Financial Management: Approaches, Principles, and Role of Management Accountant

This document provides an overview of financial management, including the different approaches and principles used in decision making. It also evaluates the role of management accountants in an integrated system and discusses the financial stability of Marks and Spencer. The document includes analyses of key financial ratios to assess the company's performance.

Financial Management

INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
P1) Apply different formal and informal approaches used to support effective decision making
.....................................................................................................................................................1
TASK 2............................................................................................................................................3
P2) Analyse key management principles required for effective financial strategies...................3
TASK 3............................................................................................................................................4
P3) Evaluate the role management accountant and their value as part of integrated system......4
P4) Evaluate role of accounting control system and value..........................................................7
TASK 4..........................................................................................................................................11
P5) Evaluate the ways in which financial decisions making is important.................................11
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial management plays a significant role in the growth of financial performance of an
organisation by recording, summarising and interpreting financial information from various
financial statements including profit and loss a/c, balance sheet etc. Finance manager brings
confidence among an organisation to make sound financial decisions for future projects (Chand,
2019). It also assist management accounting to make relevant decisions and suitable policies for
the betterment of shareholders who is known as pillars of an organisation. The present
assignment report is based on Marks and Spencer which is UK-based multinational retail
organisation selling wide range of products such as clothing, accessories and many more
throughout the world. The report divides into two parts in which first parts discusses the different
approaches used to make an effective decision whereas the second part contains information
related with financial stability of an organisation.
TASK 1
P1) Apply different formal and informal approaches used to support effective decision making
Decision making is the process with the help of which various choices are identified and
by efficiently analysing them various decisions are taken. For the organisations to take finance
related decisions are crucial as it considered to be their most important resource. To support this
formal and informal ways are used in structure methods are used for the prior one while for the
later decisions are taken on the basis of unwritten rules and relationships.
Approaches which contributes in effective decision making process in context of the
organization:
Formal or Informal approach: It will help the business to take the suitable decision by
which the reliable strategy will get developed. It has been used to beware of the rational decision
making and provides the brief explanation about the different elements that are required while
making the decisions. It will enhance the working capability by which the possible strategy gets
used by which the different requirement of the stakeholder will get fulfilled. It will include more
certain outcomes that are free from all the redundancy and more logical outcomes get received. It
is the approach by which the requirement of the partners and the changes in objective will get
evaluate (Purnomo, 2018).
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In addition to the formal and informal approaches to support the effective decision making
there are various other approaches that are used by the finance management of the organisations.
Knowledge based approach: It is the approach as from which the appropriate
information will get received that will helpful to get achieved the better productivity. In this
intelligence will required to build the strategy by the profit will get maximised that has direct
impact on the performance of the business. It is an approach that is more necessary for the
business as by which the effective decision making will get maintained that is referred to the
empirical basis (Barth, 2015). It has more stronger impact on the managerial decision making
and the Marks and Spencer has use this to take the collected knowledge from the market and by
this more adequate decision will be taken by the business.
Techniques used for decision making process:
 T-Chart: It is the graph that provides both positive and negative options by which more
clarity gets induced while taking the decision (Chand, 2019).
 Decision Matrix: The manager must get chose this strategy to take the decision as in this
all the different options will get put in tabular format and the different factor that affect
the decision making. In this then manager give the rating and set the criteria as per the
importance and then chosen more better option (Zainudin and Hashim, 2016).
 Ratio analysis: It is more useful to make the financial statements as in this all the
accounting parameters will get measured by the manager by which accurate information
will get conveyed that helps to make appropriate decision making by which more success
will get attained. It will also used to analyse the efficiency, profitability, liquidity and the
performance as well by which Marks and Spencer make more suitable choice of decision
making (Maynard, 2017).
 Financial analysis: The manager of Marks and Spencer must get develop the strategy by
managing the financial information and with this the efficiency will get developed thus
the efficiency also get more developed (Tjosvold, Wan and Tang, 2016).
As from the above discussion it is acknowledge that the effective understanding of the
different technique must get used by the manager of Marks and Spencer and with that several
decisions will get taken by them in order to get the improvised outcomes (Chen, Chou and
Huang, 2016).
