Financial Management and Decision Making in an Organisation

This report discusses the principles and techniques of financial management and decision making in an organisation. It covers topics such as approaches to effective decision making, management accounting function, financial strategies, financial ratios, investment appraisal techniques, cash flow statements, and break-even analysis. It also evaluates the role and function of the management accountant in financial control and monitoring, fraud detection and prevention, and approaches to ethical decision-making.

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Table of Contents
INTRODUCTION...........................................................................................................................3
PART-1............................................................................................................................................3
A critical evaluation of a range of approaches, techniques and factor which contribute to
effective decision making in an organisation.........................................................................3
How the management accounting function will support organisation decision making........5
Evaluate the principles which guide effective and efficient financial strategies to maximize
shareholder value and meet stakeholder need........................................................................6
Criticality evaluate the role and function of the management accountant especially in regard to
financial control and monitoring............................................................................................7
Techniques for fraud detection and prevention and approaches to ethical decision-making.8
Recommendations on how management accountant can improve financial decision-making9
Part-2................................................................................................................................................9
A critical evaluation of the business using appropriate ratios................................................9
Explanation and justification for how data obtained might help to inform operational and
strategic decisions.................................................................................................................10
Compare and contrast three investment appraisal techniques and how these can assist in
maximizing return on investment (ROI)..............................................................................11
The role of cash flow statements and break-even analysis in informing financial decision
making..................................................................................................................................12
A critical evaluation, including recommendations, of how management accounting techniques
can be used to support good decision making and ensure long term financial stability of the
organisation..........................................................................................................................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial management is a very important technique of the business. It is a managerial
activity which helps of the organisation of taking financial decision. It manages and controlling
the financial assets to achieve the objective of the business organisation. The positive cash flow
is more important than the book profit. It also help to taking decision for forecasting to ensure
the optimum cash flow. It is also known as the science of money management. It comprise of
forecasting, planning, organisation, directing, co-ordinating and controlling of all business
activity relating to acquisition and application of the financial resources. The decision is based
on inflow and outflow of funds. The financial management works on the five principles such as
timeliness, justification, consistency, documentation and certification. Financial analysis is a tool
of identifying business, budgets, and financial related transaction to evaluate the performance of
the organisation. It analysis whether firm works as a going concern principles (Al-Dmour and
et.al, 2020). In the first part of report discuss about the approaches, techniques, management
accounting function and financial strategies to maximize shareholder value. Further in the second
part of the report discuss about the financial ratios, investment appraisal techniques, cash flow
statements and break-even analysis informing financial decision-making.
PART-1
A critical evaluation of a range of approaches, techniques and factor which contribute to
effective decision making in an organisation
Decision making is the method of identifying a decision, collecting important information
and evaluating alternative resolutions. It is step by step process which is help to the taking best
decision of an organisation. The process of decision-making are as follow-
 Identify the decision- It is very important step for taking decision. The management
should understanding the nature of the decision (Angel and et.al, 2018).
 Collecting information- Before taking decision to gather the information, the information
can collected both external and internal environment.
 Determine the alternative- After gathering information to determine the best way. The
management also use other information to build alternatives.

 Evaluate evidence- To evaluating all the evidence and selected those evidence which is
best for an organisation.
 Take action- After selected the best alternative the management implements of alternative
(Chakrabarty and et.al, 2018).
There are mainly three approaches to effective decision making they are as follow
1. Behavioural Approach- This approach is also known as descriptive and administrative
approach. This approach tells about how to take decision. Managers have narrow view of
problems because they do not gather full information related to problems and they do not
have all solution to resolve the problems. This approach is based upon two values-
Bounded Rationality: The managers have limited knowledge of the external environment
factors so that they can not control. The bounded rationality forces the managers to work in real
life challenges, resources limited, time boundation, pressure of political parties and external and
internal factors. The managers do not take the proper rational decision.
Satisfying- Those decision which is best for an organisation the management chooses
those action. The satisfying decision includes best prices, appropriate income, fair market value
and good quality products (Henager and et.al, 2019). Bounded rationality bounds the manager to
take best decision rather than ideal.
2. Implicit Favourite Model- It is also known as Retrospective approach. Under this
approach the manager determine the best alternative to the problem and compare with the
other alternative and evaluate the strength and weakness of the alternatives.
3. Classical approach- This approach the manger to take decision which is economic interest
of the organisation.
There are various type of technique of decision making are as follow:
 Cost analysis
 Influence diagram approach
 Decision making trees
 Linear programming
 Different method of decision analysis
The factor of decision making process are as under:
The some factors are affected to decision making process they are given below:
 Personal factor

