Financial Decision Making: Accounting and Finance Functions, Sources of Finance, and Financial Performance of Panini Ltd

This report evaluates the accounting and finance functions, duties and roles that are performed by accounting and finance department at Panini ltd. Report will outline the varied sources that are available for the purpose of expansion by small and medium size company. Further the report will also calculate accounting ratios for the company. Based on the calculated ratios the financial performance of Panini ltd will be assessed.

Financial Decision Making

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Importance of accounting and finance functions, duties and roles........................................3
1.2 Sources of finance available to small and medium company for expansion purpose...........6
TASK 2............................................................................................................................................7
Commenting on the financial performance and position of Panini ltd .......................................8
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Panini ltd is a medium-size company that specializes in bread making for UK's supper
markets. The company wants to expand the operations, this decision is based on company's
success in recent years.
The report will critically evaluate the accounting and finance functions, duties and roles
that are performed by accounting and finance department at Panini ltd. Report will outline the
varied sources that are available for the purpose of expansion by small and medium size
company. Further the report will also calculate accounting ratios for the company. Based on the
calculated ratios the financial performance of Panini ltd will be assessed.
TASK 1
1.1 Importance of accounting and finance functions, duties and roles
1. Accounting Department: Records of the goods and services for which company makes
payments are maintained by the accounting department. The department makes sure that
company's expenses are paid timely.
a) Financial accounting function: Financial accounting function of accounting department is
focussed on the systematic management of finances of the company. All the financial
transactions are recorded and cash inflows and cash outflows are tracked. The overall
expenses are analysed and financial reports are prepared based on the information
regarding cash flows; and past financial data (Duska, Duska and Kury, 2018). The
management of the company gets the report of profits and losses. Executives and
investors are provided help in understanding the financial health of the company through
these reports and business decisions are made based on the understanding of the report.
Financial accounting is very essential for Panini ltd for decision-making purposes. It is
important for external communication. Through financial accounting Panini ltd displays
its financial situation to the external stakeholders of the company. The company in order
to be qualified for the loans require financial statements. Panini ltd shows record of the
finances and its reliability to make payments. Financial accounting also have its
importance in internal communication. The employees of the company, finance team
and members require financial statements to understand the financial status of the

company. Comparison with competitors of Panini ltd and with organization itself is done
on the bases of reports.
b) Management accounting function: This function is to serve the internal needs of
company's purposes. Through this function the accounting department review the whole
financial situation of the company. After reviewing, assessment of internal activities and
its impact on company's expenditure and financial stability is done by the department.
Productivity of business is analysed, growth is monitored and information derived is used
in predicting financial position of the company. Financial report may be generated,
business trends are monitored and how finances can be improved are recommended. The
series of sub functions that are performed by the accounting department of Panini ltd
helps the organization in decision-making, planning, controlling, organizing,
understanding financial data, identifying business problem areas and strategic
management.
c) Tax function: Internal Revenue Code governs the tax function of accounting department.
This function is focused on taxes. Through this function accounting for tax purposes is
done by accounting department. This function makes sure that tax laws are complied by
the company. The tax dues are paid correctly and on time to the authority for tax. This
function is to help the company determining the way to keep funds aside for payment of
tax. The department also recommends the ways suited to company for tax accounting.
This function by accounting department of Panini ltd focuses on everything that is
related to tax.
d) Auditing function: By auditing function the department examines whether the financial
statements of the company are accurate or not. It also ensures that systems of the
company operates in proper way. Internal controls of the company are examined and
measures are taken for eliminating the fraudulent activities. Based on the report prepared
in this function, the changes that should be made by the company are recommended by
the auditors (Rehman and Hashim, 2018). The changes that are recommended focuses on
processes or activities for eliminating problems and reducing the errors that are likely to
be made in the future. The loop holes in the internal control procedures of the company
are pointed out by auditing. Holes in internal control system allow employee to do fraud

