Financial Decision Making – PDF

Financial
Decision Making

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Evaluation of the role of accounting and finance........................................................................3
Evaluation of role of management accounting techniques and its use in planning, control and
decision-making:..........................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Financial decision making is organised process of selecting an appropriate option out of
more than one alternative related to finance. Core motive of financial decision-making is take
actions for achievement of organisation's long and short term objectives and targets (Bigus and
Hillebrand, 2017). Practically financial statements, ratio analysis, cash flow analysis etc. are key
source of information for decision-making process. Management, entrepreneurs or owners in a
organisation is responsible for decision making. It is helpful for organisation to determine future
path and strategy. This report provide explanation about role of finance and accounting in
organisational context while discussing functions and importance of accounting and functions in
context of Zenith Ltd. It is an UK based manufacturer of uPVC windows and doors. Report also
exhibits role of management accounting techniques and application of them in enhancing
practices of company.
TASK
Evaluation of the role of accounting and finance.
Overview of company: Zenith Ltd is UK's leading manufacturer of uPVC doors and
windows. Company provide customisation facility as per customer requirement. Company is
operating its business trough head office in Antrim, Northern Ireland. Company is famous for its
unique designs of doors /windows all across the world. Company has approx 35 years of
experience in industry. Company is designs products for long term, security and strength.
Company also has invested in uPVC recycling and provides replacement of product by recycling.
It is most innovative company and holding top position in uPVC industry. It has developed and
produced a wide range of product which are completely a complements continuous demands of
present climate. With high quality and most trending innovation company is offering complete
range sustainable and secure PVCu doors and windows for commercial and domestic both
sectors.
Role of management accounting techniques: Management accounting is crucial
process that facilitates information and other relevant data to managing officials within business
entity to assist them in taking momentary decisions (Breuer, Hombach and Müller, 2017). The
process of management accounting also emphasises on application of key techniques and tools
that in planning, controlling and decision-making with an aim to make improvement in

organisation's practices. In corporates like Zenith Ltd management and accountants require to
apply such techniques to provide smoothness in company's practices and operations. It also help
in managing financial resources to determine responsibility and accountability. Such techniques
are formed to provide a complete guidance and directions for operating different operations and
activities. Some major management accounting techniques are financial planning, analysis of
financial statements, cash and fund flow statements etc. There are perfect range of techniques
which is essential for overall development of business organisation and to provide efficiency in
internal and external processes. Following is explanation about different techniques applying by
management under management accounting:
 Financial Planning: It is collection of tasks which are performed with aim to do
projection of potential funding or capital requirement and determining effect of
competition. It provide assistance in developing fiscal polices concerned with investment,
acquirement and controlling of funds from different resources of a business organisation.
In Zenith Ltd managers apply this technique to ensure availability of long term and short
term funds that assist them in planning for brining new innovation (Flower, 2016).
Company by financial planning take long term decision and establishing control over
financial processes and activities. Managers make projection of funds requirement on the
basis of current performance and operations, and provide alert for future funding
requirement. It determines the effect of different financial funding sources that give a
framework to managerial personnels for taking funding and other decisions.
 Analysis of financial statements: It is basic technique which is adopted by business
entities to analyse the performance of entity with help of financial statements. Financial
statements comprises of profit and loss account, statement of financial position, statement
of fluctuation in equity etc.. Each of them exhibits different aspects of business
enterprise, as balance sheet presents value of all the liabilities and assets, profit and loss
account provides a actual profitability condition. Analysis of financial statements provide
a complete picture of organisation's performance. Zenith Ltd annually reports its financial
report annually. Management by analysing various facts and figures assess the overall
performance and take decisions based on existing performance. It provide a basis for
planning and decision-making activities by providing a comparative analysis of more

