Financial Management

Financial
Management

SCENARIO A.................................................................................................................................1
Introduction..................................................................................................................................1
MAIN BODY..................................................................................................................................1
Range of approaches, techniques and factors contributing to effective decision making...........1
Stakeholders.................................................................................................................................2
Value of management accounting...............................................................................................3
Fraud and detection of fraud........................................................................................................4
Ethics...........................................................................................................................................6
Reflection.....................................................................................................................................6
SCENARIO B..................................................................................................................................6
Introduction..................................................................................................................................6
MAIN BODY..................................................................................................................................7
How data help in obtaining operational or strategic decision in context of organization...........7
Compare and contrast the three different investment appraisal techniques.................................9
Values of techniques which aid in decision making process.....................................................12
Evaluate that how financial decision making support the long term sustainability..................13
Give recommendations which help the accountant to improve their financial sustainability...13
Conclusion.................................................................................................................................14
REFERENCES..............................................................................................................................15

SCENARIO A
Introduction
Financial management helps to analyze that financial role of the business which leads to
the financial planning of the problem. Financial planning is an essential part of the business
concern that contributes to a firm's development. Accounting information enables firm to make
sound financial decisions (Calabrese and Ward, 2018). This section based on the several topics
such as different range of financial management approaches, techniques or factors which
contributes in effective decisions making process. It also includes the stakeholder management,
conflict between management and shareholders, value of management accounting etc. In
addition, this section covers the different types of fraud, ethics in decision making process or
reflection of this concept which understood by the individual.
MAIN BODY
Range of approaches, techniques and factors contributing to effective decision making
Range of approaches:
Formal or informal approach: It helps the decision-making phase of the company to
create a cohesive plan. This approach removes the objective decision-taking process and offers
examples of the reasons needed for decision making (de Azevedo And et.al., 2020). It helps to
increase the ability to select strategies that meet the different stakeholder needs of the job.
Rational alternatives are available which reduce the complexity associated with the tasks. The
strategy makes for a more immediate reassessment of the conditions, objectives or target shifts of
the partners. It lets Tesco Plc to make more strategic decisions across all aspects.
Knowledge based approach: It involving theories, different knowledge and religious
practices from a broad array of disciplines and trying to apply them when it appropriate to the
organization. These can include ideas of leadership, philosophy, management of transformation,
and corporate culture; understanding of faith, social relationships, development, and awareness;
and practices of self-help, and future human revolutions. Continuing to work from a broad skill
set allows the manager of Tesco Plc to shape a strategic plan to operate with the customer based
on factual, credible resources, and to represent the needs of the customer with greater emphasis
and precision.
Techniques:
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Ratio Analysis: It provides benefit from the information which provided during decision
making by using financial statements of the company to analyze the performance. Thus, effective
use of financial measures helps managers to transfer the information that is valuable and
meaningful for decision-makers in order to sustain the effectiveness of management within the
sector. This analysis was used to determine profits of the company, effectiveness, cash flow
performance etc. It also lets Tesco Plc's officials to use this knowledge in the successful
decision-making process.
Financial Analysis: It is important for management to create decisions in the Tesco Plc
context and it also assists in the process of decision taking. This is the most desirable strategies
that administrators use to improve both organizational performance and efficacy.
Factors contribute in effective decision making:
Risk: At the time of implementation of any strategy, each company faces a certain risk to
improve their business operational activities (Fich, Nguyen and Officer, 2018). Managers of
Tesco Plc need to determine several risk which can affect the company and its performance,
because it further can impact the organization's whole decision making process. Managers
establish the risk in the context of Tesco Plc that can further impact the functioning as well as the
actual success of the firm. This factor contributes in effective decision making process.
Financial factors: The making of a business decision relies on a company's financial
resources. Hence it is easy to carry out the equity and the future opportunity to make judgments
on their spending of these project expenses. Tesco's managers evaluate these financial factors
that impact on decision making process and then further impact both overall profit and
efficiency. This factor contributes for managers to take effective decision.
Above discussed approaches, techniques or factors are essential for managers and it
contributes in effective decision making process.
Stakeholders
Stakeholders are the ones who can influence an initiative or have an impact on it. They
could also include individuals that have a keen interest throughout the effort for educational,
conceptual, or strategic purposes, even though it doesn't directly impact them and their families,
friends, and colleagues. In general, interested parties seem to have an attention in an effort or
activist group on whether it would impact or affect them. The further they continue to profit from
it, or end up losing it, and the likely their interest will be. The heavier they are engaged in the
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effort or organization, the greater their interest, too. High interest of stakeholders put more ideas
on the table of discussion, include several perspectives, it support the efforts and it also
strengthen their position in the organization.
