This report discusses the importance of finance and accounting functions, duties and roles of an organisation. It also explores various sources of finance and how it helps in the growth of a company. Additionally, it computes leading ratios for the financial year 2018 and 2019 for Panini Ltd.
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Financial Decision Making
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EXECUTIVE SUMMARY The following report states that the functioning and working of Panini. Ltd. Works in competitive environment. It further calculates the ratios such as inventory turnover ratio, Debtors collection period and Creditors collection period. Further recommendation is given on the basis of the working of the organisation in the business environment. Further calculations are performed to know the performance of the company.
INTRODUCTION The main element for any business is making financial decision regarding the business. It includes making choices between debt and equity for continuing the business operations. Decision related with investment such as purchasing of assets. Making decision regarding the profits and revenues earned by the business has to reinvest the amount earned by the business and distribute the profits. Panini Ltd deals in bread and various grocery activities.(Luukkanen and Uusitalo, 2019).In the following it explain about the Importance of finance and accounting functions, roles and duties of the organisation. It further discusses the sources of finance available to small and medium company for the purpose of expansion. Ratios of the company are calculated to determine the functioning of the company. Further analysis is done to know the financial position of the firm. TASK 1.1 Explainthe importanceof finance and accountingfunctions, dutiesand rolesof an organisation. Accounting: It can be stated as compiling, sorting and collection of information at one placeandrecordingallthemonetarytransactions.Developmentofreports,recordsand statements. It is often thought of as a way to keep a legal record book and make use of relevant regional information. The primary job of bookkeeping is also to analyse the performance of the employees the business serves in the relevant environment. Therefore, it is also valuable for assessing the state and productivity of businesses and economies. It evaluates the interpretation of cash inflows and outflows that occur in a particular organization. Likewise, it is seen as a tool for individuals who have ties to the company or wish to be involved in businesses operating in harsh environments. Functions of Bookkeeping: There are a variety of abilities that can help Panini Limited. organize. Some expressions are as follows: EvaluateValuabletransactions:PaniniLtdisobligedtodocumentrelevant communicationswhich,afterconsideringtheworkofclimate-relatedbusinesses, document a clear and clear outcome of such a lengthy process. Examine the performance served: Bookkeeping is valuable for legal investigations of Panini ltd organisations, which will help businesses to monitor the relevant life cycles
within a specific time frame, which will also be useful in the fight against severe climate in the near future. Management Accounting: It helps to understand the role a company serves in carrying out related activities in a timely, efficient and effective manner. Some are expressed as follows: Keep a history of related expenditures and payments: It records the organization's contributionsandpurchases.ItwillhelpPaniniunderstandwhatdrivesrevenue generation and payment related capabilities, and what activities should be controlled, which will help further develop expenses incurred during business operations and operations.(Gaitonde, Malik and Zimmern, 2019) Work towards a better direction: Accounting is useful in skilled and engaging navigation by choosing the most ideal elective option anyone would expect to find through Panini Ltd. Also, it can be valuable when choosing the part that best fits the requirements and necessities of connecting the company. Undefined timeframes and which systems will help limit expenses and improve yields within a certain range. Duties of Accounting: Financials: It helps to find out what assets might be investing resources into related business activities, and how the organization should monitor the inflows and surges of funds over time. ForecastingFinance-RelatedActivitiesandPredictingHazards:Theobligationof bookkeeping-related variables is to predict opportunities and hazards that may harm an organization's development in the near future.(Surbakti and et.al., 2019) Observe and control prepared spending plans: Accounting as a supporting process for planning and arranging financial plans. It also helps find areas to contribute cash and splurge without proper help. Tax Function - Taxation is the responsibility of all organisations controlled by the Treasury Department. It focuses on building a good relationship with the government by remitting PAYE to the appropriate authorities, and works to ensure that tax payment should be done within system policy(Tucker and Jones, 2019) Audit function - The corporate finance department focuses on current assets. The company's working capital needs to be effectively controlled in order to make more profits, and it is more of a blame for the company's liquidity than the amount of funds being taken up.
