Financial Decision Making: Importance of Accounting and Financing Functions, Sources of Finance for Business Expansion

This report discusses the importance of accounting and financing functions in financial decision making, with a focus on Panini Ltd. It also explores various sources of finance for business expansion and provides a computation and interpretation of financial ratios.

Financial Decision
making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Evaluate the importance of Accounting and financing functions................................................1
Sources of finance for expansion of business..............................................................................4
TASK 2............................................................................................................................................6
Compute the ratios.......................................................................................................................6
Interpret the above calculated ratios............................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial decision making assists an organisation to determine the fiscal, monetary and
profitable situation of the company. The analysis of the accounts and finances that the company
adapts are done and on the basis of those financial statements the decisions are made accordingly
(Baker and et.al,2018). In the respective report, the business organisation of Panini Ltd. is
mentioned. Panini Ltd. is a medium sized organisation that has implanted its operational business
in 2016. The business dealings of this company are in the field of supermarkets and
manufactures breads in UK supermarket industry. The report contains explanation of the part of
accounting and finance with respect to the duties and obligations of the company. It also explains
the different sources of finance that cater to the needs of the businesses. The critical evaluation
of financial statements of the business and its ratios with their respective analysis are also
provided.
TASK 1
Evaluate the importance of Accounting and financing functions.
Accounting departments: The accounts department of the company looks after the finance
related matters like recording financial transaction on daily basis, maintaining different types of
accounts and statement for analysis and calculation of profit/loss and comparison. Accounting
department is really important when it comes to any business organisation. There is various
function this department have to perform weather a huge or small enterprise all have to maintain
its accounts related books and maintain them on regular basis.
 Financial accounting: This part includes recording, posting, summarizing and
interpreting the financial aspect of the business entity. The company have to record its
business related transactions like purchasing of raw material, sales, wages payment,
machinery purchasing etc. and there is various standard which are to be met while
journalizing these activities in the books of the account of company. After this this entry
are posted and transferred to trial balance in order to check any mistake occurred or not
(Barr and McClellan, 2018). The final step is to prepare the statements which are called
trading account, P&L account and balance sheet, to know about the closing inventory left
with the company, profit earned and the position of the company respectively by the
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following statements. From the point of the government the financial accounting is a
mandatory requirement for operating business. Hence, accounting is one of the statutory
requirements.
 Management Accounting: Managerial accounting is another name for this function of
accounts department. The financial records of the company which is prepared is
interpreted, analysed and used for decision making. This is only meant for the decision
making committee, they use this accounts to review the performance, controlling,
detecting risk, stability, development and growth of the company, future projections,
surviving the dynamic environment etc. such accounts are not required by law or
mandatary reports that are to be maintained it is solely prepared by the organisation for
their internal matters and combines both financial and non-financial information. Not
required to be audited or investigation by any person or government (Brigham and
Houston, 2021).
There are various types of management accounting namely product costing, cash flow,
inventory analysis, constraints, financial leverage metrics, debtor’s management, budgeting,
trend identification, forecasting. All these reports are collaborated by the analyst in the internal
department of the cooperation to take the right decision and plan making.
 Tax function: Tax is the amount which is charged on a person or an organisation on the
income by the government of the country. It is a compulsory amount which need to be
paid in particular period of time. The amount which is to be paid is calculated by a
described framework conveyed by the authorities. This accounting function is that field
only with tax related matters. Return filling, advance tax payments, payments and other
legal requirement. There are two type of taxes which needs to be accounted direct and
indirect tax one is on the income and other is on goods and services respectively. There
are various protocols which are to be followed and timely submission of these reports are
really important failing to which may lead to legal charges and suits against the entity or
any individual. There are various reliefs and grants which is provided to the tax payer. In
accordance to their income qualification deductions, exemptions, subsidies are given. So
in order to facilitate the process of tax payment such accounting is used (Cordero, Gil-
Izquierdo and Pedraja-Chaparro, 2022).
