Financial Decision Making: Importance and Role of Accounting and Finance in ALPHA Ltd

This report discusses the importance and role of accounting and finance in ALPHA Ltd for financial decision making. It also includes the calculation of ratios to evaluate the performance of the company. The report suggests that the company needs to increase its sales and revenue to improve its profitability and efficiency.

Financial Decision
Making

TABLE OF CONTENT
TASK 1............................................................................................................................................3
Functions and role of Accounting and finance............................................................................3
TASK 2 ...........................................................................................................................................8
Calculating the ratios for ALPHA Ltd.........................................................................................8
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Financial decision-making is very important for any organization as it is totally relates to
the utilization of money. With the proper decision-making process related to finance the business
can easily know about its health whether they are able to make more investment in future or not.
The present report will be based on financial decision-making of company named as ALPHA
limited which is a manufacturing firm situated in UK. The company was established in the year
1954 provides quality services to its customers. Due to company's efforts with the support of
accounts and finance team has achieved success. Now , the organization is planning to expand its
business activities and operations to different location of UK in the upcoming years. The present
study will provide detailed information about importance and role of finance and accounting in
the company. Furthermore, the study is going to calculate the ratios and will comment on the
performance of the firm.
TASK 1
Functions and role of Accounting and finance
Accounting and finance department plays a vital role for the success of business as it
helps the company to manage financial activities. The major function of accounting department
is to concentrate and keep track on daily activities related to financial transactions. By managing
financial activities in the books of accounts, ALPHA Ltd is able to know about cash flows. The
role of accounting is to know about financial information in the company and provide it to
stakeholders by maintaining it regular basis. On the basis of that they can easily make informed
decisions which can be beneficial for the success of the firm (Young, Herath and McCoy, 2018).
Another major function of accounting is to deal with financial issues and keep monitoring
transactions done in the company.
Legal compliance -
The accounting and finance department must ensure that they are following all the legal
compliance which are applicable to the business and also keep checking all the rules and
regulations made by government. ALPHA Ltd make sure that the business is following policies
and standards related to employee wages, salaries, financial reporting and taxation. By doing so,
they are able to save the business from any kind of uncertainty and legal penalties.
Budgeting

As we all know that budgeting is very important for the company as with the help of
budget report the financial evaluation of plans can be done properly. The major function of
accounting and finance is keep track on budget report so that informed decision can be made.
Creating value
In the company. The finance director has the biggest role and responsibility which is to
create value for the success of business. With the help of methods such as increasing debt
collection, decreasing risks related to financial transactions and better cash management. While
on the other side, Chaney, Gunn and Coleman Jeter, (2020) commented that the major drawback
of finance accounting is the accounting does not take into consideration about the aspects such as
non financial, economic situation, rules made by government and many more.
Maintain records by using digital methods-
The accounting department of the ALPHA Ltd is to maintain and update digital
accounting systems which helps the company to have detailed information about financial data.
By managing digital records firm is able to store financial transactions which helps financial and
accounting department to make decisions.
Keeping financial resources up to date
The another major role of the accounting department is to keep financial resources up to
date and keep proper track on strengths and areas of improvement of the company (Roles and
responsibilities of a finance department, 2022). By referring to this, the accounting and finance
department can easily provide solutions and find out ways and strategies to concur the
weaknesses and try best to enhance strengths.
Payroll and keep monitoring time offs of staff members
Managing payroll is the most important function of the accounting department which
helps the company to motivate employees so that they can work effectively towards
organizational goals. ALPHA Ltd keep motivational level of the employees high by paying their
earnings on time. So, accounting and finance department of the firm make sure that earnings of
staff members are up to date.
Assess taxes
The another role of accounting department is to assess taxes of employees and make sure
that they stay compliant by following the rules and regulations related to the latest tax. Also, they

make payment of government taxes on the behalf of the firm which helps them to keep track on
expenditure and also ensure that the firm does not miss any deadline related to tax.
Accounts payable
The major role of the accounting department is to maintain great relationship with
vendors so that they can run business smoothly with the support of each other. The accounting
department of ALPHA Ltd make sure that every vendor gets paid on time which does not create
any conflict between them.
Accounts receivable
The another function of accounting department is to keep track on revenue and money
that comes in. managing receivable can is important for the company's financial health so
accounting department keep track on invoices and create one. They keep contacting customers
on regular basis and make sure that all customers pay those invoices on time in order to avoid
any uncertainty . By sending reminders to customers the accounting department ensure that they
cannot miss deadlines. Nowadays, companies are applying for invoice financing so that they can
easily provide cash flow details for urgent requirement while waiting for clients to pay their due
amount.
Inventory cost management
As we all know that inventory means stock or number of goods in total that a business
owns in its building or warehouse. The main role of the accounting department is to keep proper
track on inventories and always make sure about managing excess stock (Flayyih, Mohammed
and Talab, 2019). By doing so, ALPHA Ltd is able to lower inventory costs and control
unnecessary expenditure. The finance department and accounting department make sure that
inventory management does not affect the customer satisfaction and ensure that stocks/goods are
available on time for customers. By doing so, they can easily increase the performance of the
firm and profit margins of the business. With the proper management of inventory the firm is
able to increase efficiency and productivity and also decrease risk of overselling.
Determination of loss/profit
when the company and its accounting department keep proper record of all the business
activities, expenditure, revenues and financial transactions they ensure that all the details are
well-known so that they can make informed decisions.
Financial controls