Conflict between management and shareholders:
Conflict incorporates two groups but the others are often deeply involved in repression,
victimization, and rescue teams. Because once two people have quite a conflict including
transaction than both parties are involved. All users invent what occurs, each impact another and
it is impacted by the other, almost always the creation of a negative triangle involves a third
party (Finkler, Smith and Calabrese, 2018). It seems to intensify the tension and make things
worse. By using Agency Theory, manager of Tesco Plc resolve the conflict between
management and shareholders. Other than this, there are some other conflicts as well between
management with stakeholders for example receivables vs payables conflict.
Value of management accounting
Management accounting: It could be used for short term as well as long-term decisions
that involve a company's financial performance. Management accounting aid the financial
managers of Tesco Plc to make strategic decision which aim to help improve the operating
profitability of the organization while also helping to make future investment decisions.
Performance forecasting, monitoring and control are a crucial component of management
accounting to ensure that the actual results are in line with the income and expenses highlighted
at the start.
Role of management accountants: Management accountants essentially focus on
providing key insights which help the senior management of a organization to make many of
their decisions. By supplying a capital of financial reports information, almost always supported
by effective accounting system, they also support decision-making process within a firm.
Management accounts of the organizations plays several roles such as reviewing products,
launching new products, staffing, evaluating operational performance, financial resources etc.
These roles help the accounts of Tesco Plc to achieve their business goals & objectives.
Maximization of shareholder’s fund: Maximization of shareholders wealth is a new
approach for financial management. Profit maximization has become the primary focus of a
company and financial management before the idea of optimizing capital entered into being. This
is a better objective opposed to optimizing benefit, because it takes into account a larger domain.
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Income or Value of an organization is considered as the shareholder-invested market rate of the
wealth.
Finance managers of Tesco Plc are the shareholder's agents and their task is to care for
shareholder interests. A certain shareholder or investor's goal will be a decent rate on everyone’s
capital, and everyone’s capital’s security. Each of these objectives is very well served as just a
business decision measure by wealth maximization (Hartikayanti, Bramanti and Gunardi, 2018).
There are several capitals budgeting method which are used by the finance manager of Tesco to
maximize their shareholders wealth such as net present value, internal rate of return, payback
period etc.
The management accountants pursue the profit maximization objective for shareholders
that should reflect on the Agency's interaction with shareholders and management and the
ensuing decision-making behavior. Therefore specific accounting strategies are required when
stakeholder orientation is taken.
Management Accountant conducts a number of roles to ensure financial stability through
the administration of all fiscal facets of the firm. It allows the business to push its policies and
strategies forward. The accountant of administration ensures that all procedures and operations
are carried out effectively while maintaining the expenses under control. Successful business
helps to make use of the management accounting to avoid fraud and the immoral problems
generated inside the Tesco Plc. The system of administration of accounts tries to identify fair
methods and processes.
It will include an accounting system targeted at controlling activities linked to investment
assets and making sound business decisions on various financial implications. Individuals use
distinct types of financial techniques, Tesco Plc Company used to cut operating cost. The
methodological approach for cost management is cost accounting technique that used to
minimize the cost of production and maximize the profit margin.
Fraud and detection of fraud
There are several types of frauds which can happen in the organizations and thjsoe are
discussed below:
Skimming of cash: This is a form of misappropriation of resources involves taking cash
even before it wants to enter the financial level of the organization. It is very difficult to detect,
because it needs proof of anything which has not yet been recorded (Hulikal Muralidhar, Bossen,
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Mehra and O'Neill, 2018). The implementation does not require much complexity, making it a
good choice amongst the committing fraud. Examples of misappropriate assets include:
manipulation of checks, skimming trade receivables, counterfeit billing strategies, payroll
strategies, falsified or overwrite expense schemes, and inventory schemes.
Misuse of company’s assets: Another popular misappropriation of assets is the misuse of
assets in companies. It is not only troublesome since it is the unapproved use of corporate assets,
but it could also allow access the corporation to incredible support.
Consumer fraud: Individuals targeted by several drawbacks, fake email marketing,
electronic mail, scams, phishing, robbery of identities as well as other schemes all are
perpetrators of criminal fraud. If it is a violation of an association program or fraudulent tax
returns filed for substantial refunds, customer fraud is on the rise. Firms can also be sufferers of
email malicious software notably spear phishes, which means going targeted, camouflaged
emails containing malicious links.
