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

This report discusses the accounting and finance departments of Panini Ltd, their roles and responsibilities, and sources of finance. It also covers the calculation and interpretation of financial ratios such as gross profit margin, operating profit margin, ROCE, current ratio, quick ratio, and inventory turnover days.

FINANCIAL
DECISION MAKING

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1 ...........................................................................................................................................1
Part a: Accounting and Finance departments..............................................................................1
Part b: Sources of finance...........................................................................................................3
TASK 2 ...........................................................................................................................................4
Part a: Calculation of the 8 ratios below by using the appropriate formulas:.............................4
Part b: Individual analysis of each ratio which based upon the numerical results of above ratio.
.....................................................................................................................................................6
CONCLUSION..............................................................................................................................11
REFERENCES .............................................................................................................................12

INTRODUCTION
In this report it describe the department of accounting and finance of Panini Ltd , firstly it
explain the concept of two divisions accounting and finance, it is the main part of any firm and
answerable for checking the efficient financial administration and financial controls required to
support all business tasks. Also it explain various duties and roles within a company
organization(Baixauli-Soler, Belda-Ruiz and Sánchez-Marín, 2021). Here are various of duties
and responsibility of accounting department it include, trade receivable, accounts payable and
financial coverage on the another side the duties and answer ability of finance department such
as, bookkeeping, financial strategy and analysis and fund raising. Apart from this in another part
it discuss about some sources of finance which includes two sources of finance in which it
includes Internal and external sources of finance. After that, in another task it calculate the
various types of ratio which indicates the financial position of the Panini Ltd. In another part
they provide an interpretation on the basis of the calculated ratio.
TASK 1
Part a: Accounting and Finance divisions.
1. Department of Accounting: This department maintain the data of all goods and services
in which a company pays or check that overall firm expenditures should paid on
particular time duration. There are some roles of accounting divisiont which are given
below:
a ) Role of financial accounting: This role of accounting is a very important function
for keeping the historical record overall business transactions. So, it provide an
assistance to the auditor for analysing the report. Along with this it manage the
financial statements of the firm and perform the daily records of daily transaction
of accounting in the business(Chen and Deng, 2022).a ) Role of management accounting: They assist the leader within a firm to create
decisions. Generally the firm assists in identifying, analysing, interpreting and
conveying this complete detail to leader. It also assist the organization for
accomplishing the objectives and targets. This function of accounting mainly
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assist the organization to create strategy and forecasting plan to perform the
projected activity into the firm.a ) Tax function: It is useful to manage and control the tax related risk and for some
another reason also it involves, plan Activity, forecasting the problem and give
information about the plan to the employees of the firm. It basically suggest the
company for business transactions, if company not a desire to pay high taxes then
it's crucial for them to increase concentration on its proceedings limits(Chenet,
2021).a ) Purpose of Auditing : They identify the nature, duration and expansion of the
audit procedure. In that case auditor need to measure the business accounting.
They also examine the appropriate accounting artefact, then auditor of the firm
need to ensure the possession of the company, determination of worth and need to
ensure the assets belongingness.
2. Finance department: This department create strategy and mange the firm money and
make sure that a company can access money in many ways. Along with this its
responsible for generating the problem it is usually based upon the financial statement of
the company. Here are various roles of finance division that are given below:
a) Role of Investment: The main purpose of the investment is to indicate the
comparison between the amount of interest along with the firm's investment. They
usually invest its funds in that type of technology which are new, innovative and
welfare of the society because these type of investment are successful in future for
generating high profit.a) Role of financing: It is the important role of finance division which assists in
saving and utilizing of financial funds for the potential development and
expansion of firm activity apart from this it also control the planning of financial
resources(Cuong, Hien and Long, 2018).a ) Dividend function: This function of finance department generate any profit in any
year then it first distributed among the board members and partners of the
company after that it distribute among the equity and preference shareholders of
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the company. If organization earn profit in some year then its important to provide
them in form of dividend to the shareholders.a) Working capital function: In this function of finance department it basically
assists to get overall company short- period expenditures which are generally due
in a particular year(Davis, 2022). The main procedure of this function is that it use
cheapest source of finance for the development and expansion of the organization.
Every company desire to generate higher income on the business. So, they can
focus on the tasks of the organization and reduce the level of expenses.
Part b: Sources of finance
Business required to consider how they will provide funds to their tasks when starting up
along with their daily operations. Some costs necessary to be covered such as tools, inventory
and bills payable. In other words source of finance means where a company gets money from to
resources their business tasks. An organization can generate finance through internal and
external sources:
Internal sources of finance: It refers a money that comes from within the organization. It
includes various internal techniques every business can use which are given below:
 Owners capital: It includes money which are invested by the owner of a company. This
money comes from the personal savings of the proprietor(Gaur and et.al., 2022). This
type of finance sources does not contain any cost, if there are no interest charges applied.
 Retained earnings: when a company generates a profit in their business then they can left
few or whole of this fund in the organization and again invest in respect to develop its
money. This finance source doesn't contain any charges of interest or need the dividends
payments, it can generate with the useful finance source.
 Assets selling: It involves selling goods and services which are owned by the firm. This
may be utilized if a company no more utilize for the good or they necessary to increase
fund speedily. Assets of enterprise usually can be sold it includes machinery, tools or
excessive inventory.
External finance source: It is the money that externally comes into the business. Here are some
external techniques a company can utilize. Some external sources of finance which are given
below:
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 Family and friends: In this type of finance source business can generate a loan or can take
money from family and friends to invest in their business that it no need to paid again or
paid again but with small or not any other charges of interest.
 Bank loan: when a company borrow the money from the bank to operate its
business(Gorelick and et.al., 2019). It paid off along with the interest over an agreed time
period, for many years.
 Bank overdraft: when a enterprise or an individual utilize high fund then it have in their
account of bank. It basically describe that if account balance comes in negative figures, in
that case bank is provided more money(Grace, Vincent and Evans, 2018). Overdraft
facility need to be used carefully only in case of emergency because it can become
expensive due to the high interest rate charged by banks.
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5

