Financial Decision Making: Accounting and Finance Duties, Sources of Finance, and Performance Ratios

This report covers the evaluation of accounting and finance duties, functions, and roles in a company, as well as different sources of finance available for small and medium businesses for growth and expansion purposes. It also includes the computation of important ratios for examining a company's efficiency and liquidity, with recommendations and suggestions for better financial decision making. The subject is Financial Decision Making, with a course code and college/university not mentioned.

FINANCIAL
DECISION MAKING

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Task 1:..............................................................................................................................................3
1.1 Evaluate the need of Accounting and Finance duties, functions and roles in a company.. . .3
1.2 Elaborate different sources of finance that are available for small and medium businesses
for growth and expansion purposes.............................................................................................6
Task 2 :.............................................................................................................................................7
Compute important ratios for examining performance of company...........................................7
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The report prepared below takes in account assessment of accounting and finance related
areas which would assist and help the company and related business to grow in market. It further
counts sources of finance which helped in growth and expansion of company over a period of
time. The report prepared as under includes computation of certain ratios which would help to
examine efficiency and liquidity of a organisation for a certain time duration in market. It further
provides recommendations and suggestions to managers of the company as what measures can
be adapted for better working and functioning of enterprise in related market surroundings.
MAIN BODY
Task 1:
1.1 Evaluate the need of Accounting and Finance duties, functions and roles in a company.
Accounting department: It is a division in a company that is maintaining all the records
related to the finance of the company. The main function of the accounting department is
keeping records of day to day cash inflows and outflows also records fix assets, payables,
inventories etc.
(1) Financial accounting function : Finance accounting department prepare financial
statements like profit and loss account, balance sheet, ledger and cash-flows etc. Finance
department record day to day transaction and prepare reports for audit of company (Almutairi
and Quttainah 2020).
Importance of finance department :
 Finance department make reports which are used to prepare finance forecasting, budget
and other financial decision-making.
 It involve in the decisions like creditor's get paid on time and debtors made payment on
time. Finance Department ensure proper maintain of procedure of day to day
transactions.
(2) Management accounting function : Management accounting department make
conclusions on the basis of financial statements . Management accounting department conduct
Cost analysis, investment analysis and target consumer analysis (Amri-Asrami and Aghaei
2021).
Importance of finance department :

 Management accounting department is a very important unit who take part in future
planning and forecasting to achieve company goals.
 Management department is a decision-maker of the company. It take all the finance
decision regarding cost, expenses, creditor's and debtors
(3) Tax function: Tax accountant plays a very important role in preparing tax forms. Tax
accountant has to follow all tax laws and save money by legal deductions. It is a very important
function which connect company to government (Brooks Schopohl and Walker 2021).
Importance of tax function :
 Tax function provide safeguard to the company from future problem which are related to
the tax and government affairs.
 It is very important function to share tax reports with their shareholder to maintain
stability in tax system.
(4) Auditing function: Auditing is a function to check financial statements are accurate
or not. it is also states that all the functions are going to be well managed. Auditing function
highlights the error of financial statements. Generally auditor perform auditing after completion
of an year. There are many types of audits the most common are financial statements audits,
internal audits and tax audits.
Importance of tax function :
 Auditing function maintain accuracy of financial statements and eliminate the errors.
auditor checks existence of the assets of the company and prepare a report.
 Auditing plays a important role in reducing frauds and shows true position of the
company (Chesoli 2020).
Accounting department is a very important division and it is fully responsible for any
mistake in financial statements. Accounting department provide bookkeeping, advisory and
controller services to the business. Accounting department keep eyes on all financial
transactions.
Finance department: Finance department role is to manage and control finance of a
company. Finance department has power to take all financial decisions. Finance department
prepare future plans and strategy to achieve company's future goals which are pre-determined by
the company.