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Functions of finance: Arrange support in a specific way: It means that assets that are scarce in nature should be arranged to meet needs and goals in the right way.(Hemrajani and Sharma., 2018) Asset Raising: It centres on areas that help generate money and revenue that can also be used for other tasks of the organization. Types of Finance Investment function - Investment is used to obtain benefits or premiums within a given timeframe.Thisistheinverselinkbetweenrevenuevelocityandspeculation. Entrepreneurial jobs increase compensation levels and creativity by facilitating the assembly and acquisition of capital goods. Financing Function –This capability is used to handle the organization's funding and to accommodate sailing. It demonstrates the acquisition and use of explicit assets for production tasks. Finance is a major part of running any association and it provides cash. Dividend Functions– is to promote the diversification of the interests of important investors. Profitability refers to the instalments the ranking holder organization makes to pay financial backers to put cash into their efforts.(Li and et.al., 2022) Working Capital Functions –Working capital is determined by deducting continuing resources to current liabilities. It is cash valuable to the organization's day-to-day costs and expects to pay the organization's short time frame expenses that need to be paid at the end of the currency year. 1.2 Explain various sources of finance and how it helps in the growth of a company. There are a number of approaches that ultimately become useful in the context of producing associations of assets to expand and develop business-related competencies and exercises. The only motive behind the organization of Panini ltd is to develop its function and expand its scope globally. It will also help to develop and conduct business in some undefined time frame. Some of the tools that can be used as revenue devices are represented as follows: Equity: It is security which offers ownership to the holder of the security. Individuals who need to be owners of the organization and practice the privileges granted to them at the time. It helps companies create reserves that can be used in relevant regions that require businesses to work and work better.
Retained Earnings: Another better option, can be ruled out in the case of passing on financial related capabilities, procurement can be used when development and expansion are required. It is also considered the most efficient way to create valuable open doors, as it does not include obligations or borrowings of due care.(Zander and et.al., 2019) Debts: Considered a technique that helps categorize assets used for speculation, such as bonds, bank borrowings and money funds. Cash also receives income and should also be paid in a clear manner. It can also be considered a source of money. TASK 2 Computation of the leading ratios for the financial year 2018 and 2019. Gross profit margin: Gross profit/ Net sales * 100 Year 2018 3500/ 10000 * 100 = 35% Year 2019 3265/ 11500 * 100 = 28.39% Gross profit margin: It a type of profitability ratio that help a firm to measure ideal returns which will received on its capital. It express in terms of percentage of gross profit over sales of an enterprise. It also provides idea of how much amount of sale used to meet operating expenses.((Dobson-Lohman., 2020) Analysis of above calculation: As per above computation it state that cost of sales of Panini ltd is increased in 2019, resulting gross profit margin fall down by£235. Gross profit ratio is fall down as compare to the year 2018. another reason of decrease in gross profit margin is lower selling prices of products and also major changes in the product mix where all product has different price and margin. Operating profit margin: Operating profit/ Net sales * 100 Year 2018 2765/ 10000* 100 = 27.65% Year 2019 2305/ 11500* 100 = 20.04%
Operating profit margin: It is an another type of profitability ratio that measure the share of firm's operations or activities towards its profitability. It express in terms or percentage of operating profits over net sales of the company(Butterbaugh, Ross and Campbell., 2020) Analysis of above calculation: As per above computation it states that company is not able to generate favourable profits as compare to year 2018, it decreased by £460. this also states that company is not able to manage its cost of overheads or expenses, due to increase in manufacturing expenses it suffers from profit erosion. Return on capital employed: Earnings before interest and tax/ Share equity + Long term liabilities * 100 Year 2018 2765/ 8755= 31.58% Year 2019 2305/ 10211* 100 = 22.57% Return on Capital employed: It refers to the computation of the returns that is realised by the company on its capital employed or capital assets. It works as indicator for the company which indicate the efficiency and profitability to generate returns from its capital investments. Analysis of above calculation: As per above computation it states that Panini limited is not able to generate efficient profits from its capital investment that decreases by £460. company also using more debts to meet their routine operations which is not good for the company. There is a decline of almost 9% in the capital returns, due to increase in the long term debts.(Lo and Liao., 2021) Current Ratio: Current assets/ Current liabilities Year 2018 1175/ 970 = 1.21: 1 Year 2019 2110/ 512 = 4.12: 1 Current Ratio:It is a type of liquidity ratio that help in measuring short term position of the company. It is also helpful to take corrective measure to improve short term health of the company and its ideal ratio is 1:1. It determine how much current assets are needed to meet current debts of the company over a period of time.
