Financial Management: Approaches, Stakeholder Management, Management Accounting Techniques, Fraud Detection and Prevention

This document provides an overview of financial management, including approaches, stakeholder management, management accounting techniques, and fraud detection and prevention. It explores the importance of effective decision making, managing conflicting stakeholder objectives, and using management accounting techniques for maximizing shareholder wealth. The document also discusses techniques for fraud detection and prevention, as well as approaches for ethical decision making. It concludes with a reflection on the key learnings from the research.

FINANCIAL MANAGEMENT

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
SECTION A.....................................................................................................................................1
1.Evaluating approaches, methods and the factors that helps an organization in making
effective decisions.......................................................................................................................1
2.Stakeholder management and managing conflicting purpose of different kind of the
stakeholder groups.......................................................................................................................3
3.Value of management accounting techniques..........................................................................4
4. Techniques for fraud detection and the prevention and approaches for ethical decision
making.........................................................................................................................................5
5. Reflection.................................................................................................................................6
SECTION B.....................................................................................................................................6
1. Financial information provides for operational and strategic decision making in company...6
2. Investment Appraisal techniques for effective decision for maximising the return on
investment..................................................................................................................................10
3. Demonstrating value of techniques in financial decision making.........................................10
4. Financial decision making supports for long term sustainability of business.......................11
5. Management accountant in long term sustainability of the business....................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUTION
Finance is lifeline of business and like other resources finance is limited and scarce. It is
essential for the business for managing the financial resources efficiently. Financial management
refers to the area of business management devoted to judicious use of the capital and careful
selection of sources of capital for enabling the spending for moving in the direction of reaching
goals and objectives. It is the organic function of the business. Entity requires finance for
obtaining physical resources for carrying out production activities & other operations of
business, making payment to the suppliers, etc. Report will reveal the concept of financial
management evaluating the different techniques, approaches and effective decision making in the
organisation. Stakeholder management and the conflicting objectives of stakeholder group will
be discussed. It will also provide about the techniques of management accounting for
maximising shareholder wealth. Report will provide about the financial analysis of the
performance and position of the company. It will provide about the investment appraisal
techniques for maximising the wealth of shareholder value. Study will demonstrate the value of
techniques that helps in decision making for long term sustainability.
SECTION A
1.Evaluating approaches, methods and the factors that helps an organization in making effective
decisions
There are various approaches and factors that provides assistance to the organization in
making better and improved decisions. Some of the important factors and approaches are given
below.
Knowledge based approach
The knowledge based methodology utilizes a pre-decided standard to measure and
guarantee that the result for the desired task is ideal. The primary goal of this sort of decision
making is to guarantee that vital choices are made by utilizing a powerful methodology and
effective and thoughtful thinking process (Voss, 2019). It additionally includes an aggregate
comprehension of the foundation about the concerned theme. The key components of knowledge
based approach incorporate open correspondence among leaders and the individuals, equivalent
data access and common trust inside the association. By effectively and adequately execution of
these components, a business organization will undoubtedly settle on key business choices that
will help it in accomplishment of its objectives and targets.
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Formal approach
Under formal approach, the decision making is considered to be the most balanced
approach as it involves a clarity in respect to the allocation of the tasks and responsibilities which
also means that the employees and other staff of the organization are well aware of their roles
and responsibilities on the account of the task they perform which helps in making better and
effective decisions. This approach is little time consuming but also has high rate of success in
comparison to the other approaches. The formal approach also helps in establishing equality and
trust among the members of the organization which also provides assistance in achieving the
desired goals and objectives within the time frame.
Informal approach
Under this, decisions are made based on the subjective, holistic and the previous
experiences. The main advantage of this approach is that it can be easily implemented and also
requires exercising less efforts and coordination along with that these decisions can be sort of
riskier. It mainly suitable for small scale business entities as it rewards higher for higher risk.
Thus, sometimes business organizations should take some informal decision after doing the
intense research and planning process.
Role of the stakeholders in decision making
Stakeholders are the people who are having interest in the performance of the company.
It includes investors, financial specialists, financial institution providing loan to the company,
government and the clients. In this way, it is very significant for an association to think about its
stakeholders before making any final choices. The firm should abstain itself from accepting
complex choices as it can influence its stakeholders in a negative way and further may affect the
revenue and profitability of the business. Moreover, the organization must consider the issues
raised by the individuals and its stakeholders and should settle on proper choices and decisions
by taking into account all these points.