then one year of all financial facts. It also help to maker control over different functions
by evaluating weak areas recognised financial statement (Gao and Jia, 2016).
 Fund flow statement: It is commonly used technique of management accounting which
exhibits a movement of funds throughout the business entity. It help to find out factors
which leads to increase increase in outflows of funds. In Zenith Ltd its is used by
company to asses the requirement of working capital and analyse the visibility of funding
sources. It also ensures that long term funds are used for paying long term obligations.
Fund flow statement assist in analysis the major sources and application of monetary
funds during a particular period. Practically fund flow statement is replaced with cash
flow statement which is almost similar to fund flow statements due to same use. It is
essential for taking major investment decisions and assess the efficiency of any fund
related decision. Fund flow statement point out towards areas of generating funds and
controls or monitors application of these funds.
 Historical Cost Accounting: This accounting method obliged the management to show
the assets in balance sheet on its historical or base value. Historical cost is the initial price
of the asset which was incurred at the time of purchase. This approach defines that assets
should be shown at their base value plus installation charges and not on the market value
whether it is significant or not. All assets are not disclosed on historical price such as
marketable securities (Johnston and Petacchi, 2017). This accounting approach is
accepted and defend by the selected organizations because it is the easiest and cheapest
way to record assets. It is considered as biased free as the value is verifiable with the
transaction documents. The management also find it useful for the purpose of planning
and decision making. External users also find it preferable for the calculation of taxation,
dividend and defining capital.
 Budgetary Control: Every establishment prepares various budgets by setting some
standards for a particular task or period of time. At the end of the task or tome period,
these standards are compared with the actual outcomes. This process of comparison and
finding variances is known as budgetary control. Budgetary control is a tool to analyse
the performance and efficiency of the organization. Various methods of budgetary control
helps in identifying the variances which may be favourable or adverse. This process also
provides remedial actions in order to eliminate deficiency. Management of the respective

company used budgetary control process to check the effectiveness of company and find
out the reasons behind variances so that adequate planning tools can be used to manage
the quality of the work and appropriate decisions may be taken. It also provides help in
rewarding employees and deciding development procedures.
Evaluation of role of management accounting techniques and its use in planning, control and
decision-making:
Every organisation want to enhance the smoothness in organisational processes.
Techniques of management accounting provide direction to met the criteria that leads to increase
in efficiency and effectiveness in precesses. Companies like Zenith Ltd applying one or more
techniques to control the whole finance and accounting structure, improve the effectiveness of
planning and take effective business decisions. For intense company is using financial planning
and fund flow statements to control movement of monetary funds within company. Management
by using results of these techniques conduction planning for future actions and take decisions
according to planning. They also indicates improvement area so that management can focus and
put more efforts towards such area (Leung, 2016).
CONCLUSION
From above described report it has been articulated that finance and accounting are key
aspects of a business entity. Management accounting and its techniques are helpful in managing
finance and accounting operations within entity. Different techniques act as vital factor in
establishing control, making planning and taking trade decision-making. Financial decision-
making is a managerial process which assist managers in bringing new changes in business
organisation. Managers by applying different techniques act their finance and accounting task
efficiently. It also help to enhance the reliability and accuracy of results and information.

REFERENCES
Books and Journals:
Bigus, J. and Hillebrand, C., 2017. Bank relationships and private firms’ financial reporting
quality. European Accounting Review. 26(2). pp.379-409.
Breuer, M., Hombach, K. and Müller, M. A., 2017. How does financial reporting regulation
affect firms’ banking?. The Review of Financial Studies. 31(4). pp.1265-1297.
Flower, J., 2016. European financial reporting: adapting to a changing world. Springer.
Gao, X. and Jia, Y., 2016. Internal control over financial reporting and the safeguarding of
corporate resources: Evidence from the value of cash holdings. Contemporary
Accounting Research. 33(2). pp.783-814.
Johnston, R. and Petacchi, R., 2017. Regulatory oversight of financial reporting: Securities and
Exchange Commission comment letters. Contemporary Accounting Research. 34(2).
pp.1128-1155.
Leung, D., 2016. Inside accounting: the sociology of financial reporting and auditing.
Routledge.