There are some other frauds as well where financial managers liable to be involved and
those are discussed below:
Identify theft and account takeover: Corporate identity theft efforts often contain spam,
whereby a thief imitates somebody else inside a business to retrieve sensitive information from a
destination (Karadağ, 2018). Then, the scammer can enjoy a range of responsive records,
utilizing these to cause significant injury, even trying to apply for overdraft charges and checking
accounts. For example, a conman could send an email to an employee acting as the financial
manager or CEO to request confidential details such as a code on the server. If given, this would
cause even more confidential information to be obtained, providing enough ammunition for
fraudulent activities.
Expense fraud: It includes employees submitting claims for payment for exaggerated or
fabricated expenses. Since many worker costs are incurred in circumstances of restricted
oversight, the legitimacy of expenses can be going to be difficult. Since the actual amounts in
spending fraud are mostly on the lower end, this doesn't always make any sense for
representatives of organization such as financial managers and management to spend too much
time evaluating them. Tiny false allegations, however, could even quickly add up, particularly
across a large workforce.
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Ethics
Ethics are a set of fundamental morals. They impact how individuals make decisions, as
well as how they run their lives (Madura, 2020). Ethics should be what is good for people and
community, and it is also characterized as philosophy.
Ethical decision making refers to the method of determining and considering options in a
way that is compliant with ethical standards. It is important to identify and exclude unethical
choices in ethical decision making, and to choose the appropriate moral alternative. The ethical
decision making requires dedication, awareness and proficiency.
Reflection
The appraisal has included multiple lessons because of various approaches and techniques to
act accordingly. I observed several difficulties throughout that project but also managed to learn
how to manage multiple things. During this task process, the key problem I faced was that of
researching appointed topics and activities. I used browsers to locate useful information, but
there are also many options that have created things harder. It was because the time period was
too limited to complete the project. I also regarded it a top problem, as well as a shortfall of sites
that offer pertinent or factual info.
SCENARIO B
Introduction
Financial management is a necessary activity for control of financial capital for any entity.
A financial manager carries out some activities, such as monetary planning, organizing,
managing and controlling organisation funds. It is what financial managers are doing to achieve
its objectives and strategic performance. Knowledge of a financial manager regarding financial
management functions is essential for managing capital. It helps to make the monetary planning
and management decision utilizing resources properly. A good manager is a strong credit inflow
and outflow planner, coordinator, manager and controller. A financial manager's ultimate goal is
to maximize the organisation's value. This section of report includes the company’s performance
with the help of investment appraisal techniques, ratio analysis and how techniques help in
financial decision making. It also covers that how financial decision support the long term
sustainability along with some recommendations.
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MAIN BODY
How data help in obtaining operational or strategic decision in context of organization
It has recommended to managers that prefer to perform through their everyday activities.
Management teams also would use all of the current discount rate data on the market (Mishra,
2018). It's not as simple as any more price-effective or efficient exercise. Organizational
knowledge is often a big exercise which can have a major impact on future over a period of time.
The managers have lot of routine practical experience. All decision-making appropriate is
predicated on the aspect and function of the company.
This tends to help the thoughts and information of the management teams as well as others
who guide their daily decision-making needs. It is essential to utilize Tesco Plc's Financial
Statements to assess their actual position. The following is the study of the business ratio
utilizing information from the annual statements of the organization that will direct the strategic
and organizational actions of the continent apparel company:
Ratio Analysis: Ratio analysis is an assessment of items listed in a company's financial
statements. It is used to assess a lot of risks with an organization, such as liquidity, operating
efficiency, and profitability (Piatti-Fünfkirchen and Schneider, 2018). This sort of analysis is
extremely effective to non-business analysts as their main source of data about in a company is
their financial reports. This technique implement by the manager of Tesco Plc and its ratio
calculations are mentioned below which helps in evaluating their performance.
Net profit margin:
2019 (£’ Million) 2020 (£’ Million)
Net Profit 30000 45000
Revenues 650000 700000
Net Profit Margin (%) 4.62 6.43
Above calculation helps in evaluating that net profit margin of Tesco Plc increases from
the period of 2019 to 2020. Net profit margin ratio increases from 4.62% to 6.42% which
indicate that company is growing.
Gross profit margin:
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2019 (£’ Million) 2020 (£’ Million)
Gross Profit 250000 280000
Revenues 650000 700000
Gross Profit Margin (%) 38.46 40
From the above table, it has been observed that gross margin ratio rise from 38.46% in
2019 to 40% in 2020. It means sales of Tesco increases which maximise the gross profit.
Current ratio:
2019 (£’ Million) 2020 (£’ Million)
Current assets 155000 165000
Current liabilities 80000 75000
Current ratio (times) 1.94 2.20
Above table indicate that, current ratio of the company in 2019 was 1.94 times and in
2020 it is 2.20 which are more in favour ideal ratio that is 2:1. In both situations, liquidity of
Tesco was enough to repay their obligations.