 Environment factor
 Social factor
 Technology factor
 Economic factor
 Legal factor
How the management accounting function will support organisation decision making
Decision making should be based on facts and figures. The information of an
organisation is too minute and detailed to assess at a glance. Management takes decision on the
basis of past trends and actual data (Jain and et.al, 2019). The finance decision such as stock and
purchase will also receive benefit from the management accounting. To taking decision it is very
important to make accurate cash flow. The cash flow is based on the accounting figures of an
organisation. The future decision is based on the current performance of the organisation. The
main purpose of the management accounting is to provides information shareholders so that they
can invest in better opportunities. There are six reasons the management accounting is help for
decision making process.
1. Relevant cost analysis- The company spends its money is based on the bottom line. The
company uses relevant cost analysis to boost the profitability ratio of the company. The
company compares the historical and current and evaluate which service giver and
receiver are beneficially for the company. The relevant cost analysis helps to determined
the budgets and decision making process (Jorge and et.al, 2019).
2. Audience targeting- When the customer need fulfil according to requirements then
product and service design is successful. Most of the companies do not take the
advantages of the existing customer information. The company can used data to
understand the consumers demographics. The management accounting helps to evaluate
the customer profile is different in every organisation and industries. It helps to
determined which customer will generate higher profit for the company.
3. Make or buy evaluations- The management accounting evaluate the data at every stages
of production because production is the backbone of the organisation. Most of the
companies perform at every stage of production but some company buy components from
market. To used management accounting properly the company can take decision with
efficiency.

4. Budgets- Management accounting helps to making budget. It is prepared for the future on
the basis of the past data. Budgets plays an important role for planning. It determines that
the company adopt best resources for the best returns. It helps the management to
evaluate which expenses would be best to compare the cost analysis. To used of
management accounting can be determined which strategy will best so company can earn
high profit in the future (Kazakova and et.al, 2019).
5. Controlling- If the company have best data then management can control all the function
of an organisation. The data should be based on the facts and figures. The management
understand evaluate all the branches performing well, if and branch is underperforming
then management evaluate which factors are lagging behind. The best management
accounting is helped of various level of management better control of the company. To
reduce cost and allocation of the resources to the projects, company can increase its
profits.
6. Planning- Management accounting helps to manage the current operations and determine
the future plans. Planning is the best technique for success of the company. To evaluate
the current trend and data in the company, management accounting helps future trends.
Due to high competition in the market company should use every opportunities for the
success. It helps company to use the reports and information which is available in the
market for decision making (Khan and et.al, 2019). It evaluates bigger amount of data to
known the information.
Evaluate the principles which guide effective and efficient financial strategies to maximize
shareholder value and meet stakeholder need
To increasing the shareholder value and stakeholder there are ten principles for driving
the profit of the company.
1. Low price to earnings- It means the shares divided by the price earning. The public
company plays a role the earning expectations game. The company should increases the
value over the reporting period so that the investors can invest in the company and
generate high profit in the company. Due to higher profit the value of the company will
increases and shareholder earns higher profit.
2. Low price to cash flow- The company should maintain the relationship between cash
inflow and outflow because strong cash flows generate higher flexibility. The

management should maintain proper cash flow so that they can strong earnings and
increased share prices (Menon 2019).
3. Low prices to book value- The company compares the stock price, if the share price is
low in compare to the book value of the company then sentiment about the sector may be
overly negative. The low book value stock attracts the risk protection.
4. Value of the company- The company can evaluate the intrinsic value. The objective of
the company to make investment by acquiring the shares.
5. Financial soundness- The company should maintained low debt. Low debt helps of the
company during negative business condition because they can save the interest expenses.
6. Catalyst for recognition- Some of the factor such as political, economic and legal to
evaluate whether the company has a catalyst to cause the stock price to rise.
7. Capable management and insider ownership- All the management teams determines the
strength and weakness of the company. After evaluating the company information to
increasing the share ownership (Ozkale and Ozdemir Erdogan, 2020).
8. Sound business strategy- The management team should understand the business strategy.
This business strategy helps to increasing the shareholder value.
9. Positive earning dynamics- Earning helps to drive the share price. The management
should those company which are continuos improving.
10. Positive technical analysis- The currently stock prices helps in future changes.
Criticality evaluate the role and function of the management accountant especially in regard to
financial control and monitoring
Financial controls are the rules and regulations by which an organisation detect and
controls of its financial resources. It is a core process of the resources management. To
implementing the financial policies company should evaluating the existing policy and determine
the future position of the company. The management accountant are adopted four techniques to
financial control and monitoring (Saptono, 2018).
1. To detect fraud and error- The financial statements like balance sheet, profit and loss
account and cash flow statements shows the financial position of the company. When
evaluating the financial control company should detect fraud and error. The management
helps to detect error so that take better decision of the company.

