TABLE OF CONTENTS INTRODUCTION...........................................................................................................................3 TASK 1............................................................................................................................................3 TASK 2..........................................................................................................................................10 CONCLUSION..............................................................................................................................12 REFERENCES..............................................................................................................................13
INTRODUCTION Financial decision making is the process which is responsible for all the decision related with the finance , liabilities and stockholder's equity of company as well issuance of the bonds . It is concerned with another crucial decisions made by the financial manger relating to the financing mix of the organisation and also concern with borrowing and allocation of funds which Is required for the investment decision. The present study is based on the Tesco plc which is trading company and a British multinational groceries and general merchandise retailer company. it is the third largest retailer in the world in context with the gross revenue . Furthermore,. The study will explain about the importance of the accounting and finance function In the given organisation ad also the different accounting and finance functions which includes different function, investment function, working capital function, auditing unction, tax function etc. which are essential forte organisation for different activities performed by them at their levels. Te study Wil also introduce about different ratios of the Alpha ltd which helps in ascertaining the performance of the company. TASK 1 Tesco plc which is trading company and a British multinational groceries and general merchandise retailer company. it is the third largest retailer in the world in context with the gross revenue . It headquarter in Welwyn garden city, England, UK. It is ninth largest retailer in the world if measured by the revenues. Accountingandfinanceplaysverycrucialroeinanyorganisationandinthe management of the company(Quattrone, 2016). By appropriately and effectively accounting it helps the company to manage their flow of money and also direct the course of the business, major use of the financial accounting is to recording of the transactions is to record each inflow and outflow the business which helps the business in ascertaining the true and fair financial position. financial accounting is the function of the accounting which helps Tesco in providing the methodological approach in describing the activities of the business. Accounting is the important factor for every business and is required in the company to record all the businesstransactions(Petria, Capraru and Ihnatov, 2015) . It also helps in
recording, classifying, and summarizing the transactions in the businessso that accurate and reliable decision can be taken in future on the basis of the information generated from the accounting function. this function also helps in displaying the financial health of the business to the shareholders. In preparing and reflecting the financial statements accounting plays vital role(Muda and et.al., 2017). Finance is theanother element which plays essential roe in the Tesco and any other business as finance is something on which entire company depends. To initiate the activities of the business, capital investment is required which requires effective planning and maintenance of the capital so that it can be used effectively without any disruption sin the organisation. Short- term planning foreffective availability of the working capital flow is also crucial to keep the business in operational and working motion(Menicucci and Paolucci, 2016). Accounting and finance playsimportantrole in the organisation and in management as business is completely operated by the money and if business do not control the moneythan they will not be able to control the business and for effectively controlling accounting function needs to perform and this can be done by properly accounting the income and expenses of the business. they can also mange the flow of the money and direct the course of the business. these functional also gave idea hat is actually happening in the company (Maskell, Baggaley and Grasso,2016) and in which direction company is moving. This will help on : Setting the budget- Business needs to set the efficient budget for getting the list of the future action and this can be done by the projected income and expenses. A comprehensive master budget starts with the income and expense itself and this can be ascertained by effectively performing the accounting and finance function. Analysing the costs-effective accounting helps the Tesco to ascertain the cost of the product so that accordingly price can be decided for selling the product in order to earn appropriate profit. this can be done under the accounting function which lead to divide the expenses in to the overheads and production costs(Libby, 2017). Overhead cost inclusivethe costsofthe insurance, marketing, office rent, utilities etc. and accordingly prices can be decided for selling the products.