Finance department is a very important part of administration of company.
Functions of finance departments :
(1) Investment function: Investment is the simple process to generate profit by purchase
of assets. Business can invest in many ways like in fixed assets, shares and bonds etc. The main
motive of any investment is to earn interest on it (de Souza and et.al., 2019).
Functions of investment
 First a company has to find a best source of investment which gives maximum returns.
Investment has to be done after a proper research so that their no risk of any losses.
 Investment also depend on the market conditions, if market conditions are not favourable
for investment then company can suffer heavy losses.
(2) Financing function : Financial function is very important function execute by finance
manager. Finance manager has to decide about the fund when and from where should be obtain.
Financing function is a planing process. The share price of any company increase is the only sign
of the company's growth.
Functions of Financing
 A sound financial structure of company reduce the risk but also maximise the chance of
returns.
 Using wide range of methods and types with the proper market research will always help
to achieve maximum profits.
 Financing helps to raise funds for for organisation and to increase their profits and growth
of the company.
(3) Dividend function : Dividend is a portion of a company's profit. When a company
having excessive surplus in their account then they distribute such amount to the shareholders in
the form of dividend. Their is mainly two type of shareholders who share dividend ,first is
preference shareholder and another is equity shareholders (Giannopoulos and Aggelopoulos
2019).
Functions of dividend function :
 After paying to the debenture holders if surplus is left in such case dividend is distributed
to the shareholders. Preference shareholders enjoy the first preference in the surplus of
company. Equity shareholder take dividend after preference shareholders.

 Dividend is always tax free because it is always in investors hands. It is also a tax saving
investment.
(4) Liquidity function: To avoid insolvency a firm has to maintain their liquidity.
Liquidity of a firm shows the strong power to write-off their current liabilities. Business must
done proper calculation before investing in current assets because current assets not earn
anything for company (Stárová and et.al., 2018).
Functions of liquidity function :
 Current assets should be valued properly and liquidity of a firm is measure by its cash
and cash equivalent , prepaid expenses and other current assets.
 Liquidity is plays a important role to know the status of company.
1.2 Elaborate different sources of finance that are available for small and medium businesses for
growth and expansion purposes.
1. Loans and advances: To raise funds the company need to take loans from financial
institution like bank, private finance institutions. Loans are long-term debts whereas advances
are short-term debts. company needs to put some securities into the bank to take loans (Kamla
and Haque 2019).
 Secured loans : Secured loans is the type of loan in which collateral is required to avail
loan. if borrower is not able to pay the loan on mature time then bank take their securities
as compensation.
 Unsecured loans : No collateral is required against such loans. There types of loans
provide on high interest basis and they are personal loans so they depend on high credit
score of borrower.
2. Bank overdrafts : When a company isn't have enough amount in account to meet day
to day cash requirements then bank give overdraft facility for company. This is a short-term
liability. It shows negative balance in company's bank account. It is also known as firm
overdraft.
 Only current account holders enjoys facility of bank overdrafts.
 Bank overdraft provide on lower interest rate and the return period of such amount is pre-
determined.

3. Credit card facility : Credit card facility is also a important source of finance. Bank
provide a credit card to bank account holder with a pre-set credit limit. Limit is set on the basis
of income of account holder (Kim and Garanina 2022).
 This is a very short-term finance facility. Their is high rate of interest.
 Company is only purchase goods and services through credit card .
4. Crowdfunding : crowdfunding aims to raise funds from large number of people in
small amounts. Company try to build trust among the people for company so they can invest and
enjoy future profits.(Nijam and Jahfer 2018)
 A company can raise fund through issuing shares and debenture in the market.
 Every company raise large number of capital through crowing .
Task 2 :
Compute important ratios for examining performance of company.
Ratios : Ratios helps company to find out its growth and financial health and also help in
future finance forecasting which help in achieving goal.
Figure out the ratios below:
1. Gross profit margin : Gross profit margin ratio is a type of profitability ratio which help
to calculate profit form sale of goods and services after deducting cost of goods sold. A
higher gross profit margin indicates that the company is producing effectively.
Gross profit margin = Gross profit / Net sales *100
Year 2018,
= 3500/10000*100
= 35%
Year 2019,
= 3265/11500*100
= 28.35%
 Panini Ltd earned 28.35% in 2019 from its total sales which is less than the previous year
, it shows that the company is less efficient in year 2019 .
 To improve gross profit ratio company needs to decrease cost of sale in future