2. Timely updating- It is the backbone of the resource management. The data should be
updated timely so that achieve overall performance of an organisation. The updating all
polices helps to financial controlling.
3. Analysing all possible operational scenarios- The management accountant should
establish financial control so that evaluate all possible scenarios. The company evaluates
all possible scenarios on the basis of profitability, expenditure, safety and production
volume. The financial controls helps to establish operational efficiency of an
organisation.
4. Forecasting and making projection- It is very important techniques for management to
financial control and monitoring. When implementing the financial control, forecasting
and making projection is very important step. It helps the management to achieving the
business objective (Saurabh and Nandan, 2018).
Techniques for fraud detection and prevention and approaches to ethical decision-making
The company should follow the techniques so that company can prevent fraud and error.
The techniques are given below:
1. Company should take the advice of employees because the help to detect any
misbehaviour in the company.
2. Identifying those areas in which fraud is likely to occur in the business. The fraud tipsters
can detect fraud through phone, email and fax.
3. To apply effectively test and internal controls company can detect fraud and error.
4. It is very important the management should communicate the activity across the
organisation so that all workers can monitoring every transaction in an organisation and
identify fraud which is exist in an organisation.
5. To conduct audit and continuous monitoring the transaction, company can determined the
efficiency of and organisation.
6. To use of data analysis technique can detect the fraud which is directly impact on the
business. The use of cost effective program organisation can identified immediate returns
(Sharma 2018).
Approaches to ethical decision-making
 Identify the best decision which is supported to the business decision-making.
 To collect the important information

 Choose the best alternative
 Applying the alternative in decision-making process
 Compare the actual result with business strategy
 The actual results do not satisfy in business process then take action
 Review the decision making process
Recommendations on how management accountant can improve financial decision-making
Management accounting helps in business for decision making process. The management
accountant should establish the accounting data for future decision making process and budgets.
They should analysed the financial statements so that risk can be identified. The key
performance tools helps to identify the different areas of operation. They should also focus new
investment techniques so that allocates the surplus cash where it will give the best returns
(Sinervo and et.al, 2019).
Part-2
A critical evaluation of the business using appropriate ratios
A financial ratio and accounting ratio means expressions and as the relationship between
two or more thing. In this report a detailed ratio analysis is performed of Tesco company.
Current ratio- It evaluates the short term solvency. It determines the business have enough
current assets to pay the current liabilities.
Particular Amount(£)
Current ratio= Current asset /
current Liabilities
11821/ 16125 = 0.73 Times
Interpretation- The generally current ratio should be always 2:1. But Tesla company has not
sufficient assets to pay its liabilities so that company increasing its current assets so its pay the
current liabilities (Tang 2020).
Quick ratio- It consists cash and cash assets, the stock are deducted from current asset. In seller
market, stock are also near cash assets.
Particular Amount(£)
Quick ratio = (current assets – stock)/ current
liabilities
(11821 – 2339)/ 16125 = 0.58 times

Interpretation-The quick ratio should 1:1. But The quick ratio is 0.58 times its means company
should focuses in debtors and improves the pattern of account receivable collection lags behind
the schedule for paying current liabilities.
Gross profit ratio- It evaluates the percentage of each sale in rupees after payment for the goods
sold (Thagunna 2021).
Particular Amount(£)
Gross profit ratio- Gross profit * 100 / sales 4633 * 100 / 61344= 7.55%
Interpretation- GP ratio is positive it means it is a favourable sign of good management.
Net profit ratio- It measures the relationship between the net profit and sales of the business.
Particular Amount(£)
Net profit ratio- Net profit*100 / sales 1483 * 100 / 61344 = 2.41%
Interpretation- It shows that the profits after remaining all the expenses. A high net profit ratio
indicates positive returns from the business.
Total assets turnover ratio- This ratio measures the efficiency with which the firm uses its total
assets.
Particular Amount(£)
Total assets turnover ratio- sales / Total assets 61344 / 49351 = 1.24 times
Interpretation- A high total assets turnover ratio indicates the efficient utilisation of total assets
in generation of sales.
Explanation and justification for how data obtained might help to inform operational and
strategic decisions
Strategic decision making is the process of taking best decisions and the impact upon the
organisation. If an organisation take bad decision then company occurs high losses. In the
competitive environment organisation must take decision which is supported to short term results
and achieving the higher profit. It also helps to implementing for future plans so that company
can survival for long term period. The strategies decision-making includes five important steps
which should follow the company so that company can earn higher profit. They includes
opportunities, threat, countervailing factors, environment factors and risk assessment process
(Wang and et.al, 2020).

