Introduction to Finance: Concepts, Analysis, and Techniques

This report provides a comprehensive overview of introductory finance concepts, methodologies, and practical applications. It begins with an exploration of fundamental finance and accounting principles, including liquidity, risk management, and the time value of money. The report then delves into the various sources of funding available to companies and individuals, differentiating between debt and equity financing and examining the structure of financial markets and institutions. A significant portion of the report is dedicated to the interpretation of accounting results, using ratio analysis to assess the financial performance of Barratt Developments PLC, including profitability, liquidity, and efficiency ratios. The analysis includes both quantitative and qualitative information, providing insights into the company's performance and suggesting areas for improvement. Finally, the report concludes with an examination of key fiscal management techniques, such as cash flow analysis, ratio analysis, and capital structure management, offering practical strategies for effective financial decision-making in different business scenarios.

Introduction To
Finance

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1 Basic concept and methodologies of finance and accounting..........................................1
LO 2 Sources of raising fund by companies and individual.......................................................2
LO 3 Through the interpretation of accounting results the financial performance of a
company......................................................................................................................................3
LO 4 Quantitative and qualitative information by analysing, argumentation and commenting.
.....................................................................................................................................................4
LO 5 Key fiscal management techniques to different
scenarios(<http://www.accountingnotes.net/financial-management/top-8-techniques-of-
financial-management/10662>)..................................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Finance is a term which explains the source of earning outcomes which required to
be managed in such a way that it can be easily converted in to cash. Through
using finance money can be managed easily for getting better conversion of funds
in monetary terms. In this study includes the basics of finance and accounting and
their methodologies. Companies and individual used the methods for raising the
capital and the structure if financial markets and institutions. The financial
performance of the through the interpretation if accounting results. Explaining the
qualitative and quantitative by analysing, argumentation and commenting various
sources of information. Key fiscal management techniques in different business
scenarios.
LO 1 Basic concept and methodologies of finance and accounting
Finance is all about creation of money, banking, investments, credit, assets,
liabilities which make the financial system(Cole, 2018). The fundamental theory if
finance is time value of money. Some basic concept of finance are:
 Liquidity: This term explains the liquidity position of assets present in the
business . How quickly and easily assets are convertible in cash for making
fast payment of liabilities.
 Risk taking: running of business is a risky task. There are so many risk
involved in day to day operations of business . Business required to maintain
reserves for facing these types of risks which may occurred at anytime.
Methodology: it explains the methods used for maintaining the position of liquidity,
risk tolerance, interest rates, assets allocation and diversification and net worth of
organization for facing the bullish and bearish market conditions(Emmerson
and.et.al., 2016)..
Accounting concept: It introduces the principles, concepts and terminology if
accounting. The basic term of accounting are revenues, balance sheet, cash flow
statement, assets and liabilities.
Four basic concepts are:
 Going concern: the business going to be continued for longer period.
Accounts of organization shows good position of business they are continuing
their business fir a longer period.

 Accruals concept: this explains the recording of accounting entries; revenues
and expenses are recorded when they actually accrued not at that time when
cash is paid or received.
 Consistency concept: organization required to maintain the consistency while
choosing the method of accounting for sound business system.
 Prudence concept: for taking safe side in recording of transactions , revenues
and profits are recorded when they actually realized but on the other hand
liabilities are recorded when there is possibility of occurring.
Methodology: Rules used by organization for reporting their revenues and expenses.
The two basic method of accounting are accrual and cash accounting. accounting
methods, principles and practices used according to GAAP for prep ration of
financial statements.
LO 2 Sources of raising fund by companies and individual.
Companies: Debt and equity are main source of capital. For conducting a business
large amount of capital required .
Debt capital: when organization is borrowing money and get agreed to pay it back
at any later date. The most common term used for debt financing are loans and
bonds. This is the mist common way of raising finance by large companies. Raising
capital through debt is ban loan .
Equity finance: Another way of raising finance are selling shares of company to
public for becoming participant in capital of business and earn the benefits from
them. There are two types of shares equity and preference share capital. Equity
shareholders are also bear the risk related to business but preference shareholder
does bear any risk related to business they continuously get their foxed amount of
dividend(Ryan and Ryan, 2015).
Individuals: The source of finance for individuals are personal savings, loans, grants
and investors. There are some other options of finance are gifts from family, credit
cards, crowdfunding and stock sales.
Structure of financial market and institutions:
Financial markets: market where people can trade their financial securities and
derivatives at low transaction cost. securities includes the bonds and stocks and
precious metals. Market where exchange of securities is taking place through
exchange of financial transactions by trading in securities. There are long term