Making or buying decisions
The make or buy decisions is the strategic approach of decision making with respect to
either produce the product in-house or outsource it to third party or whether to purchase the new
machinery or not. These decisions are very important for the business as before making a final
call a proper evaluation is made to know whether it is beneficial for the company or not.
Key factor analysis
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Key factor analysis is the method which is used for making decisions in the short term
with just one limiting factor. This approach is mainly used for maximising the amount of
contribution earned. It uses the limiting factors in an efficient and effective manner.
Limiting factor assessment
Under this assessment, restriction is involved on the company’s ability to increase its
sales which may be due to constraints in demand or lack of availability of the resources.Thus, it
is very important for the business organization to analyse which factors to considered that will
not affect the business operation.
2.Stakeholder management and managing conflicting purpose of different kind of the stakeholder
groups
It is very essential to effectively manage the stakeholders of the company and this can be
done by complying with the certain principles which are stated below.
Setting of objectives
By setting the goals and objectives is very imperative for the organization in order to
attain success. As with the help of goals, budget plan is formulated which the organizations
follow for achieving its objectives. The objectives should be set in a such a way that it will help
in measuring the profitability attached to it.
Maximizing wealth of the shareholders
This indicates that the company should look for ways to provide maximum return to its
shareholders which is the major aim of the organizations. In other words, it refers to the
increasing the value of the firm. In order to achieve this objective, the business organization is
required to take into account the certain risk along with the time associated with it for getting the
expected earnings per share and this will help in maximising the price of the company’s share
(Breuer and Lüdeke-Freund, 2019). If the strategies have been properly implemented, it will lead
to increasing the profits which will result into increase in dividend and the capital gain. Also,
shareholders look for durable and long term wealth maximisation rather than short term
increment.
Fostering sustainable growth in long run
For achieving the long term growth and success it is very essential to protect the
company’s capital structure based on certain principles. It helps in achieving the sustainable
growth and development of the organization which will help in integrating the planning and the
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measuring system. The companies are required to adopt various types of activities and task
which will help in meeting the needs of the organization along with its shareholders which will
assist in protecting and managing the capital structure of the company.
Ethical financial management (FM)
The ethical financial management implies adjusting, securing and protecting the
stakeholder’s interest. It is critical to do so on the grounds that ethical characteristics what is
correct and what's going wrong which implies that it is the obligation of organization to deal
with its representatives, clients, government, financial specialists and financial institutions, and
to secure their interest within the organization. Besides, the business ought to likewise follow its
corporate social obligation and ought not enjoy any exploitative or criminal operations that cause
damage to the general public and its partners. It must not include in any unethical, control and
insiders exchanging and ought to play out its budgetary/business exercises with complete
trustworthiness and loyalty and ought to guarantee total straightforwardness with its partners by
giving them exact accounting data, financial reports and other statements. This will be useful for
the business in the long run as it will prompt establishing solid trust between the and help the
firm in achieving the long term progress.
3.Value of management accounting techniques
There are essentially two sorts of standards which can be utilized for cost control, that is,
internal and external principles. The external measures are utilized for chiefly for contrasting the
performance of the organization in regard to different firms in the business with the help of
financial ratios. On the other side, internal measures are utilized for assessing the infra firm cost
components, for example, material, work and so forth. Two important internal management
accounting techniques are expressed beneath.
Budgetary control: this technique is in relation to the budget as it utilizes financial plan for
executing the budgetary control as a method for arranging and controlling the different sorts of
business activities. It builds up the predetermined targets which is additionally utilized as a
reason to measure the performance (Guinea, 2016). Under budgetary control, actual result is
compared and contrasted with the planned targets and if there is any deviation, reasons for the
equivalent is recognized and furthermore corrective moves can be made to correct the missteps.
The budgetary control helps in amplifying the usage of limitedresources in a successful manner
and sets up appropriate coordination among the individuals. This aides in effectiveplanning and
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if it is executed effectively will result into increment in benefits which will lead to increment in
the investors' worth.
Standard costing: It is the most broadly utilized framework for practicing the cost control.
Under this method, the point is to build up the guidelines of execution along the target costs
which the organization is required to accomplish within the set working conditions. It is
primarily the pre-decided cost that decides the what every item would cost under the given
arrangement of conditions. It starts with the future estimation of the item as for its expense in a
future period then standard expenses are set by collecting all the relevant data from various
sources. This procedure builds up the measuring stick dependent on which the performance of
the organization is estimated that helps in practicing the control which is a means for cost
decrease and this subsequently prompts increment in benefits leading to increment in the
investors value which is advantageous for both the organization and the investors.