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Hence, there are many more other elements like managing debt services, sets credit terms, meeting compliance needs and finding trends etc(Henderson and et.al., 2015). which can be generated by preforming the accounting and finance function effectively and efficiently which ultimately helps Tesco in many ways. There are many other accounting functions which are explained below as : Management accounting function- it basically involves collecting, analysing and reporting information about the operations and finance of the business. management accounting is the process of preparing the management reports and accounts. Advantages It helps inproviding accurate and timely financial and statistical information to the manager to make further decisions(Gitman,Juchau and Flanagan, 2015).This accounting helps in presenting the clear picture to stakeholders of company so that they can decide whether to invests in the company or not. DisadvantagesManagement accounting is based on the financial and cost records- It means both the financial and cost accounting information is used in the management accounting system. The accuracy of the management account is completely based on the accuracy of the financial and cost records , these records helps in determining the strength and weakness of the management accounting.Management accounting is only tool- Management accountant generally using the management accounting as a tool which helps in giving the advice and facilitate the management in decision making(Gardoni, Guevara- Lopez and Contento, 2016). the actual decisions and their implementation and follow up actions are prerogative of the management. Auditing function-it performs the necessary functions and provide independent opinion to shareholders in truth and fairness of the financial statement prepare by them. It helps the auditor to assess the risk in the company's' financial reports . Auditing helps in preparing and disclosing the facts ion the basis of which transaction and reports are maintained
Advantages It helps the auditors to check the accounting policies and procedures and internal control systemso to give the reports and financial statements which gives true and fair representation of the accounting information(Fisher, Garnsey and Hughes, 2016).Auditing facilitate the Tesco mangers to take useful and effective decision from the information generated, which is more reliable and appropriate. Disadvantages It involves high cost which is required to give to theauditors who perform entire audit function. It involves use of the professional judgement that is it involve use of the judgement in the identificationtherisks,selectionofappropriateprocedureofaccountingand interpretation of audit evidence(Duska, Duska and Kury,2018). It also involves standards which provides guidelines to assist auditor in forming of the sound professional judgements. Financial accounting function-it helps in providing the information which is needed for sound economic decision making by Tesco. It focus in on preparing the financial reports which provide information about the organisation performanceto the external parties . Income statement, Balance sheet, cash flow statement are prepared under this function. Advantages It help in decision making for the organisationInstant access to the information that is it reveal the true position of the business and information is useful for the company as well for the investors so according to the financial position and health of the business so that they can decide whether to invests in particular business or not(Brandt,Laitinen and Laitinen, 2016). Disadvantages Financial accounting involves high cost as it is considered to be an expensive part of doing the business as it involves educated specialists who are required to earn a professional salary and also the benefits to perform the job.
Financial accounting can also pose thedisadvantage for the businessas by disrupting the timing of their operations. Accounting involve more time which ultimately deals the operations of the business. Finance function It is the part of the financial management and financial management is the activity which is concerned with the controlling and planing of the financial resources of the company, the finance function basically involves acquiring and utilization of the funds which is necessary for efficient and effective operations of the business(Ball and et.al.,2015). Tesco using the finance functions effectively so that optimum utilisation can be done in their businesswhich leads to avoidance of unnecessary wastage and resulting in the achievement of organisation goal by earning good amount of profit as a result of low costs. There are different accounting functions which are explained below: Investment function It is the function which is performed by the finance team of the Tesco company and it is the responsibility of the team to identify, evaluate and analyse the best investment opportunity available to them .the most attractive investment project help in achievement of the objective of increasing shareholder's wealth and maximising their profit(Abel, 2018). The organisation' needs to evaluate each and every alternative available to them so that the best and most effective alternative can be chosen and which helps the company in their further expansion, growth and success. The decision of investment in different investment projects are done by different investment appraisal methods by the finance team so that they able to check the feasibility of the project which includes payback period, Net present value, internal rate of return etc. which helps to determine the rate , time period and value of the money which they can earn by investing in a particular project . Advantages Investment function helps the businessto determine the best investment opportunity by efficiently evaluating all the opportunities available.
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By investing in attractive opportunity this Will helps the business in increasing their profitability this lead Tesco to the path of success and growth(Quattrone, 2016)A good return on the investment can maximise the earning potential of the business and also in the achievement of the goal effectively and effectively. Disadvantages The biggest disadvantage of the investment function is after selection and investing in the particular investment it may result in heavy loss of money as attractive investments contains higher risks. Higher risk position might not be hedged by the organisation which will leads to failure of their money and resources It is time consuming activity as it involves deep analysing of each alternative available of various investment projects(Petria, Capraru and Ihnatov, 2015). Dividend functions Dividend is the part of the profit which is distributed by the company among shareholders . The amount of the dividend is decided by the top level management of the company. Dividend can be issued in the form of cash payments, as shares of the stock, or nay other property where cash dividend are the most common(Muda and et.al., 2017). Tesco also offers dividends in forms of mutual funds and exchange traded funds. These are the rewards which are paid to the shareholders for their investment in the company's equity and it usually originates from the company's profit. Company usually keep the major portion of their profit as retained earnings which represent that money to be used for the company's ongoing and future businessactivities to continue the smooth flow of the business and the remainder can be allocated to the shareholders as dividend. Advantages It helps in encouraging the shareholders to further invest in the Company as attractive dividend policies helps the investors to attract towards the business.
