Financial Decision Making for Panini Ltd

The report discusses the accounting and finance department of Panini Ltd and the importance of accounting and finance functions. It also covers various sources of finance available to small and medium firms. The report further compares the financial ratios of Panini Ltd over two years and provides reasons for changes in the ratios. The subject is Financial Decision Making and the course code is not mentioned. The college/university is not mentioned.

Financial
Management

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Critically evaluate the importance of Accounting and Finance function..............................3
1.2 Determine various Sources of Finance available to small and medium firm ......................5
TASK 2............................................................................................................................................7
Calculation of Panini Limited financial Ratio:...........................................................................7
Compare the performance of the financial Ratios and give the reasons for changes in the ratio
over the two year:........................................................................................................................9
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The report discuss about the accounting and finance department of Panini Ltd, but from
the very first it describe the meaning of accounting and finance divisions, it is the centre part of
any company which are responsible for ensuring the productive financial management and
financial powers needed to leads all firm activities. Along with this it also describe some
obligations and objectives within a business firm (Atmadja., 2018). There are some duties and
obligations of accounting department which involves, accounts receivable, financial reporting
and accounts payable apart from this the duties and responsibility of finance department which
includes, financial plan, examine and fund increasing and bookkeeping. Along with this in other
part it describe about some source of finance such as internal and external source of finance.
Afterwards in other activity it measure the various kinds of ratios which shows the financial
condition of the Panini Ltd. In last instance they interpret the ratios on the basis of their two
years calculation.
TASK 1
1.1 Critically evaluate the importance of Accounting and Finance function
Accounting Department:
Fiscal accounting function: The function which identify or measure the business financial
information are known as fiscal or financial accounting function. It contain the company Panini
Ltd. day to day transaction recording such as expenses and income in a specified framework such
as profit and loss statements, cash budget and balance sheet (Shim., 2022). After preparing
financial statements, the company know about the financial position of a business at the end of
the financial year. These statements also helpful in making future decisions in terms of business
expenditure and incomes. The functions of accounting include some factors are as follows:
 Organized Recording: The first and most important factors of every organization to
make organized recording of fiscal transaction in a books of accounts. The Panini Ltd
also prepare a Organized or systematic records in a standard framework by maintaining
the rules and regulation of government.
 Examine and summarising: After preparing financial transaction in a organized way,
the department of accounts of company Panini Ltd take another step which are examine

and summarising the prepared financial statement. This step helps to show the company
financial position in the market.
 Convey results: It is necessary for the company Panini Ltd accounts department to
convey the financial results to all its parties. It include the parties such as investors,
shareholders, money lenders, etc.
 Meet legal requirements: After following all these steps, financial accounting has to
meet legal requirement like audit. Panini Ltd (Alkaabi., 2019). audit activity is taken
place by the external auditor to analyse the company financial statement. It is also
helpful in paying tax liabilities of the company according to the country law.
Management Accounting: This function of accounting helps in future management by
analysing the performance of department. It shows how much effectively and efficiently done the
work in an organization. These features include two factors are as follows:
 keep a record of daily transactions: This is the factor which specify the company day to
day transaction history at the end of the financial year. The Panini Limited is also helpful
by considering this function because it gives an idea of generating sales and income of
the next financial year. It is also give information about how to improve the cost incurred
during a given period of time.
 Strategic decision making: By implementing this function company Panini Limited is
helpful in better decision making in future circumstances. If the plan of action of a
business increases the cost and profit of the company then it shows the result of company
growth and expansion in a business economy.
Tax Function: It is the function which is done by every organization as per the guidelines of
government. It is also says, that tax payment is a activity which have to perform and it is
controlled by the finance department of the company (Rianto., 2019). The main target of every
company department of finance is to make a positive relationship with government tax
department.
Auditing Function: The company perform the internal auditing task to know the company
current assets position that gives the idea of company monetary position in the market. Due to
this company is helpful in controlling the working capital for generating more profit in respect of
amount of funds.
Finance Department:

Investment Functions: It is the function of finance which makes a relationship between two
factors, amount of investment made in a company and rate of interest. The investment function
shows a inverse relationship between rate of interest and investment (Zada., 2021). It is an
important function of finance to assign capital in all those long run assets that helps the company
in generating more profits. This function represent in the form of economic curve which
determine the shifting of curve at the end of the financial year.
Financing Functions: The main focus of every organization is to control and manage the
business finance for future decision making. It's play a important part in the company growth and
development. It is taken place by utilizing the funds of the company in a effective and efficient
manner.
Dividend Function: This function perform the activity on behalf of company and shareholder
both to make payment or receive the profit respectively. Most of the organizations take money
from those people who are interested to invest in its venture and then at the end of the financial
year company distribute the amount of profit to its shareholder in the from of dividend.
Working Capital Function: Working capital is a amount of money which is used by the
company to cover its short term obligation during a given period of time (Jeong 2019). The
calculation of working capital is taken place by subtracting the current liabilities from current
assets. The working capital contain four elements are as follows:
Cash and cash equivalents: It is a liquidity component which shows the company monetary
position. Every organization need to consume more liquidity assets for covering short term
obligation and company growth.
accounts receivable: Account receivable include open invoices, credit outstanding and accrued
interest.
Inventory: Goods which are stored by the company for future sales and it is also refers as short
term assets.
Account payables It is outstanding amount that are not paid in a given financial year.
1.2 Determine various Sources of Finance available to small and medium firm
Sources of finance is a activity which is perform the company by raising funds from
various sources. All the sources contain special characteristics, that need to be understood
properly so that the top most present source of raising fund can be determine. Every organization

perform the activity differently that why no specific fund is consider for all the business. It is all
depend upon the nature, purpose, situation and risk of the company.
There are following types of sources of finance are as follows:
1. Retained Earnings: It is the source of finance which deals in internal financing, self
financing or 'ploughing back of profits' (Ropero-Miller., 2019). Generally company doest
not distribute its whole earning between the shareholders and investors as a dividends
because a part of profit save by the company as fixed deposit for use in the future and
also play a role of company growth and expansion.
Benefits of Retained Earnings:
 It is source of funds which always available to an organization.
 This fund does not contain any type of direct cost.
 Retained funds gives high degree of freedom and elasticity in business operations.
 It also helpful in increasing the strength of the company to cover losses.
 Due to this cost of equity share are also increases in the business market.
2. Trade Credit: This source of finance is useful at the time of credit purchase of goods
and services. In other words, it is also refers as purchase of supplies without giving
immediate payment. From the books of buyers it can be recorded as sundry creditors or
accounts payables. It is generally used by the company as a short term financing or it is
also depend on some factors such as purchasing ability of the firm, seller financial
position, total volume of purchase and number of available competitors in the market.
Following are some benefits of trade credit:
 It is a source of finance which available every time in an organization.
 It increases and advertises the sales of the company which improve the company position
in the market market place.
 The charges are free on the company assets at the time of proving funds.
3. Commercial Banks: Commercial banks play a important role in sources of funds
because they provide funds for all the different purposes and different time periods. It
gives funds in the form of loans such as cash credit, overdraft, discounting of bills and
many more other ways (Naranjee., 2019). The interest charged by the bank is depend on
the nature and size of the firm and the interest level in the present economy. Banks are
not fixed or permanent source of funds but at present time bank started new techniques

such as loan. Loans are short term and long term both depend upon the necessity of the
customer or client (Li., 2020). To allocate the loans bank kept some security of assets
from the loan borrower.
Advantages of commercial banks:
 Bank provide funds at any time when client or customer needed.
 It is a easy source of funds.
 It is flexible in borrower point of view because amount can be change according to
business needs and also helpful in repayment when funds are not needed (Barroy, 2020).
TASK 2
Calculation of Panini Limited financial Ratio:
1. Gross profit margin = (total revenue – Cost of goods sold) / Total revenue * 100
Year 2018
Gross profit margin = (3500 / 10000) *100
= 35%
Year 2019,
Gross profit margin = (3265 / 11500) *100
= 28.39%
2. Operating Margin Profit = (Operating profit / Net Sales) * 100
Year 2018,
= 2765 / 10000 *100
= 27.65 %
Year 2019
= 2305 / 11500 *100
= 20.04
3. Return on capital employed = Earnings before interest and tax / (Total Assets – Total
Current Liabilities)
Year 2018,
= 2765 / 8755
= 31.58 %
Year 2019,