and not get caught. Panini ltd's shareholders get confidence that the financial statements
of the company are true and accurate and the company is reliable.
2. Finance department: The management of cash resources, performance of supervisory
activities for the accounting management and preparing required information for management
control are all the functions done by the finance department. Indicators of financial performance
and margin calculations are the functions especially performed by the department.
a ) Investment function: The finance manager of the Panini ltd through this function
decides where the funds of the company are to be invested. The decisions made in
this function are working capital management decisions, capital budgeting decisions,
mergers management decisions, decisions related to assets buying or leasing. The
importance of this function for Panini ltd is to invest the limited capital of the
company to get the maximum returns to the future. New investment projects are
evaluated based on the profitability. The cut off rate of the existing and new
investments are compared (Burns, Minnick and Smith, 2021). In addition, to the
allocation of funds in new investments the funds that come from selling of less
productive assets are also decided for their use.a ) Financing function: Creation of revenue and saving of costs are the results of good
investment decisions. The finance department of Panini ltd helps it to establish, run,
expand, modernize, diversify the businesses. For purchasing assets that builds the
revenue for the business finances are arranged through effective performance of this
function. This function is important for identifying the need of finance, finance is
needed to expansion, diversification of business, etc. After the identification of the
purpose for requirement of funds the sources from which the required or needed
funds can be raised are determined. Funds may be raised through different ways
available for borrowing or by the equity share capital. The determined sources of the
funds are compared based on the cost involved and risk involved with each specific
source. The best suited source for Panini ltd is selected. Aim of this function is to
create a financial structure that gives maximum possible returns to the shareholders
and at the minimal risk. Effectiveness of this function reflects in the situation of
maximum firm value in the market and thus Panini ltd's finance department through

this function focuses on optimizing the capital structure of the company
(Schoenmaker and Schramade, 2018). There exists tools other than debt and equity
that are used while capital structure of the company is decided.a ) Dividend function: Like other businesses Panini ltd too aims at earning profits. The
dividend decision function is the key function by finance department of Panini ltd
through which financial manager decides whether the profits are to be distributed
among shareholders or retained within the organization. Profits may be retained or
distributed fully or partially. The role of this function is to decide optimum dividend
policy.a ) Working capital function: Working capital function of the finance department is
important to maintain the liquidity position of the firm. This function is to avoid the
insolvency situation of the company. The investment of Panini ltd in the current
assets are associated with the profitability, liquidity and risk. Enough funds are to be
invested in the current assets for maintaining balance between profitability and
liquidity. Finance department of Panini ltd value and dispose the current assets
properly.
1.2 Sources of finance available to small and medium company for expansion purpose
Bank Finance: Banks provide finance to small and medium companies in form of
overdrafts and long term loans. Long term loans are provided by the bank that are secured by
assets of the company such as land and building (Sources of Finance for Business, 2022). For
small companies it is difficult to raise funds through bank loans as a result of the orthodox
thoughts of the bank regarding the small companies.
The Venture Capitalist: A venture capitalist is the company that is subsidiary of a
company, having greater cash that is required to be invested. In the investment portfolio of the
company the venture capitalist subsidiary appears as a high risk investment with high return
potentiality (Standaert, Knockaert and Manigart, 2022). With a business idea that can create
great returns small and medium size company attracts venture capital funding.
Supply Chain Financing: Supply chain financing is abbreviated as SCF. It explains the
solutions that are technology based and aimed at lowering the costs related to finance and
improving efficiency of the business for its buyers and sellers that are linked in sales transactions

(Gupta and Chutani, 2020). Transactions are automated and invoice approval are tracked and
processes are settled, starting from initiation to completion. Buyers agrees the approval of the
invoices for the suppliers for bank to finance.
TASK 2
Gross profit margin
Particulars Formula 2018 2019
Gross Profit (GP) 3500 3265
Sales 10000 11500
GP ratio GP / Net sales * 100 35% 28.39%
Operating profit margin
Particulars Formula 2018 2019
Operating Profit (OP) 2765 2305
Sales 10000 11500
OP ratio OP / Net sales * 100 27.65% 20.04%
Return on capital employed
Particulars Formula 2018 2019
EBIT 2765 2305
Total assets 9725 10723
CL 970 512
ROCE EBIT / (TA – CL) 31.58% 22.57%
Current ratio
Particulars Formula 2018 2019
Current assets 1175 2110
Current liabilities 970 512
Current ratio CA / CL
Quick ratio