4. Techniques for fraud detection and the prevention and approaches for ethical decision making.
On carrying business management along with other functions of business is also requires
to ensure that the operations are running smoothly without any errors or mistakes. This is
essential for the business that frauds are not being committed in the entity as it could
significantly impact the business.
Fraud detection
Fraud detection in the business could be done using various methods such as
implementing data mining techniques. This enables the users to cluster classify, segment data
and finding automatically the associations & rules in data that signifies interesting patterns and
also relating to the frauds. Experts systems are used by the organisations for encoding the
expertise for fraud detection in form of rules (Madura, 2020 ). These are the artificial
intelligence techniques that are used by the management for detection of fraud.
Auditing is also a fraud detection technique in which the auditors inspect the financial
records of the company for ensuring that records are free from errors and misstatements.
Auditing helps in detecting frauds that could be committed in the areas of business for
representing true and fair position of the financial statements.
Fraud Prevention
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A business should ensure that the frauds are prevented before they could be committed.
For preventing frauds management could implement strong internal controls in areas with higher
possibilities of frauds. Corporate governance practices should be implemented for controlling
and monitoring the activities and operations to prevent the frauds.
Ethical Considerations
Every business is started with the motive of earning profits. A business should ensure that
they allow ethical practices for carrying out the business. There are number of shareholder
associated with the company therefore it is the responsibility of management to ensure that the
financial statement reflects true and fair position of the entity (Jones and et.al., 2018). Ethical
code of conduct should be followed throughout the organisation ensuring that it should not
deprive the interest of stakeholders.
5. Reflection
The above research provides about the financial management concepts and techniques
that helps in managing the financial resources of business. I have found that there are various
techniques that are used by the management for decision making. Decision making is one of the
most critical process that is carried out by the business and it is essential for the management to
ensure that the decision taken proves to be beneficial. Another important task of management is
managing the stakeholder of business and their conflicting objectives. Conflicting interests of the
stakeholders are required to be managed for meeting the goals and objectives of business. I have
also learned that the management accounting is important part of financial management for
decision making. It enables the management in making effective investment decisions that will
add value to the existing company. I have seen that implementing fraud detection and prevention
techniques are equally important for the company along with other functions and operations. it
enables the company to identify the frauds at early stage before they cause significant harm to
the business. A business must represent true and fair position of the financial position of
company.
SECTION B
1. Financial information provides for operational and strategic decision making in company.
Liquidity ratio
TPG
2019 2018 Change
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Current assets 213 247 -16%
Current liability 896 891 1%
Inventory 5 5 2%
Quick Assets 208 242 -16%
Current ratio
Current assets /
current
liabilities 0.24 0.28 -16%
Quick Ratio
(Current Assets
- Inventory) /
Current
Liabilities 0.23 0.27 -17%
Profitability ratio
TPG
2019 2018 Change
Employed Capital
(Total Assets -
Current
Liabilities) 4416 4509 -2%
Net profit 175 398 -127%
Return on capital
employed
Net operating
profit/Employed
Capital 3.96% 8.81% -122%
Net Income 175 398 -127%
Shareholder's Equity 2887 2787 3%
Return on Equity
Net Income /
Shareholder's
Equity 6.06% 14.26% -135%
TPG
2019 2018 Change
Cost of Sales 1668 1669.1 0%
Sales 2477.4 2496.1 -1%
Gross Margin
Total Sales –
COGS/Total
Sales 32.67% 33.13% -1%
Net profit 175 398 -127%
Sales 2477.4 2496.1 -1%
Net profit ratio Operating 7.06% 15.92% -125%
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Income/ Net
Sales
Efficiency Ratios
TPG
2019 2018 Change
Inventory 5 5 2%
Trade Receivables 128.3 134 -5%
Net Assets 2887 2787 3%
Cost of Sales 1668 1669.1 0%
Sales 2477.4 2496.1 -1%
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Asset turnover ratio
Sales / Net
assets 0.86 0.90 -4%
Inventory turnover
ratio
Sales /
Inventory 495.48 509.41 -3%
Account receivable
turnover
Sales /
Accounts
Receivable 19.31 18.60 4%
Debt
TPG
2019 2018 Change
Debt 1529.9 1722.3 -13%
Equity 2887 2787 3%
Debt equity ratio Debt/ Equity 52.99% 61.80% -17%
Financial statements provide important information for decision making. It enables the
management in operational and strategic decision making. For analysing the financial
performance and position of business ratio analysis is used by the management. The above
analysis provide important base for decision making.
