Introduction to Finance

This document provides an introduction to finance, covering topics such as sources of financing, financial measurement, and investment appraisal. It explains the role of funding in ensuring the availability of finances and discusses the evaluation of different solutions. The document also explores the position and function of regulatory bodies and the role of auditing boards.

Introduction to Finance

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Question 1....................................................................................................................................3
Question 2........................................................................................................................................5
Question 3..................................................................................................................................10
Question 4..................................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Finance is general term encompassing fiscal, debt or financing, economic, commodity
markets, assets, and investment operations. Finance effectively represents the management of
funding and the mechanism for the necessary funds to be raised (Bernards and Campbell-
Verduyn, 2019). The role of funding is to ensure that ample finances are available to continue
operating and that the enterprise is equipped to maintain and preserve capital funds. This
evaluation is focused on four main forms of considerations pertaining to sources of financing, the
evaluation of the estimates for measurement of the corporation 's financial results and the
application of techniques of investment appraisal/analysis to evaluate the viability of the
different solutions. Moreover, position and function of a variety of different regulatory structure
bodies is defined as well as roles of the auditing board is discussed.
MAIN BODY
Question 1
(a) Measurement of EOQ-
Economic ordering quantity: √2*annual usage*Ordering cost/Carrying or holding cost
Annual usage: 27000 KG
Carrying or holding cost: $1.75 @ per KG of year
Ordering cost: $0.9
Hence,
EOQ: √2*27000*0.9/1.75
= √48600/1.75
= √27771.43
= 166.65 Or 167
(b) Calculation of annual cost-

Buying cost: 27000Kg @ 0.90
= $24300
Ordering cost: Annual demand*per unit ordering cost/EOQ = (27000*0.90/167)
= $145.50
Holding cost: Holding Cost per unit*EOQ/2 = (1.75*657/2)
= $146.12
Hence,
Annual cost: $24300+$145.5+$146.12
= $ 24591.5
(c) Evaluation of decision to use EOQ model.
Managers commonly applies the EOQ method in regard to the company Touchdown
Sports to determine the optimum order volume that substantially decreases net cost or
satisfies customer demand. EOQ can be around 657, reducing costs or causing the
profitability to be improved by Touchdown Sports. Decision of the corporation to use
this technique is based on that this will enable them to to optimize stock or inventory
expenses and decide how much inventory retention as well as re-ordering level should be
considered by the corporation. In attempt to take greater advantages of decreased bulk
prices and lowered ordering rates, this method can also consider purchasing a bigger
volume with less orders. Additionally, if they are large as well as order volumes are
usually smaller, they can prefer to more further orders for several products to reduce
operational costs (Booth, Cleary and Rakita, 2020).
(d) Suggestion to Touchdown plc.
The adoption of inventory controls has been suggested to company Touchdown
Sports' senior management team in order to reduce/optimize total expense related
to inventory handling and storage as well as and, with the assistance of EOQ

technique model, managers are enabled to lessen it by optimizing orders or maintaining
costs that minimise the costs of goods which either satisfy customer demand or satisfy the
firm's goal of increasing their profits. Keeping control over expenditures related to the
management of inventories which are not usable. Both costs, together with cost of
acquisition as well as cost of shortages, are also component of overall cost of the item.
The costs of running a corporation covers the cost of lost or defective items, and also
storage facilities, employees and insurances. It is also recognized that when market
demand is weak, Just-In-Time solution is more suitable, however EOQ is much more
acceptable in the context of company Touchdown Sports is the leading producer of sports
safety apparels having excessive demand. wIn addition to lessen the overall costs and
then identify the maximum level of quantity necessary to order in event of limited storage
and holding position, it is very important for organization to effectively implement EOQ
model.
Question 2
(a) Payback period:
Formula: Year before recovery + amount to be recover/next years’ cash flow
Investment: Cost-Scrap value
Option A:
= 51000-40110
Initial investment= 10890
Year Cash flow Cumulative cash flow
1 3200 3200
2 3300 6500
3 3100 9600
4 3000 12600
5 2900 15500
Year before recovery= 3rd year
Amount to recover= 12600 – 10890 = 1710

Next years’ cash flow: 2900
PBP: 4 + 1710 / 2900
= 4.59 Years or 4 + .59*12 = 4 years and 7 months
Option B:
= 76500-60120
Initial investment= 16380
Year Cash flow Cumulative cash flow
1 3900 3900
2 3600 7500
3 3300 10800
4 3100 13900
5 2600 16500
Year before recovery= 4th year
Amount to recover= 16500 - 16380
= 120
Next years’ cash flow: 2600
PBP: 5 + 120 / 2600
= 5.046 year or 5 + .046*12 = 5 years and .55 month
Interpretation- From the combined analysis of payback period of both options, it has been
established that A is much more attractive than plan B. As the payback period of B is
higher than A it means that option A is more efficient to retrieve initial-investment within
lesser period.