finance and short term finance. Capital markets are long term and money markets
are short term finance(Ryan and Ryan, 2015). Types of financial markets:
 Capital markets: It consist of stock market and bond market:
 Stock market where shares are issued and enable trading of those shares on
financial markets.
 Bond market finance through issuing bonds and trading if bonds.
 Money markets: it provides short term debt financing and investments.
Structure of financial institutions(Yellen, 2016).
Financial institutions is the part of financial system. They are the intermediaries
those facilitate the functioning of by making connection between investors and
borrowers. For earning a better rate of return institutions mobilize savings and
allocate them for productive activities.
There are two types of financial institutions: banking and non banking.
Banking institutions: they mobilize the savings of individual and companies by
providing a mechanism for the exchange of goods and services.
Non banking: collection of financial resources either directly or indirectly from the
people. It can be categories as hire-purchase companies, investment companies,
housing companies and leasing companies.
LO 3 Through the interpretation of accounting results the
financial performance of a company
Ratio analysis
Particulars Formula 2017 2018
Gross profit 1008 932
Net sales 4874 4650
Gross profit ratio
Gross profit/ Net sales*
100 20.68% 20.04%
Net profit 671 616
Sales 4874 4650

Net profit ratio Net profit/ Net sales* 100 13.77% 13.25%
Net sales
Net sales/Average total
assets 671 616
Average total assets 6770.5 6515
Asset turnover ratio 0.10 0.09
COGS 3865 3718
Average inventory 4495.5 4400.5
Inventory turnover
ratio COGS/Average inventory 0.86 0.84
Current assets 5726 5477
Current liability 1548 1683
Current ratio
Current assets/current
liability 3.70 3.25
Stock 4516 4475
Current assets 5726 5477
Current liability 1548 1683
Liquid ratio
Liquid assets/Current
liability -0.78 -0.60
Interpretations:
From the financial information of Barratt developments PLC the calculations of
profitability, liquidity and efficiency ratios are calculated. By using financial
statements of two years of 2017 & 2018 calculate these ratios. Gross profit ratio in
the year 2017 is 20.68% and in 2018 20.04 so, there is decrease in this ratio. There
is also decrease in net profit ratio of company by 0.25% . Company required to find
out the reason for this reduction in profit and try to improve it. The efficiency ratios
such as asset turnover ratio and inventory turnover ratios. There is also reduction in
both of these ratios. Liquidity ratios are used to find out the liquidity position of
organization. There is also reduction in current asset ratio but the liquidity ratio is
negative but there is improvement in this negative ratio from the previous year.

LO 4 Quantitative and qualitative information by analysing,
argumentation and commenting.
Here, the analysis of ratios of Barratt for the year ended June 2018 in comparison
of year 2017. Because there is decrease in gross profit and reduction in sales also
made a reduction in gross profit ratio from .64%. This reduction shows there is
reduction in sales from the previous year because of this there is reduction in
demand of housing in UK. There is also reduction in net profit ratio from 0.52%
reason behind this is that there is decrease in reduction in amount of revenues
collected through sales(Emmerson and.et.al., 2016). The total amount spent for
expenses and cost if goods sold in the year 2018 is able to collect through sales
with maintaining a net profit margins. He management of organization required to
implement the ways for increasing their market share in housing projects. They
collected large amount of inventory in comparison to demand which will cause there
is reduction in liquidity of this organization because stock of inventory engage the
cash inflows because there is lower demand of housing in UK market therefore, the
current ratios are decrease from 3.70 to 3.25. it shows that the liabilities are aligned
for payment but the cash inflows is not able to fulfil the repayment obligations.
There is also reduction in efficiency ratio of Barratt in respect of asset turnover ratio
because of some bad acquisitions are made by organisation during the year which
made a lower asset return. The ratio reduced from 0.10 to 0.09. There is reduction
in inventory turnover ratio from 0.86 to 0.84 , reason behind this is that there is
decrease in sales which has been discussed earlier. According to their sales forecast
they are not able to sale that amount of unit in the UK market ,this will increase the
extra inventory retention cost. Higher cost of goods sold in respect of revenue
collection negatively affect the gross profit and net profit margins. Organization
required to made negotiation in their sales per unit.
LO 5 Key fiscal management techniques to different
scenarios(<http://www.accountingnotes.net/financial-management/top-8-
techniques-of-financial-management/10662>).
Under the fiscal management technique involves the process of planning, directing
and controlling the financial resources of organization. There are some important
techniques for fiscal management in different scenarios(Cole, 2018).