Liquidity of the TPG group could be analysed from current ratio and quick ratio. It could
be evaluated the liquidity position of company is very weak as it had shown a downfall of 16%.
Company is required to take immediate measures to improve the liquidity position. Short term
obligations are very high against the current assets (Zietlow and et.al., 2018). Firm is not in a
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position to meet the short term obligations from the available current assets. Therefore strategies
for reducing the obligations and improving the liquidity are required to be taken by company.
Investor ratios show that ROCE of company has declined significantly from last year.
ROCE reflects management efficiency in using the resources for generating adequate returns.
Return has decreased significantly that reflects that management is not able to utilise existing
resources for increasing the returns. Return on equity of company has fallen to 6.06% from
14.26% within one year. Such high decline affects the interest of equity investors. Investors are
interested in the returns provided by company and therefore company is required to increase the
efficiency and productivity for earning required rate of returns. Decisions that are essential for
increasing the shareholder wealth are taken.
Profitability of the company is assessed for using the gross profit and net profit margin.
Gross profit margin of the company is evaluated for evaluating the efficiency of management in
controlling the cost of sales. Gross profit margin has been maintained at the same scale at 32%.
On the other net profit margin has cut to more than half from last year. Net profit margin is the
amount of profit left after carrying out the business during the year (Tsofa and et.al., 2017).
Company is required to promote its sales for increasing the net profit and also effective control
over cost is also required to be managed.
Efficiency of the management is evaluated by turnover ratios. Asset turnover identifies
the ability of the management in generating the sales over its assets. Turnover is low of company
and is required to be increased for having higher sales. Inventory turnover shows the frequency
of movement of inventory. As being service industry inventory ratio is not adequate for analysis.
Receivables turnover shows the collection period of the dues (Brusca, Gómez‐villegas and
Montesinos, 2016). It reflects the efficiency of management for reflecting the efficiency of
management in maintaining the effective cash conversion cycle. Management should adopt
effective strategies that increase the turnover and efficiency of management.
Capital structure of the company is analysed using the debt equity ratio that reflects the
amount of debt as against its equity. Debt equity ratio of company is 53% that has declined from
62% last year. This shows company uses both debt and equity source for raising the capital.
There should be adequate mix of debt and equity where the cost of capital is low. A company
with high debts has high financial risks but has lower cost of capital as compared with equity.
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2. Investment Appraisal techniques for effective decision for maximising the return on
investment.
Investment appraisal techniques are used by the management for decision making. This
enables the company to evaluate the feasibility of different investment proposals that
management is proposing to choose. These investment techniques evaluate the profitability of
investments. It includes NPV, IRR, payback period and ARR.
Net Present Value
It is a capital budgeting technique which is used for evaluating the profitability of
investment. The technique discounts the future values of probable cash flows and deducts the
aggregate cash flows from the initial cost of investment. If the NPV is positive project is
considered profitable and loss making if negative (Banerjee and et.al., 2016). It considers the
time value of money concepts in assessing the viability of investments that is not considered by
other techniques. NPV is commonly used techniques that give more reliable results. However
discount rate calculation is a limitation of the technique.
Payback period
Payback period is the techniques used by management for measuring the time length
within which company will be able to recover its cost of investment. Investments with shorter
payback period are preferred and are profitable. This is also the breakeven point after which the
company will start to earn profits after covering its all cost. This approach do not accounts for
time value of money in identifying the breakeven point. This is an easy and simple technique
used by management for identifying the feasibility of investment as compared with other.
Accounting Rate of Return
Accounting rate of return is expected rate of return on the asset or investment in terms of
percentage terms as compared with initial cost of investment. This is the measure of return in
accounting terns. It is a non discounted method of cash flow measuring the return. It is based on
the concept that cash flows of future will remain unchanged (Whiteley, 2017). Project is
considered profitable if it generates a return of around 14%-16%.
3. Demonstrating value of techniques in financial decision making.
Financial decision making is based over various techniques that are evaluating the financial
performance and position of the entity.