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 Auditing function: This is one of the controlling function. Auditing is basically checking
the records of the company with the physical evidence. For example: Cross checking the
inventory present in the organisation with the inventory shown in the books of account of
the company (Demina and Dombrovskaya, 2019).
The audit department of the organisation is in charge of the evaluation, control and risk
management of the operations taking place. The report generated by this examination is used for
finding out the real position of the organisation, any malfunction or misinterpretation of the
statements of the business entity and communicate the affairs to the internal committee or the
board of director. Sometimes auditing is required by law for certain company where public
interest is indulged.
Finance department: As the name suggests finance department of the business concern is the
one that deal with the assets and liabilities, cash inflows outflows related to the concern, trade
receivable and payables, salaries, stock, investments, trade and other occupation tasks. They plan
and manages the entities monetary responsibilities and looks after the profit and loss occurring
and effect on the concern.
 Investing function: An investment is process that is done by an individual or an
organisation to channelize its surplus money into extra income. Main objective of
investments is wealth maximization. An organisation has its own short term and long
term goals in order to meet this objective investment plays a vital role. For a cooperation
a manger with the help of analyst and researchers put the surplus fund into the market for
buying different kind of assets, so as to earn extra profit which help in achieving
organisational motives. There is various option where investment can take place such as
stock market, real-estate, mutual funds, money market instrument, purchasing other
companies etc. there are various factors which should be kept in mind while investing
like, according to the financial need, time period for which it is to be done, risk bearing
capability, objective of investment.
 Financing function: Every organisation in order to expand, grow and to diversify itself
have to take money from different options available in the market. This function helps in
decision making which resources among the different option available in the market is to
be used for funding (Gautam and Holani, 2019). Such finance makes users that needs are
fulfilled at a minimum cost, safety funds are acquired by the company, the decision is not
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biased, the sourced fund is efficiently and effectively used. Importance of this process is
to identify the need, then source of fund, comparing different option available,
investment.
 Dividend function: The distribution of surplus fund among the shareholder of the
company is known as dividend distribution. Such decisions are in the hand of board of
directors and internal committee. This extra income distribution is basically done by
listed company. Distribution is dependent upon the shareholding of the shareholder,
based on their number of holding dividend is provided (Kawugana and Faruna, 2019).
Dividend distribution builds trust in the company. A business entity might choose to not
to distribute this surplus rather invest it. Or can keep it as reserve for uncertainty that
might occur in future. Hence choosing what to do among the options available is the
function.
 Working capital function: It is that sum of fund which is required by business entity to
meet its everyday operation requirements and current liabilities. For example, paying
salaries, payment to creditors, taxes and interest payments and other everyday liabilities
which working capital includes. This fund is really important for smooth flow of the
operation in the business entity. Total current assets deducted from current liability in
order to get this fund.
Sources of finance for expansion of business.
Sources of financial funding are needed for various purposes that include company growth,
expansions or financing business assets or production requirements. There exists a number of
reasons and requirements for which a company needs financing. The need is also categorised in
two ways, short term financial needs and long term financial needs. The requirements and
selection of the finances also depends upon the needs and future planning of the business entity.
The types of finances available are various depending upon what the business aims for.
The crucial sources for financial the funding requirements are:
 Debt capital: It refers to the finance which is acquired by the company to b paid at a later
point of time including both the principal amount and the interest due. This is termed as
debt financing. It can be obtained either from banks or various private institutions that
lend these debts and provide their funding. Debt financing can also be done by issuing
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debt to public (Metawa and et.al 2018). The various sources in debt financing are
debentures, mortgages, corporate bonds. Companies take the debt issue and pay securities
against them to those taking up the securities. Debt financing is done in a restricted time
scenario as it requires the company to payback the amount to public from whom the
financing was done. The benefit of this method of financing is that it does not leads to
loss in the ownership of the company hence is a good source from the company point of
view.
