Financial Decision Making: Function of Accounting and Finance, Sources of Finance, and Ratio Analysis of Panini Ltd

This report discusses the importance of financial decision-making in organisations, the function of accounting and finance, various sources of finance, and ratio analysis of Panini Ltd. It also provides insights on the financial stability and profitability of the company.

Financial Decision
Making

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
TASK 1 ...........................................................................................................................................3
1.1 Discuss the function of accounting and finance and explain the roles and duties in the
businesses enterprise...................................................................................................................3
1.2 Ascertain the various sources of the finance that is utilized for the expansion purpose in
businesses enterprise. .................................................................................................................5
Task 2 ..............................................................................................................................................6
a) Compute the accounting ratio and measure the analysis of the company...............................6
b) Discuss on the efficiency of Panini Ltd from the computation of the ratio............................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial decision-making is the procedure of an organisation to select the options
regarding the businesses economics. The decisions can be related to the investment, dividend
and the financing. In this Panini ltd company is small sized enterprise and established in UK. Th
e manager of the company has analysed the importance of the finance or accounting in the
company. The finance manager has used the several tools and method to take the relevant
decision (Braun, and Sieger, 2021). Company has estimate accurate source of fund for raising the
money. There is the segregation of the funds for the long term or the short duration of the time.
In the last part there is the calculations of the financial ratios to measure the performance of the
enterprise. It also helps to know the profitability ability of the businesses.
MAIN BODY
TASK 1
1.1 Discuss the function of accounting and finance and explain the roles and duties in the
businesses enterprise
Accounting is the procedure of recording, sorting, summarising, estimating and
interpreting the financial transaction to the users. The first stage is recording the transactions of
the daily operations is called journalising. The next step is to post the transactions in ledger.
From this classification of accounts company make the trial balance. The finance manager
prepare the income statement or the balance sheet from the trial balance. These financial reports
is used by the internal or external users.
The importance of accounting is discussed as follow:
1. Tracking of monetary data: The basic objective of the financial accounting is to record
the monetary transactions is called the bookkeeping in the financial term. These uses the
double entry concept in financial data. It is the most important concept for the owners of
the small businesses to think about the methodical insight for taking the relevant
decisions (Caruana, and Farrugia, 2018).
2. Comparison of financial information: There are two techniques comparison and
analysis is used to estimate and to investigate the documents. It helps to evaluate the
several investment proposals by using the accounting information. It is used to calculate

the financial ratios which based on the businesses self data and it helps to compare the
performance of one entity with the other rivalry firms.
3. Transfer of information to the internal users: The purpose of the financial events is to
provide the information to the internal clients and to maintain the coordination between
the finance department (Duan, 2019). The businesses uses this monetary data to find out
the deficiency of the staffs and the capacity of the workers to increase the productivity of
the employees. This give the brief overview of the employee performance towards their
targets.
4. Prepare the budgets and predictions: The other reason for the preparation of financial
accounting is to build the budgets. It will give the deep examination of the how much
funds company is using on the expenses. From which source organisation will get the
money. It helps in the proper allocation of the funds on various divisions. It aids in
analysing the current and the previous financial data of the businesses for comparison. It
guides us to learn from the past mistakes.
5. Follow the principles and complying the laws: It is not furnish advantage in accounting
but this is essential to comply the rules and the regulations to ignore the legal issues. It
aids in computing the taxes of the businesses. The compilation of all the monetary data in
systematic manner helps in filling the tax return. Therefore, financial information aids in
to pay the taxes on the time and to prevent them from any legal issues or the irregular
audits.
Duties and the roles of the Financial information in the entity
1. Transparency: It means that all the financial data should be recorded in the books in fair
and transparent manner. It is noted that there should be disclosure of all the monetary
transactions and not should be kept hidden. Company can not do bias-ness in their
accounts to influence the investors decisions (Demina, and Dombrovskaya, 2019).
2. Legality: The organisation prepared the accounts of each kind of businesses and it is
based on the accounting principles and the standards. It is necessary for the business to
include the accounting standards to achieve the integrity in the records. Company must
follow the accounting rules and the regulations of the company.

3. Consistency: The consistency concept in accounting means that company must follow
the same financial techniques or the principles at regular way in the particular period.
These helps to bring out the meaningful output from the monetary record.
4. Auditing: It is the technique that is used in the physical checking of the accounts to
verify the transparency in the transactions. It helps to detect the financial mistake and
show as the documentary evidence for the record (Giannouli, and Tsolaki, 202). It aids
in the proper checking of the company financial statements to calculate the errors. Thus
this process is called the auditing.
1.2 Ascertain the various sources of the finance that is utilized for the expansion purpose in
businesses enterprise.
The decision with respect to the selecting the fund sources is relay on the several factors
such as the objective, cost, type and the profit. Every businesses need funds to initiate or expand
their operations. There are generally two kinds of finances internal or the external.
Internal source (Equity): It is one of the best source of money that is needed for the expansion
or the diversification of the company. It is called the Owner capital. In this source the company
invites the money from the public by issuing the shares for subscription and know as the initial
public offer. The people get the shares and received the allotment money through this public get
the ownership right and becomes the shareholder of the company. The benefit of this fund is that
there is no obligation to pay the interest and repay the money at the time of the winding up of the
company. It also includes the preference capital, retained earning and the venture capital. It
means the money created with in the company from the issued assets or the tasks. The cost of
rasing the fund is low and it includes the more risk. In this the shareholders get the dividend in
future (Han, 2018). Most of the organisation prefer the equity capital it is more secured than the
long term debts. It is more risky to invest in the equity capital. It is the fund arranged for the long
time. In this the shareholders get their money back after paying to debenture holders and bond
holders at the time of winding up of businesses.
External source (Debt): It is the funds that is borrowed by the company for initiate or enhance
the business. The manager of the organisation has to repay the borrowed fund along with the
interest. The benefit of this source of fund is that it furnishes the benefits of the leverage. The
company consider this source to take the advantage of the tax benefit and it reduces the debts of
the company. The benefit of this money is there is no high risk involved in this and the owner