Balance Sheet
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It is one of the financial statements that is used by the management for making effective
decision decisions. Balance sheet lists the assets and liabilities of the business. It evaluates the
assets and obligations of the company. It enables the management in evaluating the financial
position for taking decisions related with the capital structure, reducing financial risks, making
investment decisions and such other decisions for adding wealth to the business.
Cash Flow Statement
Cash Flows statement is also a financial statement that is prepared for representing the
cash inflows and outflows from the business. a cash flow statement records all the flow of money
into different operations and activities, such as operating activities, investing activities and
financing activities. Cash flow statement helps management in identifying whether the mony is
flowing towards productive activities that will increase the earning capacity and efficiency of
business.
Breakeven analysis
It is a technique that is used by management for taking decisions related to the sales.
Break even analysis is carried out for identifying the level of sales that is required for covering
its cost. Breakeven point is the point at which the cost and revenues are equal, this is a situation
of no profit no loss. Break even analysis helps the business in effectively planning the strategies
for achieving the desired results (Zietlow and et.al., 2018). It is essential for the business to
identify the level of sales as strategies for promoting the sales are decided by the company.
Break analysis is an important management accounting technique that is used for decision
making by the company
4. Financial decision making supports for long term sustainability of business.
Financial management is concerned with the process of organising, collecting, directing
and controlling the financial activities of business. Financial management involves procuring
funds for meeting the requirement of business and utilising the financial resources in best
possible manner. It enables the management in increasing the wealth of company and its
shareholders by earning adequate returns by managing the financial resources. Effective
utilisation of the financial resources helps in the long term sustainability. Financial decisions are
taken after evaluating all the factors associated with the decision and option that is most
beneficial is chosen that add value to company. Sound financial decision helps in increasing the
financial stability of company.
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5. Management accountant in long term sustainability of the business.
Management accountant plays an important role in maintaining the long term financial
stability of business. Management accountant collects all the information related with the
business for evaluating the performance of business. On the basis effective corporate strategies
are framed which are monitored by the accountants for ensuring that practices are effectively
followed by the company. Management accountant keep record of all the information and
evaluates the possible opportunities and uncertainties that could affect the business (Prawitz and
Cohart, 2016). They have the responsibilities of integrating various functional needs and
identifying the sources of finance to meet the needs of business. Adapting sources of finance
ensuring optimum mix of capital is managed where the cost of capital of company is low. It
helps the firm in achieving financial sustainability by effective decisions.
CONCLUSION
The above study has given an understanding about the importance of financial
management in the business. It is found that financial management is essential part of business
for managing the business successfully. It is focused over procuring the funds to meet
organisational needs and also utilising the funds in the best possible manner by making the
effective allocation of resources. There are various approaches and techniques used under
financial management for effective decision making that helps in long term sustainability of the
business. Financial information enables the management in making several of strategic and
operational decisions for company. Investment appraisal techniques are used by the management
for identifying the feasibility of investments for before the funds are employed by company.
Sound financial decision help in the long term financial sustainability.
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REFERENCES
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Zietlow, J and et.al., 2018. Financial management for nonprofit organizations: policies and
practices. John Wiley & Sons.
Tsofa, B., and et.al., 2017. How does decentralisation affect health sector planning and financial
management? a case study of early effects of devolution in Kilifi County,
Kenya. International journal for equity in health. 16(1). p.151.
Brusca, I., Gómez‐villegas, M. and Montesinos, V., 2016. Public financial management reforms:
The role of IPSAS in Latin‐America. Public Administration and Development. 36(1).
pp.51-64.
Banerjee, A., and et.al., 2016. E-governance, accountability, and leakage in public programs:
Experimental evidence from a financial management reform in india (No. w22803).
National Bureau of Economic Research.
Whiteley, J., 2017. Mastering Financial Management. Macmillan International Higher
Education.
Prawitz, A.D. and Cohart, J., 2016. Financial management competency, financial resources,
locus of control, and financial wellness. Journal of Financial Counseling and
Planning. 27(2). pp.142-157.
Voss, G., 2019. Information and Strategic Aspects of Financial Statements in the Assessment of
their Users. Folia Oeconomica Stetinensia. 19(2) pp.176-187.
Breuer, H. and Lüdeke-Freund, F., 2019. Values-Based Stakeholder Management: Concepts and
Methods. In Rethinking Strategic Management (pp. 217-239). Springer, Cham.
Guinea, F.A., 2016. Study regarding the creative accounting techniques in management
accounting. The Audit Financiar journal. 14(142). pp.1136-1136.
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