The important role of accounting and finance is to make sure that all the process and
procedure are set up in a proper manner which can manage the accounting process without any
mistakes and errors (Roles and responsibilities of an accounting department, 2022). The
accounting department of ALPHA Ltd is to prevent theft and fraud in the company. In order to
save the company from huge losses the accounting and finance department make sure to use best
practices. With the help of reconciliation the company accounting department is able to maintain
financial controls. While on the other side, de Villiers and Hsiao, (2018) critically evaluated that
it does not offer detailed data for each and every department and business operations in separate
column which can create issues sometimes if not refereed correctly.
Preparing financial reports
This is the most basic and essential role of accounting and finance which can be utilized
to forecast on the financial health of the company and keep track on budgeting of the business
(Venter, Gordon and Street, 2018). By managing and preparing financial reports the accounting
department can make proper decision which can be beneficial for effective communication
between investors and company. If the company maintain proper reporting and financial
statements such as cash flow statements, income statement and balance sheet they can easily
present it to investors, banks, government agencies and other professionals which plays an
important role in the business growth.
Finance manager of ALPHA Ltd is responsible for making decisions related to
investment and develop long tern strategies for the betterment of the firm success. The major role
of finance department is to direct the financial operations on daily basis for the betterment of the
business position.
Assists with the bookkeeping process
The financial department of the company is responsible for managing bookkeeping
process which can help to determine the financial transactions. By doing so, finance manager can
interpret and analyse financial activities on daily basis and keep assisting the department
members.
Provides accurate reporting
By managing financial reporting, the company is able to provide detailed information to
stockholders. By referring to those reports, they make decisions whether to buy or not. They also
determine the right time to sell on the basis of accurate data. Akimova and et.al., (2019)

Argues that The major drawback of the financial accounting is it provides only previous data and
on the basis of that they company can make effective future planning.
Accounting department
financial accounting function – the major function of accounting department of ALPHA
Ltd is to track and keep analysing the financial health and transactions of the business. Han and
et.al., (2018 )Argues that does not provide clear idea about operating efficiency whenever the
prices are high.
Management accounting function- the another function of accounting department is to
create value for inventory management and also focus on stock valuation. Cockcroft and Russell,
(2018 )Criticizes that it requires a deep understanding and high level of knowledge, because a
lack of knowledge can create issues while providing data.
Tax accounting function – The accounting department of ALPHA Ltd is plays an
important function such as finding solutions related to tax and any find out errors and mistakes
which can create complicated tax issues.
finance department
Dividend function- The major and important function of the finance department is to
make decisions related to dividend. In this the finance manage make decisions on retaining the
earnings profit (Davies and Tikoo, 2019). The finance manager of ALPHA LTD must decide
optimum policy related to dividend which can easily increase the market value of the company.
Working capital function- By managing the working capital the company is able to
manage its cash flow easily. By doing so, ALPHA Ltd is able to meet its short term operating
costs. In addition to this, the company can ensure that they are achieving the short term debt
obligations which is beneficial for their success.
Investment function- The another major function of the finance department is to manage
investment for the betterment of the firm. By doing so, the company is able to increase the level
of income and production effectively. This can lead to proper utilization of funds which is
essential for efficient business operations. Cockcroft and Russell, (2018 )Argues that it is a time-
consuming process which takes a lot of efforts and expertise.

TASK 2
Calculating the ratios for ALPHA Ltd.
Particulars formula 2017 31 Dec 31/12/18
Return on capital employed EBIT/capital employed
Earning before interest and tax 675 750
Capital employed (Total asset -
current liabilities) 1913 2925
0.35 0.26
Net profit margin Net income/net sales *100
Net income 2400 3000
Cost of sales 1350 2400
44% 20%
Current ratio
Current assets/ current
liabilities
Current assets 757.5 1035
Current liabilities 322.5 1110
2.35 0.93
Average receivable days
Accounts
receivable/revenue*365 days
receivable 450 600
revenue 2400 3000
68.44 73
68 73
Average payable days
Accounts payable/credit
purchase* 365 days
payable 285 1050