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Analysis of above calculation: As per above computation it states that short term health of the company is improving continuously with a grate percentage. Company efficiently working in order to increase in current assets and decrease in current liabilities.(Drugău-Constantin, 2018) Quick Ratio: Current assets – Inventory / Current liabilities Year 2018 1175 – 350/ 970 = 0.85: 1 Year 2019 2110 – 675/ 512 = 2.80: 1 Quick Ratio: It indicate the short term solvency of a company. It is said to be an updated and more accurate formula of current ratio. This ratio is also called as acid test ratio. Analysis of above calculation: As per above computation it states that Company improve its sort term solvency position to cover its short term debts after realisation of current assets. Company decrease its current liabilities and it’s also suggested that they have to keep eyes on the current liabilities. Inventory turnover days: Cost of goods sold / average inventory Year 2018 6500 / 350 = 13.57 times Year 2019 8235 / 512 = 16.08 times Inventory turnover days: This ratio help to measure the time duration taken by the inventory to convert into the sales in a particular period of time. It estate the relation between the average inventory and cost of goods sold (COGS). Analysis of above calculation: As per above computation it states that Company working more efficiently and effectively convert its stock in to sales within shorter time period as compared to year 2018. Receivable collection period: 365 / sales on credit / accounts receivable Year 2018 365 / 10000 / 760 = 27.74 days
Year 2019 365 / 11500 / 1340 = 42.54 days Receivable collection period: This ratio indicates the time taken by a firm to convert its credit sales into cash. In other words, it represents the time taken by a firm to write-off its debtors by collecting their payment.(Weber, 2018) Analysis of above calculation: As per above computation it states that Panini ltd take lesser time to convert its credit sales into cash. It also indicates that company's offers discounts in order to take payments early. Payable payment period: 365/ cost of sales / trade payable Year 2018 365 / 6500 / 920 = 51.6 days Year 2019 365 / 8235 / 707.5 = 31.36 days Payable payment period: It refers to the time period taken by a firm to make payments to its creditors. In other word it shows the time taken by the organization to convert its credit purchases by cash or cash equivalents. Analysis of above calculation: As per above computation it states that Company efficiently meet their creditors payment on time as compare to year 2018. This will increase the brand value and also increase the reputation of company in front of investors and creditors.(Carr and Rosato., 2019) Recommendations on the basis of above computation: According to above computation of ratios it is concluded that short term solvency position of the company Panini ltd is quite good. Quick as well as current ratio of the company tells that company can easily meet their short term obligation by their current assets. Company performing well in year 2019 as compared to year 2018. Company manage their stocks in efficient manner. Company collect its payments earlier and pay-off its creditor’s timely(Yeates and et.al., 2022) CONCLUSION From the above report, it can be concluded that what types of steps are important for the company Panini Limited to improve the business position and decision making. Due to these two
departments are briefly discussed along with their functions. The first department is accounting department which include financial accounting function, management accounting function, tax function and auditing function. It also describes the sources of finance used by the company. The second department is finance that consist investment, financing, dividend and working capital function. To analyse and compare the two-year financial position of the company, the ratios are also derived, explain and recommended that resulted the company position is dealing in the year 2019.
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(Luukkanen and Uusitalo, 2019) (Gaitonde, Malik and Zimmern, 2019) (Tucker and Jones, 2019)(Li and et.al., 2022) (Zander and et.al., 2019) (Butterbaugh, Ross and Campbell., 2020) (Drugău-Constantin, 2018) (Weber, 2018) (Carr and Rosato., 2019) (Lo and Liao., 2021) (Bordeianu and Radu., 2020) (Verhallen., 2021) (Hemrajani and Sharma., 2018) (Surbakti and et.al., 2019) (Dobson-Lohman., 2020) (Yeates and et.al., 2022)
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