2. Operating profit margin : Operating profit margin ration is calculating profit percentage
of company from its operation before deducting the taxes and the interest. It helps to
determine how much profit company realise from their operations.
Operating profit margin : Operating profit / net sales *100
Year 2018,
= 2765 / 10000*100
= 27.65%
Year 2019,
= 2305 / 11500*100
= 20.04%
 Due to decrease in the efficiency the operational profit margin also decreased as
compare to previous year.
 The main reason behind lesser operational profit margin in 2019 is Increase in
operating expense and decrease in gross profit .
3. Return on capital employed : Return on capital employed a profitability ratio figures how
effectively a company using its capital to generate maximum profit. It is the best ratio
used by investor to find out whether a company is appropriate to invest or not.
Return on capital employed = Earning before interest and tax / capital employed
Capital employed = Fixed assets + working capital
Year 2018,
= 2765 / 8755
= 31.58 %
Year 2019,
= 2305 / 10211
= 22.57 %
 Company is not able to meet their profits as compare to previous year due to lesser
productivity.
 If company able to reduce their expenses then it will definitely increase its profits.

4. Current ratio : current ratio is also called as liquidity ratio which measures the company
is able to pay-off their short-term debts which are mature in an year. Current ratio is the
difference between current assets and current liabilities.
Current ratio = Current assets / current liabilities
Year 2018,
= 1175 / 970
= 1.21 : 1
Year 2019,
= 2110 / 512
= 4.12 : 1
 As compare to previous year the current ratio is increased due to purchase of fix assets
and decrease in current liabilities.
 Company is capable to meet their current debts. Company already performing well.
5. Quick ratio : Quick ratio measure the power of a company to pay its short term debts
without selling their inventories .quick ratio is also called as acid-test ratio.
Quick ratio = Quick assets / current liabilities
Quick assets = Current assets – (inventories + prepaid expenses)
Year 2018,
= 825 - 350 / 970
= 0.85:1
Year 2019,
= 1436/ 512
= 2.8:1
 Company well improved their quick ratio in 2019 as comparison to 2018.
 Company is able to meet their short-term liabilities so no improvement needed further.
6. Inventory turnover days : Inventory turnover ratio is that measures the number of time
inventories are consumed in a specific time period . This ratio states that how efficiently
inventories are managed . It is also known as stock turnover ratio.
Inventory turnover ratio = Cost of goods sold / Average inventory
Year 2018,
= 6500 / 350

= 18.57 times
Year 2019,
= 8235 / 674
= 12.22 times
 As per result inventory turnover ratio is decreased in 2019 ,due to increase in cost of
goods sold .
 To improve inventory turnover company needs to reduce their cost of sales and increase
production to increase inventories.
7. Receivable collection period : Receivable collection period is how many number of
days company required to collect payments from their customer. The calculation of ratio
is to divide trade receivable by credit sale, then multiply by 365 days. This ratio is also
called as debtor collection period.
Debtor collection period = (trade receivable / credit sales) * 365
Year 2018,
= 10000 / 760*365
= 27.74 days
Year 2019,
= 11500 /1340* 365
= 42.54 days
 Increase in debtor collection period in 2019 is good sign for company .
 Company is able to collect all payments faster then last year to meet their day to day
requirements.
8. Payable payment period : Creditor payments period is how much time company take to
make payments to their debtors . Creditor payment period is important ratio to know the
liquidity position of company.
Creditor's collection period = (trade payable/cost of sale)*365
Year 2018,
= 6500 / 920*365
= 51.6 days
Year 2019,

= 8235 / 495*365
= 21.94 days
 Company needs higher improvement because ratio of payment period is twice in 2019 as
compare to 2018.
 Company needs to increase collection period so that it is able to meet their long term as
well as short term creditability.
CONCLUSION
From the report prepared above it can be concluded after analysing various areas dealing
with functions such as tax, liquidity and finance which helps to understand how better the
company is able to manage its related operations in economy. It further serves as a guide in the
eye of managers as well as consumers which are linked with the working of business for a longer
period time. It is also helpful in carrying out important and effective decision making process
keeping future aspects in mind. The report can be used for providing important suggestions and
recommendations for better functioning of the business.

REFERENCES
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