Factors which affecting decision making process:
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 Financial factors: It is the factor that will get used to make the corporate decision making
as the capital format will completely depended on this factor. In this the opportunity will get
maintained by controlling the equity and then decision will make by which the expense will
get easily managed. The manager of Marks and Spencer analyse it to make the decision
making to improvise the productivity and profitability (Wolmarans, and Meintjes, 2015).
 Social factors: In this Marks and Spencer have make the effective relationship with the
customer and with the corporation as it has the direct impact on the life cycle of the
business. In this the trust will get maintained with the public thus the manager make their
interest towards that and try to make more involvement with the society (Cimini, 2015).
 Risk: It will always comes with the profit by the manager of Marks and Spencer must have
take different strategy to face it more properly by which the business will get expand more
and gain the continuous success. It will more affect the performance and the productivity of
the business thus manager makes decision by making clear evaluation of all strategy
(Campa, 2015).
TASK 2
P2) Analyse key management principles required for effective financial strategies
While formulating various strategies it is important for the companies to take into
consideration various principles related to the financial management. Various principles must be
taken into consideration such as a budget must be taken into consideration as a tool, it must a
realistic through which significant analysis can be made (Finkler, Smith and Calabrese, 2018).
The actual results from the financial statement must be compared with the budget on regular
basis so that the efficiency in the strategies for the utilisation of the resources can be ensured. In
addition to this various others factors and resources must be managed well such as shareholders
interest etc.
The management of the stakeholder is more vital for the business and its success as with this
the all the strategy, project and program will get managed. The stakeholders are an individual,
group or the organisation that has made their contribution in the success of the business. The
stakeholder management includes the participation of the entire individual by which the
productive relation will get maintained with the participants. The investor is those that has the
interest towards the portfolio and make their involvement in the research and findings.
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There are a lot of participant that take part in the different project and campaigns have
influence the loss and profit of the business. In this the stakeholders analyse the impact and
priority of the business in order to make more profit (Finkler, Smith and Calabrese, 2018). The
Marks and Spencer develop the strategy to manage the stakeholders as their presence has both
direct and indirect impact on the business. The stakeholder plays a vital role in the decision
making of the business and they have taken all the actions as per the requirement of the
stakeholders.
Managing conflict objective: The management must have made clear knowledge about the
demand and interest of the stakeholders and in this the sales manager manages the profit and
income of the business and according to that provide the return of the investments. In this the
financial manager has work with the aim to get achieve the entire task in timely manner by
which the performance will get improvised. As all the stakeholder has their own likeness and
preferences and the manager of the business must manages their objectives (Tsingou, 2015).
TASK 3
P3) Evaluate the role management accountant and their value as part of integrated system
The role of management accountant is crucial in an organisation as they ensures the security
of the financial resources of the organisation as they take into consideration the analysis of
various avenues in the finance is to be invested (Campa, 2015). They handle all the issues related
to the financial resources in Marks and Spencer’s and facilitate in helping to drive the overall
management and strategies related to finance of the organisation. various roles that a
management accountant plays includes stewardship accounting, long term and short term
planning of the finance, development of management information system, maintaining optimum
structure of the capital etc. With this they enable the organisation to accomplish their goals by
managing their resources efficiently through various investment and borrowings.
The management accounting includes the variety of the different financial aspect that is
related to the monetary factors of the business. It is more useful for the business as with this the
different strategy and policy will get developed by which the all the operation get performed
within the adequate period of time by which the cost control always remain in balanced. Marks
and Spencer uses the accounting management and with this the business will get prevent
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themselves from the unethical issues as like fraud and to manage the fair exercise and method
(Johri and Maheshwari, 2015).
The financial management system has worked with the main the monitor all the assets and
liabilities of the business and under that all the residual decision will get developed. In this
Marks and Spencer have uses the different technique for accounting and by which the
operational cost will get reduced. The cost accounting is the method by which the cost will get
calculated of all the different activities that get performed within the business so as to manage
the profit by controlling the expenses thus more profit will get sustained (Lueg and Radlach,
2016).