Cash flows analysis: This analyse the net cash inflows and outflows for each and
every activity of organisation. The preparation of cash flow statement is necessary.
In Barratt housing development company cash flow statement reflect that there is
reduction in cash collection from previous year. Finance activities affect with
increase in amount of loan repayments and dividend payment to equity
shareholders. There is increase in payment of interest on deferred payment .
Income is not increase at that level in respect of payments(Yellen, 2016).
Ratio analysis: Ratio analysis by using financial report and relevant data. This helps
in appraisal of financial performance. They analyse the financial statements of
organization. In Barratt liquidity ratio is low because of cash collection from the
current asset is lower as per the investment in holding and purchasing inventory.
Because of there is reduction in sales observed during the year then there is also
reduction faces by company in profitability ratios. The liquidity position is good this
shows assets realization is lower than the liability payment obligations.
Capital structure: Organization required to decide the optimum capital for deciding
the equity and debt ratio. Capital is major proportion in an organization which
decide the expenses of other activities. In Barratt loans and borrowings during the
year 2018 affect the capital structure of organisation there is huge increase in loans
and borrowings which will cause increase in liabilities in comparison to increase in
equity. The earning per share of shareholders is also increased from previous year
this will affect the retained earnings. Organization is retaining less amount of their
profit in respect of their incomes.
CONCLUSION
This study concludes that the different concepts and methodologies adopted by
organization for finance and accounting in the best possible way. Different source if
funding required for individual and organization for day to day functioning of both if
them. In Barratt the interpretation of different ratios by making a comparative
analysis with the previous year. The ratios reflect all the ratios are recorded with a

reduction. Finding the reasons for these reductions and providing solutions for this
for improvement in performance in comparison to previous year . By commenting
the ratio with their detailed analysis of reduction find the reason for this reduction.
At last the key fiscal management techniques used in different scenarios of
organization. Interpretation of cash flow analysis, ratio analysis and capital structure
define the techniques used for better management.

REFERENCES
Books and Journals:
Yellen, J.L., 2016. Perspectives on inequality and opportunity from the Survey of
Consumer Finances. RSF: The Russell Sage Foundation Journal of the Social
Sciences.2(2) pp.44-59.
Cole, R.A., 2018. Bank credit, trade credit or no credit: Evidence from the Surveys of
Small Business Finances. Trade Credit or No Credit: Evidence from the Surveys of
Small Business Finances (July 31, 2018).
Emmerson, C. and.et.al., 2016. Brexit and the UK's Public Finances (No. R116). IFS
Report.
Crossman, H. and Fischer, D., 2016. Participatory Budgeting and Transparency in
Municipal Finances. Journal of Accounting, Ethics and Public Policy. 17(3).
Schnapp, L.M., Steiner, M.J. and Davis, S.D., 2019. Basic primer for finances in
academic adult and pediatric pulmonary divisions. Chest.
Martí, F. and Pérez, J.J., 2015. Spanish public finances through the financial
crisis. Fiscal Studies.36(4). pp.527-554.
Ryan, J.S. and Ryan, C., 2015. Managing your personal finances. Cengage Learning.
Online:
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