Particulars Formula 2018 2019
Current assets 1175 2110
Stock 350 674
Current liabilities 970 512
Quick ratio CA – (inventory +
prepaid expenses) /
CL
1.21 4.12
Inventory turnover days
Particulars Formula 2018 2019
Stock 350 674
COGS 6500 8235
Stock turnover (in
days)
COGS / Average
stock * 365
20 days 30 days
Receivable collection period
Particulars Formula 2018 2019
Debtors 760 1340
Net sales 10000 11500
Debtors collection
period
Accounts receivable /
net sales * 365
28 days 43 days
Payable payment period
Particulars Formula 2018 2019
Creditors 920 495
COGS 6500 8235
Creditors payment
period
Creditors / COGS *
365
52 days 22 days

Commenting on the financial performance and position of Panini ltd
i. Gross profit margin: The gross profit margin is used in assessment of financial health of a
company by calculation of the amount that is left after the deduction of cost of goods sold
from the revenue sales of the business (Accounting Ratios, 2022). In the year 2018 Panini
ltd's gross profit margin is 35% and for the year 2019 the gross profit margin of the
business is 28.39% This means that the company experience low gross profit margin in
the year 2019 in comparison to year 2018. The decline is of 6.61%. The reason can be
that the company is getting low money per unit sold or the cost of raw materials used
increased in the current year. For improving the gross profit margin company can
increase its selling price or the volume of sales or reduce the cost of goods sold.
ii. Operating Profit Margin: This ratio measures the value of profit that the company earns
on every unit of currency sales after the payment of variable production costs and before
interest and tax payment. The company's efficiency in generating profit through its core
operations is represented through the operating profit margin. The higher the margins the
better it is for the company (Smriti and Khan, 2018). Performance can be compared with
the competitor in the same field. Panini ltd's operating profit margin ratio fell by 7.61% in
2019 as compared to the year 2018. The reason behind the decline is decrease in sales
and increase in the operating expenses for the year 2019. In order to improve the
operating profit margin company should control its operating expenses and focus on
increasing the sales.
iii. Return on capital employed: This is a financial ratio through which a company assess its
profitability and efficiency of the capital employed. ROCE is good for measuring the
performance of the company at the baseline. This ratio highlights whether the company is
doing well in profit generation from its capital or not. A company uses various resources
that helps it to build and grow. In the year 2019 Panini ltd's ROCE fell by 9%. For
improving the ROCE the company should try to cut its costs, increase sales volume,
repay the debt or restructure its finance.
iv. Current Ratio: Current ratio is the calculation of total current assets of the company
divided by its total current liabilities. It is a type of liquidity ratio. The ability of company
to pay for its short term obligations is assessed through the current ratio. Panini ltd's
current ratio is 1.21 for the year 2018 and in year 2019 the current ratio is 4.12. It means