(b) ARR:
Option A-
Year Cash flow Depreciation (Actual
cost-Scrap value/life
of assets)
Net cash flow
1 3200 2178 1022
2 3300 2178 1122
3 3100 2178 922
4 3000 2178 822
5 2900 2178 722
Total net cash flow 4610
Formula: (Average annual profit / Initial investment) * 100
Average annual profit: 4610/5
= 922
= 922/10890*100
= 8.47%
Option B:
Year Cash flow Depreciation (Actual
cost-Scrap value/life
of assets)
Net cash flow
1 3900 3276 624
2 3600 3276 324
3 3300 3276 24
4 3100 3276 -176
5 2600 3276 -676
Total net cash flow 120
Average annual profit: 120/5
= 24

ARR: 24/16380*100
= 0.15%
Interpretation- From the above calculation, it was assessed that ARR percentage of plan-
A for Touchdown Trips Inc is 8.47 percent while 0.15 % in case of Option B.
Comparatively, A offers more profitability yield as compare to B thus option A would be
more viable for company.
(c) Evaluation of accounting rate of return method.
ARR technique provide indicator in form of percentage that demonstrates the average return
rate/yield of investments or projects occurred due to cash flows relative to their initial
investment. ARR measured as dividing the projected revenue/cash-flows of the
project/investment by initial expenditure in order to quantity of yield that can be anticipated over
all the lifetime of a project. The time value of capital or future cash flows are not
generally considered in ARR, and may be an important aspect of management decisions for
a firm. With the assistance of this appraisal approach , organisations are allowed to evaluate the
viability of each project. To assess the best alternative for spending, this method is used
by managers of company Touchdown Trips Inc.
Two possible investment approaches are being outlined, namely the Gulfstream G650ER
(option- A) and Boeing BBJ Max 7 (option- B). With assistance of ARR evaluation,
management is enabled to make appropriate selections, and Option A is healthier investment
option which produces 28.46 percent yield on investment. This approach has many rewards, such
as measuring and recognizing the turnaround duration is very efficient and easy. It would take
into consideration the net profit or sum earned over the whole life-cycle of an investment. This
model considers net earnings aspect which is amount of net earnings post taxes and depreciation.
This is a key consideration in appraisal of any investment. This approach allows the future
proposal to be compared to competitive essence of cost-reduction plan or other proposals. This
method offers a clear explanation of a project 's feasibility. This approach alone acknowledges
the accounting concept of gains for the estimation of yield or rate of return (DAVALLOU and
MAHMOODI, 2017).

(d) Merits and demerit points of the approach of IRR.
Option A of investment is selected on the grounds of the above-mentioned analysis, that has
a better recovery period and a higher ARR. Furthermore, with the assistance of investment
analysis techniques, Touchdown Trips Inc. executives will be able to make feasible decisions.
Techniques to investment evaluation have certain characteristics that have a broader
importance as discussed below:
• Evaluation of the sum of projected gains received relative to the extent of consistent
investment.
• It envisages the future costs, risks and benefits to be occurred throughout the
project’s life cycle.
• An investment or project's feasibility in terms of expected return, pay-back duration as
well as profitability can be measured to support decision making and making effective
comparison of projects/investments.
• Useful life of a project and how project will retrieve initial investment within project's
useful life can be determined.
• Outcomes of these techniques are based on projected data hence allow managers to take
long term decisions.
Beside all these techniques there is also a crucial technique named IRR, which is discounting
cash flow approach that offers rate of returning which an investment receives. IRR can be
defined/referred as discount rate that equates to nil for an overall initial outlay including
discounted cash-inflows (Endrijaitis, 2020). It is, in simple words, discount rate at which current
net value would be equivalent to 0. Here certain key merits and demerits of IRR, listed below:
Merits: The IRR makes it very easy to make choices. One just require to equate the proportion
of IRR to one can get by spending elsewhere or any other targets determined by management.
This approach would offer an unfavourable/negative percentage to project that is not capable of
getting that investment returned. The primary merit of IRR of project assessment is that
this clearly shows in percentage figures what project in question will produce. The appraiser now
just has to determine which percentage to contrast with. One do not require a hurdle percentage
to be determined in advance. Outcome of this approach would not be influenced by an error in
determining the hurdle threshold (Hiferding, 2019).

