
LogoAI Quiz
LogoAI Detector
PricingBlogAbout Us
logo

Financial Decision Making: Accounting and Finance Function, Financial Resources for SMEs, Ratio Analysis of Panini Ltd.

Verified

Added on  2023/06/10

|12
|3117
|387
AI Summary
This report discusses the importance of financial decision making, the role of accounting and finance function in Panini Ltd., and the financial resources available for small and medium-sized enterprises. It also includes the computation and analysis of financial ratios for Panini Ltd. for the years 2018 and 2019, along with the reasons and causes behind the changes in the ratios. The report covers subjects such as accounting, finance, and SMEs, and includes course code and college/university information if applicable.

Contribute Materials

Your contribution can guide someone’s learning journey. Share your documents today.
Document Page
Financial Decision
Making

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Contents
INTRODUCTION.................................................................................................................................3
TASK 1.................................................................................................................................................3
Explanation of the accounting and finance function's relevance and role in the organization............3
A description of the numerous financial resources available to a small or medium-sized firm in
order to grow its operations...............................................................................................................5
TASK 2.................................................................................................................................................6
Calculation of the financial ratios from the data provided in balance sheet and income statement of
the Panini Ltd. for the financial year 2018 and 2019.........................................................................6
Discuss the interpretation and analysis of the computed ratios, as well as the reasons and causes
behind the financial ratio variances for the years ended 2018 and 2019............................................7
CONCLUSION...................................................................................................................................10
References..........................................................................................................................................11
Document Page
INTRODUCTION
Financial decisions are those made by the business owner in order to manage the
company's finances. Because money are the foundation stone of any corporation, decision
making is quite important. These decisions are taken in order to buy assets, borrow money,
and so on. These decisions have an impact on a company's assets and liabilities, and they
assist the company in making long- and short-term decisions. The financial short-term
decisions concern operating capital, while the long-term ones concern the possibility of
obtaining funds. The relevance and role of accounting and finance departments at Panini Ltd.
are examined in the following study. Furthermore, it also contains information on the many
sources of credit accessible to small and medium-sized enterprises looking to expand their
operations. This report also includes the computation of financial ratios based on the income
statement and balance sheet provided. It also includes the causes and factors that might have
an impact on the changes in Panini Ltd.'s ratio analysis for the fiscal years ended 2018 and
2019.
TASK 1
Explanation of the accounting and finance function's relevance and role in the organization.
Accounting is a critical role for any type of business. It must be carried out by every
corporate entity, regardless of its size or type. It is the art of categorizing, documenting,
evaluating, and summarizing financial transactions in order to offer Panini Ltd with a
meaningful purpose (Dinçer and et.al, 2019). Accounting aids in determining the genuine
financial status of an organization. Accounting is a means of exchanging information. The
accounting department's responsibilities at Panini Ltd. are as follows:
• Calculation of business revenue and income: The primary function of an accounting system
is to calculate revenue and income. Accounting assists a company in keeping track of all of
its costs and profits. It aids in money management by keeping track of spending, revenue, and
losses in order to present an accurate and dependable picture of the company's finances
• Profitability, liquidity, solvency, and efficiency are all factors to consider: The accounting
system provides information on settlements in the form of a cash flow statement, income
statement, and balance sheet, which are all summarized. The firm may evaluate its operations
and performance on a variety of levels using the data contained in such reports.
Document Page
• Monetary Budgeting: Budgeting is a tool that assists Panini Ltd. in achieving and achieving
its goals by establishing expense targets. Accounting serves as a foundation for budget
preparation since budgets are established using historical monetary data.
• Assists with statutory compliance: Various laws have been enacted for the reporting of
accounting transactions. For the purpose of creating financial reports, a corporation must
adhere to a number of rules and principles. If the corporation adheres to the rules and
regulations, the accounting reports can be used as evidence in court.
• Assists in auditing: If the company's accounting records are well-maintained, the auditor
will be able to focus on the areas that need to be improved. Accounting enables a corporate
organization to seek advice and ideas from auditors in order to enhance the company's
financial situation.
• Tax Requirements: The financial documents provided by the firm may be requested by
various legal bodies. If the accounts are set up correctly, the firm will pay the right tax
amount. If not, the company will be held accountable for the sum demanded by the
government. As a result, accounting is extremely important (Gavurova and et.al 2019).
• Information on debtors and creditors: Accounting guarantees that the firm receives money
from accounts receivables on time and pays the amount owed to its account’s payables on
time.
• Payroll: This is the amount of money given to employees for the services they have
provided to the company. Accounting data assists human resource managers in determining
how to compensate employees for their contributions and how these payments will affect the
company's profitability.
Finance responsibilities: This information assists the corporation in determining whether or
not to make more investments. The following are the tasks of the finance department:
• Planning: The financial function aids Panini Ltd. in developing various plans using various
strategies such as budgeting and so on. The plans can be devised to help the organization
achieve its objectives.
• Projections: Using various planning and budgeting approaches, the management may
anticipate expenditures, income, expenses, and revenues, among other things.