To perform better in the future the management of Tesla company should take best
strategic decision so that company can growth in the future. It helps improving performance,
reduce risk and decreases the probability of strategic failure. It is very necessary which should
have all the leaders. The skills should not picked up and used for short terms and forgotten. It
provides competitive advantages for an organisation so that company should develop strategies
decision process and obtain the knowledge of processes, systems and polices (Xu and et.al,
2020).
Compare and contrast three investment appraisal techniques and how these can assist in
maximizing return on investment (ROI)
The three investment appraisal techniques are as follows-
Net present value- The very first investment appraisal technique is NPV. It shows the deviation
between the net cash inflow and net cash outflow of the organisation for a specific period of
time. It helps is analysing the profitability of the investment or the project. It is also used in
comparing the homogenous investment options. If the NPV comes negative then the
organisations have to ignore that investment.
Pay back period- It is another method by the help of which investors and professional institutes
can calculate the investments return. It helps in determining that how much time this investment
will take to recover the initial amount. Through this method the organisation can make the
financial decisions easily. If the payback period is shorter then it means that the investment is
more profitable for the business.
Accounting rate of return- ARR contains a formula by the help of which the organisation can
identify the capability of earning profit from a particular project. This methods is mostly used by
the organisation which are dealing with multiple projects because it helps them to find out the
profitable project for them.
How these can assist in maximizing return on investment:
Investment appraisal techniques are called as capital budgeting. These techniques helps the
organisation in identifying the best investment opportunity so that they earn maximum profit.
The organisation can take their important financial decisions after analysing and evaluating these
techniques.

The role of cash flow statements and break-even analysis in informing financial decision making
Cash flow statement helps the organisation in analysing whole data related to cash which
is used in the organisation. The whole data means it also include the information from where the
cash is coming the organisation. It include three activities which are cash flow from investing
activities, cash flow from financing activities and last one is cash flow from investing activities.
Cash flow statements helps the manager in analysing, that the company is able to pay their bills
over the short term or not. If the organisation not able to pay the bills of short term period then
manager take a financial decision according to the condition of the business. It also helps in
predicting the earning opportunities for future so that they can invest their money and make a
huge profit.
Break-even analysis helps the organisation in analysing the cost of business operations so
that the organisation can determine the number of units to be sold to cover the cost of the
operations. It also helps the organisation by determining the price of the product and units to be
sold so that they can cover the cost of the product. This is the very important role because due to
this the organisations are able to maintain their position in the market. By the help of break-even
analysis the organisations are able to maintain and control the cost because the profitability of
business can affected due to fixed and uncertain cost. Due to this analysis the organisation can
easily detect the affect of cost and change the price according to the change in cost.
A critical evaluation, including recommendations, of how management accounting techniques
can be used to support good decision making and ensure long term financial stability of the
organisation
Management accounting technique is different from financial accounting technique. It
helps to management for taking best decision of an organisation. It provides financial
information such as sales, operating expenses, revenue and cost control. Management accounting
helps to find the best plans for future and prepared budgets to ensure the company's future
success. It provides the cost benefit analysis for the new projects and reports for the successful
projects. Management account should understanding financial statement because these
statements determine the financial position of the company. To use of various techniques
company can determined the fraud and error and evaluates the possibility way to reduce the error
In contest to Tesla company, the company should follow all techniques so that reduces
the expenses and investment in better opportunities for long term growth. To use of standard

budgeting techniques such as net present value, internal rate of return and discounted cash flow,
help the decision maker for determined whether to be invest in project or not. The company
should follow the margin analysis technique to determine the price point for services and
production. The decision should be taken on the basis of past information. For survive the
business for long term company should follow all the techniques and approaches such as margin
analysis, cost benefit and product costing.
CONCLUSION
In the above report the financial management and management accounting plays an important
role in organisation. It helps an organisation for decision-making process and survive for long
term growth. To use of various techniques and approaches management accountant can control
in business operation. Decision making process is step by step process which helps organisation
for collecting relevant information and choosing the best alternative. Further in this report,
necessary calculation are performed for determining signifiant ratio to analyse the financial
performance and liquidity of Tesla company. To use of three appraisal techniques company can
determined the net cash flow and outflow of the business and identify the best investment
application so that company can generate the regular income. The cash flow management
determines how much money should in the business to cover debts such as creditors and
employees.

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