Quick Ratio:
2019 (£’ Million) 2020 (£’ Million)
Quick assets 65000 75000
Current liabilities 80000 75000
Quick ratio 0.81 1
Above calculation shows that, in 2019 quick ratio was 0.81 which is good but in 2020 it is
1 which is more favourable or matches with the ideal ratio (Rampini, Viswanathan and
Vuillemey, 2019). It means company perform well and able to meet their short term obligations.
Return on Equity ratio:
2019 (£’ Million) 2020 (£’ Million)
Net profit 30000 45000
Shareholder's equity 435000 485000
Return on equity 6.89 9.28
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From the above calculation it has been observed that return on equity for the period of
2019 was 6.89 and for the period of 2020 are 9.28. It is clearly shows that return on equity
increases which represent the improvement in the company’s performance.
Debt to equity ratio:
2019 (£’ Million) 2020 (£’ Million)
Total liabilities 165000 155000
Total Assets 600000 640000
Debt ratio 0.28 0.24
From the above calculation it been interpret that debt ratio in 2019 was 0.28 and in 2020 is
0.24 which shows little decline in proportion. Managers should focus on it or build strategies to
improve it.
Return on assets:
2019 (£’ Million) 2020 (£’ Million)
Net profit 30000 45000
Total assets 600000 640000
Return on assets 5 7.03
Above mentioned table shows the return on assets that is 5 in 2019 and 7.03 in 2020
period. Overall performance of the company increases which can clearly seen in increase in this
ratio.
Compare and contrast the three different investment appraisal techniques
In context of the organization, there are multiple options are available for the business to
invest or maximise their earnings (Romano And et.al., 2018). Manager of Tesco Plc follows the
capital budgeting methods to spend on most profitable project. It helps in maximising return on
investment (ROI) in respect of the organization. It will be understand with the help of suitable
example which discussed below:
Payback Period:
Initial Investment = 110000
Life if project = 5
Formula:
Payback period= Year before cost recovered + amount to be recover / next year cash flow
Calculation:
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Year Cash flow Cumulative cash flow
1 £ 30000 £ 30000
2 £ 40000 £ 70000
3 £ 90000 £ 160000
4 £ 120000 £ 280000
5 £ 150000 £ 430000
Payback period = Year before cost recovered + amount to be recover / next year cash flow
= 2 + 40,000/90,000
= 2 + 0.44
= 2.44 years
As per the above calculation, recovery period is 2.44 years that is good and managers
should select this project to invest (Vakhrushina and et.al., 2018). If another project’s recovery
period is less than this, then Tesco’s managers can reject this project for the investment.
Net Present Value (NPV):
Cost of capital = 10%
Investment = 110000
Formula:
NPV = Net cash inflow – depreciation
Calculation:
Year Cash flow PV factor Discounted cash flow
1 £ 30000 0.909 27,270
2 £ 40000 0.826 33,040
3 £ 90000 0.751 67,590
4 £ 120000 0.683 81,960
5 £ 150000 0.621 93,150
303,010
NPV = 303,010 – 110,000
= 193,010
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From the above calculation, it has been observed that higher the NPV is selected and lower
one rejected. Above calculation provide 193010 NPV which will be beneficial for the company
to invest.
Accounting Rate of Return (ARR):
Formula:
ARR = Average net income / Initial investment * 100
Net income = Net cash inflow – depreciation
Depreciation = Initial investment / life of project
= 110000/5
= 22000
Net cash flow:
Year Cash flow (A) Depreciation (B) Net cash flow (A-B)
1 £ 30,000 22,000 8,000
2 £ 40,000 22,000 18,000
3 £ 90,000 22,000 68,000
4 £ 120,000 22,000 98,000
5 £ 150,000 22,000 128,000
320,000
Average net income:
Year Net cash flow (A-B)
1 £ 8,000
2 £ 18,000
3 £ 68,000
4 £ 98,000
5 £ 128,000
Total £ 320,000
Average net income = 320,000 / 5
= 64,000
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So,
Accounting Rate of Return = 64,000 / 110,000*100
= 58.18 %
Above calculation of ARR is 58.18% that is very good and it is highly recommended that
Tesco Plc should invest in this project to maximise their return or improve company’s
performance.