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
• Resource allocation: The finance function aids in planning and forecasting. It assists Panini
Ltd. in determining the labor incentives, machinery, and other resources that will be required
at each level of activity, as well as the costs associated with them.
• Performance Management: It assists in the management of Panini ltd's outcomes. The
finance role ensures that performance is met in accordance with the budgets set forth in the
consideration. It aids in the development of new initiatives to ensure that activities are carried
out in accordance with the budgeted plan, as well as the monitoring of those actions.
• Control: It provides support in budget preparation. The budget allows the organisation to
compare the actual outcomes to the projected ones and determine the causes of the
discrepancies (Nofsinger, and Shank., 2019). Through this procedure, Panini Ltd. may guide
and manage the components that cause the differences to be discovered, as well as aid in the
improvement of those domains.
• Financial Reporting: The finance chiefs create financial reports, which are important and
useful to external and interested parties like as shareholders, workers, creditors, suppliers, and
investors, among others. The reports assist them in outlining the company's techniques of
developing and keeping wealth in order to attract investments from the people.
A description of the numerous financial resources available to a small or medium-sized firm
in order to grow its operations.
The term "financial" refers to more than simply money. Small businesses find it extremely
difficult to get funding because they lack the necessary reach. Because of the possibility of
repayment failure, firms that operate on a big scale find it risky to give loans to these
enterprises. Finance is required by the firm for future costs, which may be short-term or long-
term. Funds are the lifeblood of every business, and no company can envision surviving in
the market for lengthy periods of time without them. Small firms also find it difficult to
obtain loans from large enterprises and institutions because they charge exorbitant interest
rates. Finance is the management of money. Finance may be described as the management of
a company's money, which includes five primary topics: spending, saving, investing,
revenue, and income. The following are some possible funding sources:
• Personal Savings: If the owner needs money, he can turn to his savings from various
policies and deposits such as fixed deposits, mutual funds, loans, and equity. The owner can
obtain funds by selling his or her assets and gold jewelry.
Document Page
• Banks: Banks are financial entities that are regarded as the safest place for a businessman to
obtain capital. The lending department of a bank is responsible for meeting the loan
requirements. The businessman must meet the minimal requirements, which include credit
score, annual income, and turnover, among other things. As a result, small firms can raise
funds for a variety of reasons.
• Trade credit: This is an excellent way for a small business owner to receive money. This
process involves obtaining goods and raw materials on credit from a supplier who is willing
to pay without incurring fees at the time of purchase. Payment is made at the moment of the
sale of the items. This approach is the simplest and most cost-effective.
• Private equity firms: These are companies that are not publicly traded on a stock market.
These corporations raise funds from investors and use that money to purchase the stock of
medium-sized businesses (Jorge and et.al., 2019). There is a disadvantage to this type of
source; control is concentrated in the hands of large enterprises, and small businesses are
unable to make autonomous judgments.
• Crowdfunding: This is a technique in which a modest quantity of money is raised from a big
number of individuals. It is a strategy in which the business owner does not have to deal with
any inconvenience and may generate money through campaigns anytime they want finances.
It is the most straightforward way because it does not need any documentation (Adisa and
et.al., 2019).
TASK 2
Calculation of the financial ratios from the data provided in balance sheet and income
statement of the Panini Ltd. for the financial year 2018 and 2019.
1. Gross profit margin: Gross profit/ Net sales * 100
2018: 3500/ 10000 * 100 = 35%
2019: 3265/ 11500 * 100 = 28.39%
2. Operating profit margin: Operating profit/ Net sales * 100
2018: 2765/ 10000* 100 = 27.65%
2019: 2305/ 11500* 100 = 20.04%
3. Return on capital employed: Earnings before interest and tax/ Share equity +
Long term liabilities * 100
Document Page
2018: 2765/ 8755= 31.58%
2019: 2305/ 10211* 100 = 22.57%
4. Current Ratio: Current assets/ Current liabilities
2018: 1175/ 970 = 1.211: 1
2019: 2110/ 512 = 4.12: 1
5. Quick Ratio: Current assets – Inventory / Current liabilities
2018: 1175 – 350/ 970 = 0.85: 1
2019: 2110 – 675/ 512 = 2.80: 1
6. Inventory turnover days: Cost of goods sold / average inventory
2018: 6500 / 350 = 13.57 times
2019: 8235 / 512 = 16.08 times
7. Receivable collection period: 365 / sales on credit / accounts receivable
2018: 365 / 10000 / 760 = 27.74 days
2019: 365 / 11500 / 1340 = 42.54 days
8. Payable payment period: 365/ cost of sales / trade payable
2018: 365 / 6500 / 920 = 51.6 days
2019: 365 / 8235 / 707.5 = 31.36 days
Discuss the interpretation and analysis of the computed ratios, as well as the reasons and
causes behind the financial ratio variances for the years ended 2018 and 2019.
The company’s growth and success is can be measured by the various factors they are
profitability, efficiency, solvency and liquidity. The causes for the changes are stated below:
1. The Gross Profit Margin (GPM) is the percentage of a company's
• High supply costs: One of the variables contributing to the drop in gross profit margin is the
increase in the cost of products sold. By removing the COGS from the sales revenue, gross