Maintaining financial data always makes easy for finance management to make an effective
strategic decisions for the improvement of financial stability of an organisation. Summarising
and interpreting data facilitate management in getting accurate information about the profitable
products and services which will further assist them to focus more on such products instead of
spending funds on less demanded products. This will saves business cost and time as well
(Okanazu, 2018).
Here are some analyses of company’s ratio that company can easily get information about
their current financial performance. This facilitate the management accountant and other related
professionals in efficient decision making:
Ration Analysis: It is popularly used b an organisation to assess the financial reports.
Calculating ratio determines actual capabilities and weaknesses of an organisation in terms of
financial stability. This makes easy for investors to decide whether to invest money in such
company or not taking their positive return into consideration.
Net profit margin:
2018 (£’ Million) 2019 (£’ Million)
Net Profit 2897 -1225
Revenues 44404 44478
Net Profit Margin (%) 6.52 % -2.75 %
From the above calculation, it is clearly identified that net profit ratio of Marks and Spencer is
6.52% in the year 2018 which goes down to having loss of -2.75% due to facing financial
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loss in the year 2019 of (12225) million. This can be due to having too running costs and
less contribution from their employees in the year 2019.
Gross profit margin:
2018 (£’ Million) 2019 (£’ Million)
Gross Profit 11105 10585
Revenues 44404 44478
Gross Profit Margin (%) 25.01 % 23.80 %
It is clearly interpreted from the above ratio that gross margin of company’s in the year 2018
is 25.01% which further decreases to 23.80% in the year 2019. This loss can be faced by an
organisation due to lowering the prices of their products and services sold at that year.
Current ratio:
2018 (£’ Million) 2019 (£’ Million)
Current assets 16787 17844
Current liabilities 15714 16871
Current ratio (times) 1.07 1.06
From the above calculation, it is seen that company failed to meet idea current ratio i.e. 2:1
times. In the year 2018, its current ratio is 1.07 times which is lower than expected. This can
be due to having low liquidity situation in the year 2019 due to having many outstanding
liabilities.
Quick Ratio:
2018 (£’ Million) 2019 (£’ Million)
Quick assets 12074 12947
Current liabilities 15714 16871
Quick ratio 0.77 0.77
The above calculated figures specified that an organisation failed to meet ideal quick ratio i.e.
1.5:1 times. Its quick ratio in the year 2018 was 0.77 times which remain same in the 2019.
Thus, chosen company is in position to manage and control its liquidity position at a high
point.
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Return on Equity ratio:
2018 (£’ Million) 2019 (£’ Million)
Shareholder's Equity 17850 15395
Net Profits 2897 -1225
Return on Equity (%) 16.23 -7.96
The above calculation shows that business derives returns on their investment as they
generates a return on equity markets in the year 2018 of 16.23% which goes negative in the
year 2019 due to net deficit in 2019.
Debt in equity ratio:
2018 (£’ Million) 2019 (£’ Million)
Debt 22595 27173
Equity 17850 15395
Debt Equity Ratio 1.26 1.76
The above calculation clearly shows that debt equity ration of chosen company is 79% in
the year 2018 which goes down to 56.66% in the year 2019. This were due to shortages of equity
markets and various debts in the year 2019 as compared with 2018.
P4) Evaluate role of accounting control system and value
The account controlling system is the one that facilitates an organisation in managing and
controlling the entire system of the organisation with the help of various process and procedure.
It facilitates to bring in the efficiency and the accuracy in the financial statements. There are
three principles which are imposed in accounting control system which includes: budget control
systems, responsibility accounting systems, and standard cost-variance control systems. The
control system can be treated as detective control system with the help of which current practices
can be controlled; preventive control with which control can be levied on the activities for
avoiding inaccuracies or incorrect practices; and corrective controls to fix any issues found
through detective controls ( Pathan and et. al., 2016).
While analysing the accounting system it is important for the finance department to manage
and control the activities of the business so that they can reduces the risk that the business may
face. To ensure this they undertake various decisions and consider ethics in their operations so
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that they can ensure better values to their customers and to the organisation. There are some
different methodologies that get used by the business to make them safe and secured from all the
fraud and in that the portfolio will get developed under which the different place as from where
the fraud risk get generated will get resolved. It has the direct impact on the supply chain of the
business and with this it will also reduces the value of shareholder as like the performance,
operation, quality and the reliability (Jones and et.al., 2018).