 Equity capital: Financing the company requirements with the help of equity capital is a
form of financing that invites the public to take ownership of company shares against the
amount that they pay. People investing in the company then become the shareholders of
the company and are obliged to the return payment for those shares. This approach leads
to dilution of ownership of company shares as for the amount it receives, the shares are
distributed. This source unlike debt financing does not requires the interest payments to
be made hence is better as compared to debts in this term (Modestino, Sederberg and
Tuller, 2019).
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TASK 2
Compute the ratios.
Interpret the above calculated ratios.
 Gross Profit Margin: This is a monetary ratio that shows how efficiently a company can
accomplish its mission with accessible assets in a desirable manner within a given time
frame. In 2018, Panini's net gross income was 35%, but in 2019 it was 28.39%, which is
not a huge difference from the previous year. This suggests that the company is less
productive in carrying out business activities. In this way, the company should actually
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assess all of its previous records and communications and identify areas that lead to job
gaps and failures. In addition, it is necessary to control the consumption of the company
and try to use the restricted assets efficiently.
 Operating Profit Margin: This monetary ratio helps to reflect the level of benefits created
through the organization's business activities, either the productivity or execution ratio.
This net income is also known as the EBIT (earnings before interest and tax) margin. In
2019, organizations should also cut job costs as they reduce the organization's profits.
Careful use of funds from restricted assets is also essential so that associations can take
advantage of accessible assets.
 ROCE: It is a percentage showing a company's productive capacity actually using its
capital. ROCE is calculated by separating earnings before interest and assessments
(EBIT) from capital employed. The reduction in the ratio here indicates that Panini Ltd is
generating more unfortunate profits from its capital contributions and will therefore not
be able to meet the previous year's earnings figures in 2019.
 Current ratio: The ongoing ratio also provides data on issues related to the general
obligations of the organization. The group's temporary commitments are down this year
compared to 2018, a sign that Panini has maintained enormous liquidity in the business
world.
 Quick ratio: It looks at an organization's monetary balance and the value of its current
resources to determine its short-term liquidity. The quick ratio determines whether an
organization has enough money to deal with its nearby debt after exchanging its liquid
liquidity—the higher the ratio, the luckier the organization is in terms of liquidity. If the
ratio is low, organizations should approach vigilantly, and a subsequent stage may be to
assess how and how quickly new guesses can be obtained.
 Inventory Turnover Days: It estimates an organization's ability to monitor access to
inventory from sellers and to keep merchandise from capacity to the rest of the inventory
organization. Inventory turnover is a ratio that shows how often an organization's
inventory is sold and replaced in a given time span. In 2019, stock turnover days
maintained a nice balance among their stocks, which is useful for companies to complete
swaps related to the previous year.
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 Debtor's Collection Period: Accounts receivable alludes to those days when the business
receives instalments from customers. A larger number of debt holders would indicate that
the organization should inject more support for its neglected receivables assets, while a
lower classification date would indicate that their business has less funds due, so it can be
done through different Ways to Get More Funding. In 2019, the Panini instalment period
was 42.54 days, significantly more than the previous year, suggesting that the
association's revenue set aside some profit in the organization's records.
 Payable Payments Period: The standard time it takes for an organization to settle its
claims with an exchange-dealer is estimated by a creditor liability. In this way, it can
provide information on instalment propensity and whether a business uses open credit
institutions at all. In 2018, compared to 2019, organizations took 29.66 more days to meet
their obligations, a decent sign of the company's capabilities.
CONCLUSION
The reports involved were constructed, most likely because Panini Limited has a wide
variety of resources available for the assets to carry out its activities. The report discusses
bookkeeping and currency offices and their critical work in business activities to improve yields
and control currency exchange. Here, with the help of Panini's currency records, determine the
currency ratio to investigate the company's performance in 2018 and 2019. The report suggested
that the company was more proficient in 2018, but maintained good liquidity and inventory in
2019, with a correlation to the previous year. In this way, after distinguishing shortcomings and
circular areas, careful steps are proposed to improve the company's productive work and benefit
magnification.
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REFERENCES
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