Investors become more confident above the company as they are giving them sufficient earning fort which the investor has invested into the company.Dividend income is tax free as tax deducted at source that is on distribution of the profits by company and hence investor receives the dividend than they need not have to pay the tax on the dividend income(Menicucci and Paolucci, 2016). Disadvantages The disadvantage of paying the dividend is company runs out of their cash which can be used and invested in different useful activities which helps the business s to expand The another disadvantage is company needs to pay the tax on distribution of profit which will not have the case of the company had invested the amount into the business and hence dividend resulting in additional tax burden for the company. Working capital function Working capital is the difference between the current assets ad current liabilities . Payment of the current liabilities are made from the current assets of the company and for this finance department needs to ensure that there is enough availability of the current assets so that current liabilities can be met when in the case of the dues(Maskell, Baggaley and Grasso,2016). The financial department focusses on involvement in the management of the working capital components so that they can timely pay of their current liabilities. The different components of the working capital are cash, receivables, inventory and payables. Advantages it helps in running business operations smoothly as sufficient availability of the working capital will make the businessoperations to work smoothly without any disruption . Timely availability of the raw material dan other component is only possible with the sufficient availability of working capital which in turn bring smooth flow of business operations.It helps the Tesco on effectively bargaining as enough working capital in thecompany can bargain and help the company to get the things on their terms rather dictating terms to the company(Libby, 2017). Say for example 99% of the time if company is willing to pay
them in advance than theywill be willing to offer great discounts as opposed to those companies who take raw materials and other components on credit. Disadvantages No return n capital as all theexcess working capital in the company earns no interest and which can termed ass zero return capital. Availability of excess working capital creates chances of overspending that is company may end up spending their working capital in buying the products or things which are not necessary for the business(Henderson and et.al., 2015). TASK 2 PARTICULARS20172018 Operating profit375412.5 total assets22354035 current assets757.51035 current liabilities322.51110 Net profit300262.5 Sales24003000 Receivables450600 Payables2851050 Purchases13502400 Return on capital employed Return on capital employed is the probability ratio which measure how efficiently company can able to generate the profits from its capital employed by comparing the net operating profit to the capital employed referring to the total asses of the company less all the current liabilities(Gitman,Juchau and Flanagan, 2015). Ratio:20172018 Return on capital employed=Operating profit/total assets- current liabilities*10019.60%14.10%
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From the above ratio it can be interpreted that in the year 2017 Apha ltd. Company has ratio of 19.60% which s more than the year 2018 as it representing that in 2017 the company have higher efficiency to generate the profits with the capital employed by them. Net profit margin Net profit margin is basically the percentage of revenue remaining after all the operating expenses, interests, taxes and preferred stock dividend deducted from the company's total revenue(Ball and et.al.,2015). it is the percentage of the profit which company produces from its total revenue. Ratio:20172018 Net profit margin=Net profit/ sales*10012.5%8.75% From the above ratio it can be interpreted that in the year 2017 Aplha Ltd. Has 12.5% of net profit margin which company earns compared to the year 2018 as they earn 8.75% . this means the company's difference between the net profit and sales is lesser in the year 2017 than 2018. Current ratio Current ratio is the ratio which measures the ability of the company to cover their short term liabilities with their current assets(Abel, 2018). It is the liquidity ratio which measured Whether the firm has enough resources available in their organisation to meet their short term obligations. This ratio can be expressed as current ratio = current assets/ current liabilities Ratio:20172018 current ratio= current assets/ current liabilities2.340.93 The above table depicts that the company haveenough resources available in their organisation so that they able to meet their short term obligations in the year and can and have greater difference in comparing the firm's current assets with current liabilities in the year2017 compared to the year 2018 in which they have the current ratio of only .93 that indicating that company is not having the enough resources and current assets to meet their current liabilities and obligations. Debtor collection period
Debtor collection period is the period which indicates the average time taken to collect the trade debts because of the credit sales made by the Alpha Ltd or it is the average period which company takes to collect the money owed to it by its trade debtors(Gitman,Juchau and Flanagan, 2015). Ratio:20172018 debtor collection period=receivables/ sales*3656873 From the above interpreted ratio it can clearly identify that company takes fewer days in the year 2017 to collect their dues that is 68 days compared to the 2018 in which company takes 73 days to collect the dues longer debtor collection period is clearly and indication of the slow or late payments by the debtors. Creditors payment period Creditors payment period is average time the business stakes to settle down its debts to its trad suppliers(Maskell, Baggaley and Grasso,2016). This shows the average number of the days the business takes to pay to the suppliers. It can be calculate by dividing the trade payables by the average daily purchase by the company on credit for set period. Ratio:20172018 Creditors payment period= Payables/ purchases*36577159.7 The above ratio indicating that in the year 2018 Alpha Ltd takes more time to pay off their debts to the suppliers compare to the year 2017 as in 2017 they take 77 days while in 2018 they take 157 days which is more number of days taken by the company to pay all their dies to the suppliers. CONCLUSION From the above report it can be concluded that there are different management , accounting and financing function of the organisation' which plays important role at their levels which ultimately contributing towards showing the financial health and performance of the company .
It can also be concluded from the report that there are different profitability ratios which can be sued to measure the firm's profitability in order to measure their performance so that corrective measures can be taken to eliminate any disruption or lacking in the company.
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