The use of legislation on the overall transaction and the continuous monitoring as well as
investigation will get verified the effectiveness of the accountability. It will used to make the
screenplays by which all the transaction will get assess over the repetitive period of time. It will
improvise the overall effectiveness and accuracy of the business in significant manner.
Ethical decision making: It will base on the decision through which the right and adequate
decision will get make and also known as the virtual and utilitarian approach. These are the
strategy that is used by the management to enhance the capability of the business. In this Marks
and Spencer has uses the utilitarian approach while making the effectual decision making and
that is completed based on the different actions that get indulge on the basis of normal outcomes.
This will get used with the aim to reduce the risk and damage of the business by which more
benefits will get gained by the business to maximise the development (Grosse, 2017).
There are various investment appraisal techniques which management of Marks and Spencer
can use to decide the required amount to be invested in available alternatives. Capital budgeting
consists of these techniques ( Pathan and et. al., 2016). The management of Marks and Spencer
can use this technique in order to make suitable and profitable decision regarding the selection of
best alternation according to the benefits received by company in future period of time. This will
assist managers to make decisions and strategies to control the expenditure of invested amount
and produce maximum output. Here are some investment appraisal techniques which can be used
by Marks and Spencer:
Payback period: It is a approach which reflects the recovery period on an initial investment of
specific project. It represents the time period within which recovery of invested amount can
be made.
Initial Investment = £110,000
Life = 5
Year Cash flow Cumulative cash flow
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Year 1 £ 30,000 £ 30,000
Year 2 £ 40,000 £ 70,000
Year 3 £ 90,000 £ 160,000
Year 4 £ 120,000 £ 280,000
Year 5 £ 150,000 £ 430,000
Formula:
Payback period= Year before cost recovered + amount to be recover / next year cash flow
= 2 + 40000/90000
= 2 + 0.44
= 2.44 years
This result shows that company recover their initial investment in 2.44 years which means
within 3 year.
Net Present Value (NPV): It is useful approach used to examine the advantages of making
particular investment or initiatives with the current values. It measures the equity gains the
business can reap from such invested amount. The calculation is done as below:
Formula:
NPV = Net cash inflow – depreciation
Calculation:
Cost of capital = 10%
Investment = 110000
Year Cash flow PV
factor
Discounted cash
flow
Year 1 £ 30,000 0.909 27,270
Year 2 £ 40,000 0.826 33,040
Year 3 £ 90,000 0.751 67,590
Year 4 £ 120,000 0.683 81,960
Year 5 £ 150,000 0.621 93,150
303,010
NPV = 303,010 – 110,000
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= 193,010
Net present value of this project is positive, so company select this proposal to invest and further
take actions accordingly.
Accounting Rate of Return (ARR): It is the strategy which is used to identify the viability of
company’s project. It is simply calculated the expected sales income, all invested funds are
used and split down by the company period. Then estimated cost is divided by initial
investment on certain project.
Formula:
ARR = Average net income / Initial investment * 100
Calculation of net income:
Formula:
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)
Year 1 £ 30,000 22,000 8,000
Year 2 £ 40,000 22,000 18,000
Year 3 £ 90,000 22,000 68,000
Year 4 £ 120,000 22,000 98,000
Year 5 £ 150,000 22,000 128,000
320,000
Average net income:
Year Net cash flow (A-B)
Year 1 8,000
Year 2 18,000
Year 3 68,000
Year 4 98,000
Year 5 128,000
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Total 320,000
Average net income = 320,000 / 5
= 64,000
So,
ARR = 64,000 / 110,000*100
= 58.18 %
AA of this project is 58.18% that is very good and company should accept this proposal to invest
because it provides good return which is beneficial for the business.
The above estimation includes the different learning about the systematic approach that
gets chose by the business and with this make different strategy to make the suitable actions. In
this I have also face different challenges while managing the process but also learned the
importance and management of the accountancy in appropriate manner (Lessambo, 2018).
Problems: I have faced some problems while coordinating the project as it will get allotted
on the basis of task and thus I have used the search engine to locate the different information in
systematic manner but in parallel more issues will get developed by which all the things become
more difficult. It is because the assigned time period was less thus to collect the relevant
information is the biggest challenge.