Demerits: When someone compare mutually exclusive projects/investments, a IRR technique is
typically not the appropriate measurement to employ. This implies manager can't consider other
one if they plan to support one of projects/investments. Managers have to project initial costs in
attempt to employ the IRR estimation. This could be hard to define and could cause the equation
to become distorted.
Question 3
Calculations of following ratios:
In attempt to assess its financial status, liquidity level, profitability status, risk, financial
stability, performance, and operational efficacy, ratio calculations and analysis is significant for
the organization and the appropriate use of resources, and also shows the pattern or correlation of
financial outcomes that can be beneficial for the corporation 's stakeholders to make financial
decisions (Kristanti and Herwany, 2017). In this regard here are computation of different
financial ratios based on the data of financial statements of Agro Company, as follows:
Gross profit margin:
Gross profit margin = Gross profit / Revenue * 100
= 1313 / 3495 * 100
= 37.56%
Assets turnover ratio:
Assets turnover ratio = Net Sales / Total assets
= 3495 / 2898
= 1.20 times
Current ratio:
Current ratio = Current assets / Current liabilities
= 1687 / 744
= 2.26 times
Acid test ratio:
Acid test ratio = Quick assets / Current liabilities
= 1537 / 744
= 2.06 times
Working Notes:
Quick assets = Current assets – Inventory

= 1687 – 150
= 1537
Inventories turnover period:
Inventories turnover period = Cost of Goods Sold (COGS) / Average Inventory
= 2182 / 126
= 17.31
Working Notes:
Average inventory = (Opening stock + Closing stock) / 2
= (102 + 150) / 2
= 252 / 2
= 126
Debt to Equity ratio:
Debt to Equity ratio = Total liabilities / Total shareholder’s equity
= 914 / 2898
= 0.31
Critically explaining major importance of considering audience for financial statement
analysis:
Analysis of financial statements considered as method of evaluating and analysing the
corporation's financial statements for making informed financial choices. In simple terms by
creating a strategic alliance among balance sheet elements, the income statement, and several
other financial reports, the method of assessing the financial assets and deficiencies of an
organization. The word 'analysis' indicates effective simplification of fiscal information by
methodical sorting of the information presented under financial statements,' interpretation'
implies,' describing the purpose and importance of the details so condensed (La Soa, 2019).
However, these are interconnected as well as complementary. The top executives are obsessed
about the firm 's future outlook. Financial analysis allows them to analyse the investment options
in order to judge the company's profit prospects. The estimation and estimation of default and the
risk of company loss could be attained with the aid of the financial statement analysis.
FS analysis tends to determine whether or not credit will be offered to the business by financial

companies, lending agencies & lenders. It allows them to assess the default risks, if approved,
decide the contract terms of lending, interest rates, maturity period etc. Audience are key aspect
in analysis of financial statements as these are main personnel which are users as well as
influencer as their decision affects company’s performance. Here are certain targeted audience to
be considered in financial-statement analysis, as discussed below:
Trade-payable/Creditors: Importance of analysis of financial statements as follows:
• Assessing the business's capacity to fulfil its shorter - term commitments
• Assessing the possibility of the company's continuing willingness to satisfy all its
financial commitments in the coming years.
• The willingness of the company to resolve creditors' demands within a relatively
shorter period of time.
• Assessment of the financial situation and the potential to paying off the issues.
Lenders
Long-term debt providers are obsessed with the longer-term financial viability and sustainability
of the business. They analyse company's financial statements:
• To determine the organisation 's viability over specific time period,
• To assess the capacity of a corporation to raise capital, to incur interest and reimburse
principal sum,
• Assessing the connection between different sources of funding (i.e. relations with the
capital framework)
• To evaluate and perceive financial statements containing data on historical results as a
foundation for predicting potential rates of return including risks assessment.
• Determine terms and conditions attached with a loan if held liable, interest rates, and
maturity period etc. to assess credit risk (Schwichtenberg, 2019).
Investors
Investors that have allocated their cash in the securities of the corporation are concerned in the
performance and potential sustainability of the company. Analysing financial statements aids
them in estimating the risk of default and loss of business companies. Investors should take
proactive steps to avoid / minimise losses after becoming conscious of the possible failure
(Silvant and Arrupe, 2020).
Top Management