does not get any type of the voting rights. The company can raised huge amount of fund at fixed
rate of interest. There are several sources such as the bonds, debentures and long term loans form
the financial institutions (Hirchoua, Ouhbi, and Frikh, 2021). It is recommended to small
businesses not to borrow huge loan. The debt capital can be secured against the collateral
security and considered as the secured loan. It is showed as the non current liability for the
period of more than 2 to 5 years.
Task 2
a) Compute the accounting ratio and measure the analysis of the company

b) Discuss on the efficiency of Panini Ltd from the computation of the ratio
Gross Profit ratio: It is the ratio that is used to measure that how much profit or loss is earned by
the company. It is measured by subtracting the direct expenses from the selling of the goods and
services. The direct cost is all the expenses incurred on the production of the product and
services. In this case the gross profit of the company for the current year is 28.39% and has
decreased by 6% it means organisation has spend more money on the cost which decreases the
profit of the company. The good profit ratio is when it is above than 20% and in both the cases
profit is more than 20%. It is reduced in the present year due to obsolete technology, inefficiency
of the staffs or lacking production process (Israel, Lahav, and Ziv, 2019). The company can
rectify by increasing the campaign of marketing and satisfied to their customers.
Operating profit ratio: It refers to the ratio that is used to measure the income earned by the
corporate businesses. It shows the efficiency of the company. The operations of the organisation
is related to the net revenue or the income earned before subtracting the interest and tax rate. It is
analysed that the operating profit in 2019 is 20.04% that is less than by 7% from 2018. The
decreasing operating ratio indicates that there is the more balance of the operating cost than the
operating income. Company can raise the profit by cut down the cost and expenses and optimum
utilising the resources.
Current ratio: It is called the liquidity margin which is used to measure the short term
obligations of the businesses. It analysed the ability of the businesses to meet the current
liabilities from the current assets. From the analysis it is noted that in 2019 the ratio is 4.12 it
means businesses has excess amount of current assets to cope up with the short term debts of the
organisation (Kim, 2021). The ideal current ratio is 2:1. The liquidity of the organisation is good
in 2018 as comparison to the 2019. It denotes the relationship among the current assets and the
current liabilities.
Quick ratio: It is known by the name of the acid test ratio. It is measured to ascertain the
capacity of the businesses to meet out the quick liabilities of the businesses. The perfect quick
ratio is 1:1. In 2019 the quick ratio of the businesses is 2.80 that means businesses have more
quick assets to pay the short term debts of the organisation. Quick assets is calculated by
deducting the inventory or the prepaid expenses from the current assets.
Return on capital employed: It is the accounting ratio which discuss the combination of the debt
or assets of the businesses. It helps to know the financial position of the company. It denotes the

ability of the organisation to generate the profit from the businesses. The higher profit on capital
employed is the positive sign for the company. The return of the businesses is lowered by the
11% in 2019 shows that businesses is not carrying out the operations effectively. Company
always try to maintain that the long term debts should be minimum to enjoy the advantage of
trading on equity (Lu, 2021). The internal debt of the businesses must be higher then the
external borrowings to ignore the payment of the interest.
Inventory turnover ratio: It shows that in how much time inventory is sold in to the cash. It is
used to compare the two industry. It is measured by dividing the COGS from the inventory. The
COGS means the process of producing the commodities during the given period of time. The
mean of the opening or the closing stock is called the average inventory. In 2019 the ratio is
enhanced by the 16.08 times which is higher than the 2018 ratio. Higher the inventory ratio
means there is the problem of under stock and the sales of the stock in quick time. Lower the
stock ratio shows that there is difficulty of selling the inventory and the troubles of over stock.
The company has improved the ratio is present year it means the efficiency of the organisation
has increased.
Debtor turnover ratio: It refers to the time period in which company receive the collections from
the debtors. The company is more efficient when they get the money from the customers in less
time. When customer takes more time to pay for the goods it decreases the efficiency of the
businesses. This imply that company has less cash to run the operations of the organisation. It
has impact on the liquidity position of the company. Therefore, the shorter collection period is
best for the entity. If the ratio is high it denotes that there are more possibilities of the bad debts.
Creditors payment period: It signify the time in which company pay the amount to the suppliers
for buying the products and the raw materials on credit. It means how effectively company is
managing the cash inflow and the outflow (Novak, A., Bennett, and Kliestik, 2021). The idea
payment period should not be more than 90 months. In the current year the accounts payable
time is reduced to 22 days from the 52 days in 2018. It means company is paying to creditors in
earlier time. It improves the credit goodness of the businesses. This will build the good will and
reduces the payment period.

CONCLUSION
As per the above report it is estimated that the decisions regarding the finance is the
backbone of the company. The growth in financial management is crucial for every enterprises.
Financial accounting play major role in taking the relevant decisions. In this report it is analysed
that accounting is used for monitoring the expenses, recording the monetary data, comparing the
monetary information from the past year and to create the forecasted budget. The analysis of
ratio helps to differentiate the accounting terms from the same industry. It helps to understand
the financial stability of the company. This organisation has worked more on those areas where
they can get the more return. The entity measured the performance by ROCE and debtors
collection period.

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