Learning: I have gain a lot of knowledge while managing and overcome with the issue and
in this I have get more support in the future period of time. I have learned to use the adequate
information from the online sources with that the management of the stakeholder and
accountancy that helps to make valuable decision making (Madura, 2020).
TASK 4
P5) Evaluate the ways in which financial decisions making is important
The decision making of the business will get more used to make the strategic growth as the
management team skill will used to make the suitable investments by which the working
potential will get improvised by which the performance also get more developed. It will used to
make the suitable judgments with that the sustainability and long terms growth will get analysed
this the executive make the decision to take the responsibility and make better execution of
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investment, stock market policy, inventory control, capital, investments etc. It helps to make
more competitive advancement by which long terms success will get measured (Feng and et. al.,
2015).
If the business uses the adequate culture and financial management that more profit will get
gained and help to compete in the international market while making the acquisition otherwise, it
will not be possible to make more benefits. The image and reputation of the business depends on
the choices of the executives that are related to the different aspects. Thus the company makes
the strategy by which the sales will get monitored and this Marks and Spencer have adopt the
optimised approach in order to enhance the productivity and long term stability (Sweeting,
2017).
In modern business world, management accountant also plays an important role with help of
taking support from financial management in enhancing financial sustainability of business
organisation. For an instance, financial management prepares financial statements on annual
basis which directs management accountant to make relevant and suitable decisions for further
improvement of financial performance of an organisation. By getting accurate and reliable
financial information, it makes easy for accounting manager to use various systems such as cost
accounting system, price optimisation system etc. in order to manage business cost and invest
funds in such production process where they receive more return (Zietlow, And et.al., 2018).
As related to the Marks and Spencer the technique of financial manager will more useful to
generate more values and better importance while making the decision and there are some other
importance that are as defined below as:
 Help to conclude profit: Financial management has been used to make different strategy
related to the cash flow, capital budgeting, breakeven analysis and make others too. It is
the approach by which the future sales will get forecast by which the manager of Marks
and Spencer analyse the profit margin (Rendon and Snider, 2019).
 Long-term goal purpose: The different strategy will permit the business to manage the
long terms goals and objectives by which the manager of the Marks and Spencer asses
the cash flow statements in timely manner by which more growth get attained.
 Help in policy formulation: The manager must uses the break even analysis to make the
different policy that get influence the cash flow and have other tools as well to measure
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the financial performance by the business and make the plan to gain more market share
(Shapiro and Hanouna, 2019)
 Capital structure fortitude: The decision will get make by analysing the financial status
of the business as it is more useful to make the effectual understanding by which the
capital cost helps to assess the capital structure of the business (Young, 2018). The
executives of the Marks and Spencer have uses this approach to manage and analyse the
capital structure and with this the management assign the funds to manage the operations.
 Management of financial actions: It will used to measure the net income of the
business with that the cash balance will get identifies of the certain period of time and
with this manage the surplus funds and the equity as well. The manager of Marks and
Spencer have uses the optimization process to control the garbage-cash outflow
procedure (Schotter and et. al., 2017).
 Help in making decisions on profit division: The technique of management accounting
includes the ratio and the market trends by which the benefit of the shareholder will get
assessed. In this the executives of Marks and Spencer will uses the accounting methods
and provides the compensation and the dividend pay to the visionary owners (Lessambo,
2018).
CONCLUSION
It has been summarised from the above report that financial management plays a significant
role in the growth and success of an organisation by providing accurate and true financial
position which assist top authorities to make an effective decisions for further improvements. For
this, finance manager is held responsible to frame an effective strategies that helps an
organisation in remaining their strong financial stability among their rivals in competitive
market. It assist accounting manager to make suitable decisions on the basis of final accounts
such as profit and loss a/c, balance sheet etc. prepared by finance manager on annual basis. Apart
from this, stakeholders plays an important role with having some objectives and expectations
from their company which may creates conflicts in respect of their pre-determined rate of return.
Thus, finance manager is having an authority to meet their expectations by preparing financial
statements and ratios in more reliable and accurate way.
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