that in previous year company had 1.2 current asset for each of its current liability and in
current year company has 4.1 asset against each liability. The ideal current ratio is 2:1.
The firm should try to make its current ratio an ideal one. Higher current ratio indicates
that the assets of the firm are underutilized. To improve the current ratio Panini ltd should
increase its current liabilities. Any capital purchases by the company can be considered
doing by the company.
v. Quick Ratio: The quick ratio of the company is the indicator of its liquidity position for
short term. This ratio measures the ability of the company to pay for its current liabilities
using the most liquid assets available. The quick ratio of Panini ltd is 0.85 for the year
2018 and 2.8 for year 2019. The ideal quick ratio is considered as 1:1. Company's quick
ratio increased as compared to the previous year. The reason behind the decrease is
increase in the inventory and decrease in the current liabilities, and increase in current
assets as compared to the previous year. To have an ideal quick ratio Panini ltd the
company should pay off its liabilities. Panini ltd should try to increase its sales and
inventory turnover, improve invoice collection and pay short term liabilities quickly in
order to have improved quick ratio.
vi. Inventory turnover days: Inventory turnover days shows the number of days in which a
company sales and replaces its inventory. Large turnover days indicates that the company
is having weak sales and may be having excess inventory and short turnover days
indicates high sales or inventory being inefficient. The Panini ltd's inventory turnover
days increased to 30 days in year 2019, 10 days more than compared to the year 2018.
This shows that the company either have poor or weak sales or it is having insufficient
inventory. For improving this the company should sale more or produce more to meet the
current sales. Further the pricing policy can be revised by the firm to reduce the price of
the product.
vii. Debtor’s collection period: This is used in indicating the average time taken by
the company in collection of its trade debt. Reduce in debtor collection period indicates
increasing the company's efficiency while increased debtor collection period indicates the
inefficiency of the firm (Agrawal, 2021). For the year 2018 the company's debtor
collection period is 28 days. And in the year 2019 the period as per the calculation is 43
days. This implies an increase by 15 days. The reason behind the increase is more time

taken by the customers to pay their debt. For improvements company should try to
communicate with the customers better and explain to them the expectations of Panini ltd
regarding the payment. Panini ltd should have to be proactive in its efforts for invoicing
and collection. The company should also consider offering payment plan to the
customers.
viii. Creditor’s collection period: It is used to measure the average number of period in
days that the business takes to pay for its accounts payable. Panini ltd's creditor collection
period fell by 30 days in the year 2019. This means that the company is making payments
for its obligations too soon the reason can be increase in the investment of working
capital by the company. To improve the payable payment period company should pay its
debt timely and take the benefits of discounts on early payments.
CONCLUSION
Based on the report the functions, duties and roles of the accounting and finance
departments of the Panini ltd have been discussed. Three sources of finance that are available to
small and medium companies for expansion purposes have been highlighted. Panini ltd's
performance has been interpreted based on the calculation of accounting ratios.

REFERENCES
Books and journals
Agrawal, R., 2021. Sustainable material selection for additive manufacturing technologies: A
critical analysis of rank reversal approach. Journal of Cleaner Production. 296.
p.126500.
Burns, N., Minnick, K. and Smith, A. H., 2021. The role of directors with related supply chain
industry experience in corporate acquisition decisions. Journal of Corporate
Finance. 67. p.101911.
Duska, R. F., Duska, B. S. and Kury, K. W., 2018. Accounting ethics. John Wiley & Sons.
Gupta, V. and Chutani, A., 2020. Supply chain financing with advance selling under
disruption. International Transactions in Operational Research. 27(5). pp.2449-2468.
Rehman, A. and Hashim, F., 2018, January. Forensic accounting on corporate governance
maturity mediated by internal audit: A conceptual overview. In 1st Economics and
Business International Conference 2017 (EBIC 2017) (pp. 161-168). Atlantis Press.
Schoenmaker, D. and Schramade, W., 2018. Principles of sustainable finance. Oxford University
Press.
Smriti, T. N. and Khan, H. R., 2018. Efficiency analysis of manufacturing firms using data
envelopment analysis technique. Journal of Data Science. 16(1). pp.69-78.
Standaert, T., Knockaert, M. and Manigart, S., 2022. Venture capital winners: A configurational
approach to high Venture capital‐backed firm growth. British Journal of
Management. 33(1). pp.211-230.
Online
Accounting Ratios. 2022. [Online]. Available
Through:<https://corporatefinanceinstitute.com/resources/knowledge/accounting/
accounting-ratios/>
Sources of Finance for Business. 2022. [Online]. Available
Through:<https://maxxia.co.uk/blog/sources-finance-for-business/>
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