Values of techniques which aid in decision making process
There are mentioned various types of techniques in context of Tesco plc. These techniques
are used by the company for effective financial decision making and prepare effective strategy to
get growth and development for longer period of time. Such techniques are mentioned below:
Management of financial activities: Examination of the cash position also used calculates the
net profit and marketable securities for a specified timeframe. Review of the asset base also
used identify the surplus income and to generate capital. Tesco plc management team is
using optimization procedures to handle the rubbish-cash outflow systems.
Help in making decision on profit distribution: Accounting strategy strategies now include
industry dynamics and ratios. This technique helps to assess the reward ratio for the
investors. Such technologies are also beneficial when evaluating production rate at a given
point in time. Tesco plc apparel corporate executives utilize accrual based techniques to get
their potential tenants to decide on quarterly dividend and rewards.
Break even analysis: A break-even analysis is an important tool to evaluate where the
corporation, or a new program, would be competitive at. To describe it this way, it's a
monetary equation used to calculate how many goods or services they want to offer to
compensate at minimum some expenses. They’re not nor did neither the going to lose
money nor earning profit after breach that much, because all of their expenses have been
coated.
Cash flow statement: The study on cash flow is critical to inform the viewer of the real money
business organization. It wants money for paying its bills, paying government loans, paying
more taxes and purchasing new properties. A cash flow report dictates how a company has
sufficient money to be doing precisely that.
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Evaluate that how financial decision making support the long term sustainability
The Financing Decision is just important task information from financial supervisor concerning
an agency's working capital-mix. It concerns the lending and availability of capital necessary
for the investment strategies. The determination on funding includes two ways from which
funding may be brought up: and use the internal funds of a corporation, such as share
capital, interest income or lending resources outside into the form of debt securities,
mortgage, bonds etc.
Long-term sustainability means being at the forefront of the curve. Consequently, a success of an
organisation is important for understanding such needs and desires and to skill goods and
services to resolve the others. Sustainable development involves satisfying current demands
without compromising the capacity of future to satisfy their goals. The definition of social
consists of three key elements: financial, environmental, and social — also known
commonly as revenue, biosphere, and individuals
Give recommendations which help the accountant to improve their financial sustainability
Accounting experts of Tesco plc are given several recommendations for promoting financial
sustainability and those are mentioned below:
 Analysis exposes the social and environmental problems that will impact the company’s
purchasing ability to produce electricity (Yap, Komalasari and Hadiansah, 2018).
 Select the good investment concerns to the approach, corporate structure, and statement
quantity and business authorisation of the organization.
 Make sure that environmental problems clearly understood by the financial institution in
detail, especially as to how and where it could be affected.
 Try to identify specific key performance indicator which will push strategic and
economic priorities forward.
 To further incorporate climate change in the favourable process, develop policies and
development procedures for financial reporting which including reserve that help initial
work on facilitating access to cultural resources, lifespan likely to cost and emissions
element of the porter’s five forces.
Conclusion
From the above discussion it has been concluded that, in order to evaluate the company’s
performance managers need to follow some strategic approaches such as investment appraisal,
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ratio analysis etc. These techniques will help the manager to make strategic financial decisions
for the long term sustainability of the business. Some experts provide recommendations to
improve the overall performance and it further maximise the productivity as well as profitability.
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REFERENCES
Books & Journals
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acquisitions. Financial Management. 47(4). pp.953-991.
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health, and not-for-profit organizations. CQ Press.
Hartikayanti, H. N., Bramanti, F. L. and Gunardi, A., 2018. Financial management information
system: an empirical evidence.
Hulikal Muralidhar, S., Bossen, C., Mehra, A. and O'Neill, J., 2018. Digitizing Monetary
Ecologies: Intended and Unintended Consequences of Introducing a Financial
Management App in a Low-Resource Setting. Proceedings of the ACM on Human-
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analytic tools. International Journal of Financial Engineering. 5(02). p.1850011.
Piatti-Fünfkirchen, M. and Schneider, P., 2018. From stumbling block to enabler: the role of
public financial management in health service delivery in Tanzania and Zambia. Health
Systems & Reform. 4(4). pp.336-345.
Rampini, A. A., Viswanathan, S. and Vuillemey, G., 2019. Risk management in financial
institutions. The Journal of Finance.
Romano, M. And et.al., 2018. Financial management of publicly funded research activities: an
explorative study. International Journal of Managerial and Financial Accounting. 10(1).
pp.1-15.
Vakhrushina, M.A.and et.al., 2018. Integrated management accounting in the financial
management system. Research Journal of Pharmaceutical, Biological and Chemical
Sciences. 9(3). pp.808-813.
Yap, R. J. C., Komalasari, F. and Hadiansah, I., 2018. The Effect of Financial Literacy and
Attitude on Financial Management Behavior and Satisfaction. Bisnis & Birokrasi
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