Credit purchase 1350 2400
77.06 159.69
77 160
1. Return on capital employed
In order to calculate return on capital employed the company needs to divide net
operating profit by capital employed. By calculating this ratio the company is able to understand
whether they are generating profits from its capital or not (Kadim, A., Sunardi and Husain,
2020). With the help of this ratio, the company is able to make good profitability which helps
them to enhance capital efficiency. By calculating this ratio the investors and managers of the
firm can make investment decisions. By evaluating the above mentioned ratio analysis it has
been noted that in the year 2017 ROCE was 0.35 which is more than 0.26 in the year 2018. Due
to fall in ROCE the company needs to increase its sales by adopting more effective strategies
such as decreasing costs. The firm needs to keep track and monitor the areas that may be racking
up business and creates problem while generating for operational efficiency. It has been noted
that the debt and liabilities needs to be control and must be improved on time.
2. Net profit margin
By calculating net profit margins, the investors can make informed decisions whether to
make more investment in the company or not. It helps them to assess if the firm is able to
generate enough profitability from its sales and whether to continue invest in the company.
Factors are considered to most efficient which are responsible for the business growth and also
analyse the business operations effectively. By evaluating the above mentioned ratio analysis of
net profit margin it has been said that ALPHA Ltd is able to effectively control its costs in both
the year which provides efficient management to company. It has fallen in the year 2018 as
compared to year 2017. In order to improve its net profit firm needs to increase its revenue.
However firm is focusing on its selling and increasing prices of products or services. It is
advisable to reduce material cost, labor costs and operating cots then only the firm will be able to
increase its profitability. By increasing the profit margin, ALPHA Ltd is able to boost staff
productivity which can be beneficial for the firm success in the future.

3. Current ratio
with the help of current ratio calculation the company's liquidity can be known. By
calculating current ratio ALPHA Ltd is able to know about their ability to pay short term
obligations (Ningsih and Sari, 2019). They can know about whether they are able to make
payment in the future or not. By evaluating the current calculation it has been noted that
company's overall financial health is stable. By evaluating the above mentioned current ratio
calculation of the company ALPHA Ltd it has been said that In the year 2017 the current ratio of
the company was acceptable and healthy while in the year 2018 the current ratio was 0.93 which
falls significantly and need more attention. The firm needs to focus on its current ratio by
reducing the personal draw on the business so that any uncertainty can be avoided on time. The
firm needs to sell its unnecessary capital which is of no use and that are not generating any kind
of profit or return to the business success.
4. Average receivable days
with the help of this ratio analysis, the company can find out how much time a customer
will take to pay the firm for sales on credit. Nowadays, companies are sending a gentle reminder
to its customer for the payment so that they can avoid any uncertainty or legal penalties in the
future (Zorn, and et.al. 2018). By doing so, companies like ALPHA Ltd is able to resolve finance
related issues as early as possible. From the calculation of average receivable days of the
company ALPHA Ltd it has been evaluated that the company must focus on its receivable days
as it shows the management team is taking more time to collect and convert its accounts
receivable into cash. In the year the company takes 73 days to receive payment from customer
which indicates the firm is not focusing on its collection processes which must needs to taken
into consideration. The firm must focus on providing discounts for early payments which can
enhance and motivate customers to pay on time. They must shorten payment terms so that
customer can build strong relationship with company and does not delay any payment. ALPHA
Ltd needs to call customers on time for the payment and provide regular reminder in advance so
that financially weaker clients must pay money.

5. Average payable days
This is the most important ratio analysis a company must do as it provide detailed
information about the average number of days a company takes to pay its suppliers. By
calculating this ratio ALPHA Ltd is able to properly indicate whether they are able to meet their
financial goals or not. They also can find out whether they can meet their obligations towards
their suppliers. By doing so, they can avoid any uncertainty in the near future which can be
harmful for the reputation of the firm and its management (Khosa and et.al., 2020). If the
company have enough days to pay it can be beneficial for the performance. From the calculation
of average payable days of the company ALPHA Ltd it has been evaluated that in the year 2018
accounts payable is higher as compared to year 2017. It shows that company has extra cash on
hand that could be utilized in the future for short term investments. However, the firm must focus
on its accounts payable days so that they have more time to make payment to their creditors. By
doing so, the firm is able to manage its working capital investment and avoid any uncertainty in
the future.
CONCLUSION
To conclude, from the above report it has been concluded that accounting and finance
plays an vital role in the company's success. The major role of these departments is to keep
record, summarize and analyse the financial activities and transactions in the company. With the
help of these reports the company owners and managers can make important decisions. This
financial statement helps the investors to evaluate the financial health and performance of the
firm. They make informed decisions whether to continue with the business or not. By evaluating
the report it has been summarized that the firm's financial performance has been analysed with
the support of financial ratios. Plus, By calculating the whole ratios' calculation, it has been noted
that firm needs to improve its inventory management and also decrease its cost of goods which
can be beneficial for the success of business. Plus, it is also advised that the company needs to
reduce its unnecessary expenditure and increase collection process to meet its organizational
goals.

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Online
Roles and responsibilities of a finance department. 2022. [online] available through:
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Roles and responsibilities of an accounting department. 2022. [online] available through:
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key functions of the finance department in a company. 2022. [online] available through:
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