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Part b: Separate analysis of every single ratio which based upon the numeric results of
above ratio.
(i) Gross profit margin
a. Definition
This ratio of profit margin helps the company to measure the value which are
remain leave after selling the products which can be determine with the help of
sales minus cost of goods sold(Loomis, 2018).
b. What ratio shows about the firm’s performance
The ratio express the company performance in 2019 which is low in relation to
2018 that indicates company is low productive in 2019.
c. Compare 2018 figures with the 2019 figures calculated above.
As the above figure of margin of gross profi it clearly indicates that in 2018
company earn 35% profit margin but in 2019 company earn 28.35% that means
the cost of sales is high in 2019 and showing less efficiency as well.
d. Reasons for changes in the ratio between 2018 and 2019
The main reason to show variation in the ratio of 2019 is they are having high cost
of sales that is the reason it create less productivity and not utilize the funds
properly.
e. Method to improve the value of the ratio in the future
Firm need to deduce it's expense and increase their efficiency to perform the
activity. Which leads to generate high gross profit for the company.
(ii) Operating profit margin
a. Definition
This financial ratio mainly helps to measure it profit after reducing operating
expenditures into non-operating expenditures(Lyons and et.al., 2019).
b. What does the ratio indicate about the company’s performance
This ratio show the outcomes of the firm in which 2019 company is less efficient
and not attain their targets with full productivity.
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c. Compare 2018 figures with the 2019 figures calculated above.
In 2018 firm operating profit is 27.65% and in 2019 it gain 20.04 % that means in
2019 company is less efficient to achieve their targets.
d. Reasons for changes in the ratio between 2018 and 2019
The main cause to variation in the ratio of 2019 is it show low productivity in the
firm and incurred more expenses which leads to reduce its profit.
e. Ways to improve the value of the ratio in the future
The way to show the improvement in the performance of 2019 company need to
more focus on their targets and try to reduce the cost and proper utilization of
resources which helps the company to increase their profit in the future years.
(iii) ROCE
a. Definition
This type of financial ratio is helpful in estimating the firm profitable situation
and capital efficiency in the organization(Rhanoui and et.al., 2019).
b. What does the ratio indicate about the company’s performance
The above calculation of ratios indicates about the firm performance that means in
201 company not using their proper skills to get returns on their capital or not
performing efficiently.
c. Compare 2018 figures with the 2019 figures calculated above.
From the above figure of 2018 it show that company use their skills to accomplish
better outcomes on their capital but in 2019 it perform inefficiently to achieve
outcomes on their capital.
d. Reasons for changes in the ratio between 2018 and 2019
The main cause to variation in the ratio of 2019 is its low productive and perform
inconsistently to accomplish their goals.
e. Ways to improve the value of the ratio in the future
The main path to improve the figure of ratio in next coming years its effectiveness
and consistency in their goals and objectives.
(iv) Current ratio
a. Definition
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This ratio is a type of liquidity ratio which helps in measuring the level of
liquidity in the organization(Wong, 2021). This ratio relate the current assets with
the current debts of the business.
b. What does the ratio indicate about the company’s performance
This ratio indicates the company performance and analyse that in which year firm
having more liquidity and performing good.
c. Compare 2018 figures with the 2019 figures calculated above.
In 2018 company undergo less current ratio in relation to the 2019 that means
company so, many times company feel their current assets in a money form.
d. Reasons for changes in the ratio between 2018 and 2019
The cause to variation in the ratio of 2019 is its perform with full efficiency to
achieve their targets.
e. Ways to improve the value of the ratio in the future
