Financial Decision Making

FINANCIAL
DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Task 1...............................................................................................................................................3
Function of Finance and Accounts..............................................................................................3
Classification of accounting functions.........................................................................................4
Parts of finance function..............................................................................................................5
Common benefits of Accounting and Finance function..............................................................6
Task 2...............................................................................................................................................7
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The report is on Financial Decision Making. Financial decision making involves taking decisions
in accordance with financial analysis and accounts. In Task 1, organization taken is Tesco. Tesco
is a retail organization based in UK offering a diversified range of products. Importance of
finance and accounting function has been talked about here. In Task 2, organization is Alpha
Limited which is a manufacturing firm started in 1954 based in UK. Ratio analysis has been
done of the company and interpretation of financial performance done.
Task 1
Function of Finance and Accounts
Accounts maintains track of how much money comes in and out of the company, as the name
implies. It generates financial statements, such as general ledgers, statement of income and
financial position etc. to track transactions of finance over a time period, like quarterly or
annually. These financials are used for internal evaluation by organisation executives and
investors who seek to participate in organisation (Rikhardsson and Yigitbasioglu, 2018).
The department of finance is in charge of managing cash by the use of capital, purchasing assets,
managing fund within the company's other departments, and preparing for future asset
acquisitions. It is in charge of managing the company's equity and debt balances in order to
ensure the company's solvency. In order to make better project investments, it uses a range of
approaches to analyse cash flows and determine rates of return.
In commerce, there are various different sorts of industries, and accounting for them can differ in
some circumstances. As a Retail company, Tesco has developed its own approach of examining
accounting systems that is adapted to the needs of the industry.
Classification of accounting functions
The Audit function's role
A corporation must obey specific rules and regulations when conducting business. To avoid
fines, Tesco's audit department ensures that legislative standards are fulfilled. Businesses use
internal auditors to examine operational records and spot error that has slipped in. The executive
are given instructions to remedy the problems before to the audit externally. They check also

financial statements for accuracy and examine the firm's objectives to see if any policy
adjustments are required to help the company reach its objectives.
Taxation function
Retail companies, like Tesco, use a variety of reporting of tax systems. Profit and expenses for
completed contract are not given for report till the job is finished, tax deferral allowing until the
project is concluded. As it records expenses and income according to year generated, percentage
of completion is a useful technique to deal with tax volatility. Businesses may also delay taxes
with the agreement of the Internal Revenue Service (Rikhardsson and Yigitbasioglu, 2018).
Job costing
As a Retail company, Tesco holds contracts for a wide range of projects and jobs. Because they
all have separate expenses and expenditures, accounting for them all at once might be tough.
Employment costing eliminates any ambiguity by allowing accountability for both indirect and
direct expenditures and revenue for every position separately. The corporation has been able to
cover all operating expenditures and calculate project profitability thanks to this. Thanks to this
well-organized system, internal accountants can swiftly evaluate financial accounts and prepare
tax returns.
Cash basis
Cash basis accounting has benefited Tesco since it permits them to disclose revenues and
expenses occurring in contract, making simple the record-keeping procedure. However, if the
contract is for more than one year, the costs must be spread out evenly throughout the years
(Appelbaum and et.al., 2017).
Percentage of tasks completed
Due to the varying lengths of contracts, matching ultimate income and expenditures might be
difficult. This is where the Percentage of Completion approach comes in, which assists the
company in overcoming this stumbling block. An estimate of project expenses is made, and then
the expense which in actual incurred in completing the job are taken and split by former to
calculate the benefit or loss.

This might help to figure out if a project is on schedule. If there is a benefit, the total gross profit
is calculated by multiplying it by the percent of project that is yet to complete. The results have
been consistent, with little variance (Grashuis and Su, 2019).
Financing function
As a business creates money at regular base, it's critical to appropriately allocate cash to area like
payments outstanding, invoices, raw material and equipment finance, financing of machinery,
payment to labour, and supplier, as well as delegation of funds to other elements of the company.
By the support of good software of finance operations, Tesco can allocate funds to the right areas
and keep accurate records. Financials of previous year are referered to match monies authorised
in growth or decrease mode.
Parts of finance function
Dividends' Importance
On an annual basis, Tesco is mandated for paying a percentage of the earnings to the investors.
The amount to be given is calculated by the managers based on their estimate of the investor's
holding. Dividend income refers to income that is subtracted from gross profit. Because there are
so many investors, calculations of finance are done using technology to ensure that the funds are
distributed effectively (Appelbaum and et.al., 2017).
The function of investment
Tesco's managers decide how to increase funds for the organisation's operations. The corporation
issuance of shares, IPOs and market debentures to raise funds for its operations. Tesco's
executives ensure that a balance exists between debt and equity, as depending too heavily on
debt could lead to financial concerns. Company's bank loan, credit card issuance by a group, are
examples of debt.
Working Capital as a key component of business.

Tesco's working capital is managed in such a way that there are no surplus funds or cash
shortages. Resources are being not utilised with as efficiency as they could be for everyday
operation because of excess funds. If resources are utilised to their greatest capacity, profits can
be made. Lower funds imply that the organisation is not able to manage capital for everyday
operations and has limited liquidity.
a) Profit and loss statement: The statement summarises the earnings from cost of products
sold, as well as fixed and variable and overhead. The net loss or profit, whether quarterly
or annually, demonstrates the company's long-term viability (Arnaboldi, Busco and
Cuganesan, 2017).
b) Balance Sheet: It depicts the company's liabilities and assets. It also examines current
liabilities and assets, that allows investor to analyse the company's current liquidity and
market solvency. It can also be used to calculate net working capital, which is required to
run a business.
c) Ledgers: Also called as general ledgers, ledgers record the company's debit and credit
transactions. Debit records all inbound transactions, while credit records all outward
transactions for the company.
Common benefits of Accounting and Finance function
Obeying the law: Tesco’s accounting employees adhere to the accounting regulations that they
are expected to follow in order to achieve large profits in business. They can’t compute methods
of payment, tax and things that are vital for the business to run and have an accurate evaluation
of the work without having good accounting in the firm. As a result, the corporation is required
to have good finance and accounting function in the organisation, for which there is need to
follow the legislation and ensure that the things that are vital for them in having proper
estimating are in place. With the proper law in place, businesses may simply pay the taxes that
their firms are needed to pay, and this can also play an important part and fulfil the
responsibilities that the organisation is expected to fulfil in order to work properly (Woo, Kwon
and Yuen, 2021).
Developing a company strategy: Having a solid accounting and finance function allows an
organisation to be aware of the high influence on their business while also allowing for easy
expansion. They also play a vital role in creating a proper company strategy, through which