Financial statement analysis contributes to top executives:
• Assessing if the company's resources are being used in appropriate way
• If the company's financial position is sound
• Determining the effectiveness of the corporation 's activities
• Assessing the efficiency of the entity
• Analysing Internal Control System
• To examine the entity's potential prospects.
Question 4
Explaining roles of each of following organisations in international regulatory framework for
accounting:
IFRS Foundation:
• To build an unified higher quality, comprehensible, enforceable and internationally
agreed package of IFRS via its standard-setting authority named IASB's;
• Supporting the adoption of certain criteria and their thorough application;
• To consider of the concerns of emerging markets and smaller and more efficient markets
for financial reporting process and SME.
• Norms and explanations to enable and facilitate implementation of IFRSs via the
integration of regional accounting principles and IFRSs published by IASB.
IFRS Advisory Council
• The IFRS Advisory Group is official technical advisory committee for representatives
of IASB as well as IFRS Framework. This includes a wide variety of similar group
members who are involved in implementing the IASB.
• This includes clients in accounting practices, financial experts and other clients, and also
compliance officers, researchers, bookkeepers, lawmakers, accounting consulting firms
and standard-setters. The representatives of Advisory Board are elected by trustees.
• The advisory committee usually meets for around two days in the London for three times
per year (Taghizadeh-Hesary and Yoshino, 2019).
• The Chief of IASB, Directors of Technical Practices, Director of Research, the
Directors of Implementation and members of IASB, as well as those directly interested in
the legislative priorities of Consultative Council, are usually required to participate
in Consultative Council sessions.

International Accounting Standards Board (IASB):
• Its members (currently 16 full-time members) have the duty of creating and distributing
IFRSs, such as IFRSs for SME enterprises, and of approving IFRS descriptions as
defined by International Accounting Board (previously IFRIC). All IASB discussions are
scheduled in particular as well as on web-portal.
• In the implementation of its regional standard mandates, the IASB encourages a detailed,
open and functional due process, where even the publication of insightful documents, like
consultation reports and accountability guidelines, is an essential feature of govt policy.
• The IASB collaborates with international partners like investors, practitioners, policy
makers, business leaders, financial reporting organizations and financial institutions
(Tanzi, 2020).
IFRS Interpretations Committee:
• Evaluate the usage of IFRSs as well as offer timely advice, in the light of the IASB
process, on fiscal reporting concerns not expressly discussed in IFRSs, and perform other
activities at the direction of IASB,
• Taking into account the aim of the IASB, in serving out its research above, to work
effectively with regional standard-setters to come about the integration of regional
accounting principles and IFRSs through higher-quality solutions.
• Publish draught interpretations for the public consultation after acceptance by IASB and
accept suggestions submitted within a fair amount of time
before finalizing interpretations.
• Reporting to the IASB and seek consent for final clarification from nine of its
representatives when there are less than 16 representatives, or from 10 of its
representatives when there are sixteen (Warren and Jones, 2018).
Role of audit committees in corporate governance:
Corporate governance, particularly following the numerous non-stop globally financial crises, is
very relevant in our modern business environment. effective corporate governance across various
stock market exchanges around the world has been considered a fundamental requirement for the
recognition and incorporation of an entity. Audit committee serves a significant role in
the corporate governance affecting the development, supervision, and responsibility of the

company. An audit committee, as subsidiary of board members and a key component
of corporate governance process, is interested in internal and external assessments, performance
regulation, accounting and financial statements, regulatory enforcement, and risks control
of company. A collaborative mechanism among audit committee, auditors and managers is the
audit mechanism. Audit committees discuss the audit reports with senior management and
independent auditors, addressing concerns that management typically raise with audit committee
in compliance with standard auditing requirements. Reviewing critical accounting as well as
reporting concerns is one of key role of audit committee. Audit committee interacts regularly
with independent auditors after the periodic audit to review issues which need to be addressed
internally. It is critical that audit committees’ function for fraud prevention. Auditors with
experience in forensic audits are skilled at finding systematic accounting mistakes and
irregularities (Wijburg, 2019).
CONCLUSION
From the above report, it's been ascertained that funding or financial planning resides in
the potential to maintain a business operating smoothly after filing bankruptcy and at the same
time raising longer-term investment funds. Financial factors allow firms to assess the company's
feasibility and, with the help of investment appraisal methods, management can select the best
investment options which are more beneficial and also convenient.

REFERENCES
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performance, and financial constraints.
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FINANCIAL ACCOUNTING AND TAXATION ON CORPORATE INCOME
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