In 2019 company no necessary to show improvement in their current ratio
because company having low current debt.
(v) Quick ratio
a. Definition
In this type of liquidity ratio mainly helps to measure the capability to pay the current
liability with no needed to sell its stock or choose some another source of
financing(Yang, Hsu and Wu, 2022).
b. What does the ratio indicate about the company’s performance
The above ratio computation indicate about the company performance in which firm
having high quick ratio in 2019 that means entity performance is good enough.
c. Compare 2018 figures with the 2019 figures calculated above.
In 2018 firm quick ratio is less in relation to the 2019 that means company is capable to
pay its debt.
d. Reasons for changes in the ratio between 2018 and 2019
The cause to variation in the ratio of 2019 is high efficiency and high concentration on
their targets.
e. Ways to improve the value of the ratio in the future
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There is no require of betterment in the ratio of 2019 is because its capability to pay its
debt obligation is good enough.
(vi) Inventory turnover days
a. Definition
This turnover ratio helps to indicate that how much duration it considered to sell and take
out the inventory at a particular point of time(Yu and et.al., 2019).
b. What does the ratio indicate about the company’s performance
It show the firm performance in which 2019 company is less efficient to achieve their
goals.
c. Compare 2018 figures with the 2019 figures calculated above.
In 2019 firm is takes more time to achieve their objectives as compare to 2018. It show
less productivity in the organization.
d. Reasons for changes in the ratio between 2018 and 2019
Main cause to variation in the ratio of 2019 is it takes more time to sell their stocks that
means its decrease their productivity.
e. Ways to improve the value of the ratio in the future
The necessary of betterment is required in the firm which required to be more efficient
and focus on their goals to achieve their targets.
(vii) Debtor’s collection period
a. Definition
It measure the debt collection in which less time show high productivity and high time
show less productivity(Rieder, 2022).
b. What does the ratio indicate about the company’s performance
The performance of the enterprise is not at all better enough to attain their objectives on
time.
c. Compare 2018 figures with the 2019 figures calculated above.
In 2018 company is more efficient as compare to the 2019 because in 2019 it takes hight
time to achieve the targets.
d. Reasons for changes in the ratio between 2018 and 2019
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The main cause to vary in the ratio of 2019 its low efficient and lack of concentration
level.
e. Ways to improve the value of the ratio in the future
They need to improve its productivity and better approach with minimum time to
accomplish the goals.
(viii) Creditor’s collection period
a. Definition
It calculate the duration to retrieve the value of loan. If it takes high time its more
advantageous.
b. What does the ratio indicate about the company’s performance
The ratio indicate the enterprise performance it is not better and not in an efficient
manner.
c. Compare 2018 figures with the 2019 figures calculated above.
In 2019 company is less efficient to achieve their targets as compare to 2018.
d. Reasons for changes in the ratio between 2018 and 2019
It show the changes in 2019 because it less productive and contain less time.
e. Ways to improve the value of the ratio in the future
Need of improvement is required in the company in their productivity and focus on their
work.
CONCLUSION
The above report concluded that the firm accounting and finance division play a very
important function to attain it objective within the time period it mainly assist to manage the
projections of the organization. After that it describe some functions of accounting and finance
department which explain the roles and objective of these sections. In another part it explain
about some outer and inner finance source which help the firm to generate money in its
company. Apart from this, in another task it show the financial ratio of the organization which
explain about the overall performance of the entity in both the year 2018 and 2019.
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