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
profit is calculated. Panini Ltd may face difficulties as a result of this downturn. Panini Ltd.
may be able to overcome this predicament if this element is understood.
• Low Prices: Lowering the price to create or boost sales might result in a decrease in gross
profits. To entice customers, Panini Ltd. may have given discounts as a promotion. Many
rivals use the same thing to attract customers' attention.
2. Profit margin on operating expenses:
• Decrease in periodic revenue: In 2019, there is a decrease in OPM, which occurs because,
even if the business entity maintains the same costs for its business activities, the lower
revenue indicates that the organization is losing money. The loss of markdowns on pricing or
clients of Panini Ltd might cause a decrease in such income.
• Increased Fixed Costs: Fixed costs are those that are unaffected by production levels. These
expenses are non-negotiable and might put Panini Ltd in a long-term bind.
3. Return on invested capital:
• Unproductive use of funds: Panini Ltd.’s ROCE has decreased. This is not good for the
firm; a lower ROCE indicates that the company's initiatives are ineffective. The decrease in
ROCE might be due to excessive waste in capital resource allocation.
4. Current ratio:
• Company expansion into capacity: The current ratio for 2019 has been enhanced, and it is
now twice as high as the optimal current ratio. This indicates that the firm has a strong ability
to meet its short-term obligations. The rationale for the shift is because the corporation has
sold its non-essential assets.
5. Quick Ratio
• Increase in sales: The acid test ratio has increased, indicating that Panini ltd. will be able to
satisfy its present debt and commitments without selling its inventory. The reason for this is
that the corporation is able to increase its sales. • Increased Stock Turnover Ratio: The
corporation may have launched numerous sales promotion strategies that were employed to
improve sales, resulting in a rise in the STR.
6. Ratio of inventory turnover:
Document Page
• Lowering input costs and boosting sales: It is greater, indicating that the firm is producing
strong sales and has developed successful sales techniques. The product is in high demand
among consumers. Another cause may be that the business has a lot of outdated merchandise
in its warehouse that has to be sold.
7. Receivables Collection Period:
• Inadequate laws and regulations: This indicate a lack of communication between the firm
and debtors, as collecting money takes a long time. It's because Panini Ltd. hasn't established
tight restrictions or levied late fines.
8.Payable Turnover ratio:
Ample cash: The firm is able to make payments in a shorter period of time even if it is
not getting money from creditors on time. The corporation may be performing well in
its sales activities because of its strong cash position.
Document Page
CONCLUSION
From the preceding data, it can be established that accounting plays a critical role in
corporate operations and benefits the company in every way. Accounting reports are essential
for both internal and external usage, therefore the organization cannot go any farther without
them. Accounting can also assist you satisfy legal obligations. The finance department is
critical to the creation and preservation of Panini Ltd.’s value. Small and medium businesses
can also get finance from their personal funds, crowdfunding, and venture capital. Finally, it
emphasizes that a variety of factors, such as sales, operating expenses, debts, and resource
waste, impact the profitability, liquidity, solvency, and efficiency of a company firm.

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
References
Books & Journals
Dinçer, H. and et.al, 2019. Assessing corporate social responsibilities in the banking sector: As a
tool of strategic communication during the global financial crisis. In Handbook of
research on global issues in financial communication and investment decision
making (pp. 1-27). IGI Global.
Gavurova, B. and et.al, 2019. FINANCIAL LITERACY AND RATIONALITY OF YOUTH IN
SLOVAKIA. Transformations in business & economics. 18(3).
Zhang, H. and et.al., 2021. Corporate financial risk assessment and role of big data; New
perspective using fuzzy analytic hierarchy process. Journal for Economic
Forecasting. (2). pp.181-199.
Nofsinger, J.R. and Shank, C.A., 2019. DEEP sleep: The impact of sleep on financial risk
taking. Review of Financial Economics. 37(1). pp.92-105.
Adisa, J.A. and et.al., 2019, November. Financial Distress Prediction: Principle Component
Analysis and Artificial Neural Networks. In 2019 International Multidisciplinary
Information Technology and Engineering Conference (IMITEC) (pp. 1-6). IEEE.
Kelada, L. and et.al., 2020. Financial toxicity of childhood cancer and changes to parents’
employment after treatment completion. Pediatric Blood & Cancer. 67(7). p.e28345.
Oehler, A. and Wendt, S., 2018. Trust and financial services: The impact of increasing
digitalisation and the financial crisis. In The Return of Trust? Institutions and the
Public after the Icelandic Financial Crisis. Emerald Publishing Limited.
Jorge, S. and et.al., 2019. The use of budgetary and financial information by politicians in
parliament: a case study. Journal of Public Budgeting, Accounting & Financial
Management.
Davis, R. and et.al., 2020. Industrial artificial intelligence, smart connected sensors, and big data-
driven decision-making processes in Internet of Things-based real-time production
logistics. Economics, Management and Financial Markets. 15(3). pp.9-15.
Document Page
1 out of 12
[object Object]

Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

[object Object]