=2305 / 10211
= 22.57 %
4. Current ratio = Current Assets / Current Liabilities
Year 2018,
= 1175 / 970
= 1.21:1
Year 2019,
= 2110 / 512
= 4.12:1
5. Quick ratio = (Current Assets – Inventories) / Current Liabilities
Year 2018,
= 1175 – 350 / 970
= 0.85:1
Year 2019,
= 2110 – 674 / 512
= 2.8:1
6. Inventory turnover days = 365 / Inventory Turnover Ratio
Year 2018,
= 6500 / 512
= 12.6 times
Year 2019,
= 8235 / 512
= 16.08 times
7. Debtor’s collection period = (Trade receivable / credit sales) * 365
Year 2018,
= 365 / 10000 / 760
= 27.74 days
Year 2019,
= 365 / 11500 / 1340
= 42.54 days
8. Creditor’s collection period = (Trade Payables / Credit purchase) * 365

Year 2018,
= 365 / 6500 / 920
= 51.6 days
Year 2019,
= 365 / 8235 / 495
= 21.94 days
Compare the performance of the financial Ratios and give the reasons for changes in the ratio
over the two year:
1. Gross profit margin: The gross profit margin of the Panini limited in the year 2018 and
2019 are 35% and 28.39% respectively which shows the gross profit margin is decreasing
in the year 2019 as 6.61% (Antonopoulos., 2018). The declining profit margin may be a
reason of company decreasing sales or profit margins.
2. Operating Margin Profit: Panini Limited operating margin profit in the year 2018 is
27.65 % and in year 2019 is 20.04. Decreasing rate in the year 2019 indicate the
increasing scale of expenses or decline in sales performance.
3. Return on capital employed: After determining the Panini limited return on capital
employed ratio it indicates that percentage of 2019 is less than 2018. It may be a reason
of rising liabilities and debts and improper usage of capital resources of the company
over a given period of time. It suggest to work of company effectively and efficiently.
4. Current ratio: By comparing the two year performance of the company panini limited it
indicates that the company have more liquidity assets in the year 2019 which means
company is capable to pay its short term obligations. It is suggestions to the company to
manage the current assets in long run for maintaining the company position.
5. Quick ratio: The Quick ratio of Panini Limited is maximize in the year 2019 which
means company have acquired more liquidity ratio (Cherba., 2019). To maintain the
quick ratio it suggest the company to make the goods by maintaining quality and also
improve the company sales.
6. Inventory turnover days: In the year 2018 and 2018 Panini limited ratio is 12.6 and
16.08 respectively that shows company is improving its position. To make the inventory
turnover days better it is suggestion for the company to reduce the use of old inventories
for managing the sales.

7. Debtor’s collection period: Panini ltd debtors collection period is good in the year 2018
as compare to the 2019 days. The reason behind this increasing days is company is not
capable to recover their trade debts.
8. Creditor’s collection period: The Creditor’s collection period of two years shows that
the company ability is increases in the year 2019. It indicates that it may be reason of
increasing efficiency of the company. It is suggestion to the company to maintain the
proper efficiency for company growth and development.
CONCLUSION
It is concluded from the above report of Panini ltd that company accounting and finance
department perform a very crucial role to achieve their roles on time it basically help to handle
the work of the firm. Apart from this it explain some purpose of accounting and finance division
which describe the objectives of these departments. It other part it discuss about the external and
internal source of finance through which company can create funds in their business. On the
other side In last task it indicates the computation of financial ratio which show the financial
position of the business and help the organization to know their efficiency in projected task after
that in other part it interpret the above calculated ratio on the basis of the performance of the year
2018 and 2019.

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