Financial Analysis and Decision Making

This project report provides a comprehensive analysis of Aurora Plc's financial statements, including calculation of various ratios to compare current year performance with the previous year. It also discusses different types of users related to financial analyses in an organization and presents a report to Aurora Plc for investment decision making.

MANAGING FINANCIAL
RESOURCES

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Q1. Main financial management and its format use by organisation..........................................1
Q2: Various users of financial statements and assess the information needs.............................3
TASK 2............................................................................................................................................5
Q3: Interpretation of financial information by using various ratios...........................................5
a) Calculation of various ratios...................................................................................................5
b) Report......................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Finance is an important aspect for any business organisation in order to manage their
business operations. In hospitality industry, management of funds are necessary for achievement
of long or short term objectives. Financial accounting is related with allocating various financial
resources to the business (Arthur, Cheng and Czernkowski, 2010). It is used to considered time
value of money and risk aspects in decision making process. This project report covers different
financial statements and formats use by various organisation. Assessment of financial statements
in decision making and its interpretation by using various ratios. The analysis of results will be
helpful in comparing internal and external impacts.
TASK 1
Q1. Main financial management and its format use by organisation
In an organisation, it is necessary to maintain their financial record in proper manner. It is
done by using various various financial reports and statements. These statements are mainly used
for small and large scale business organisation. The investors use to make valuable decision on
the basis of these statements which is prepared by managers by taking crucial information of
their financial transaction during the year. Financial management is known as formal records of
accounting activities and position of an organisation, person or other related entity. They
describe status of investments in business current year planning as crucial results that are
associated with it. They are known a combination of various records and facts which is based on
accounting convenient and individual judgements. It shows the revenue,expenses and income of
a organisation over a period of time (Bennouna, Meredith and Marchant, 2010). Basically, it
consists of various statements such as income statements, Balance sheet, Statement of cash-
flows and retained earning records. Some useful information is collected from various banks,
individuals, shareholders and other concern parties make their decision to invest their capital in a
business. It is mostly based on ability to incur profit and maintain stability is prime concern. The
balance sheet and income statements are best way determine financial position of the company
during the year. All these main records are analyse and determine in proper manner prior taking
any critical decision.
Features of financial statements:
1

 It should be accurate for which they are prepared. Unethical and confusing matters are
not be their.
 They should represent full and accurate details data from company's performances,
position and progress during the year (Carballo-Penela and Doménech, 2010).
 It should be prepared in more systematic manner so that a better and effective analysis
could be made.
Types of financial statements: There are various statements which can be prepared by
the company in order to determine its financial position and performances. Some of them are
discussed underneath:
Income statements: Such kind of statements is based on the financial stability and
performance of business for the entire period of time. It starts with sales and deducted out of all
expenditures which are incur by company's during the year. It is done to determine net profit and
loss of a Hilton Hotel (Cui and Ryan, 2011). An EPS amount can also be included if they are
used for the purpose of publicly held company.
Balance sheet: It is known as company's backbone. Many of the investors used to
considered this statements as important aspects for making crucial investment plan and decision.
In general categorization of assets, debts and equity is necessary part of this statements. It is key
components of private company's so as it include most issuances of financial records.
Cash-flows statements: This kind of report are based on recording cash transaction
which is done by the company from various activities. Such as investing, operating and financing
activities. Information about cash inflows and out flows during the year are recorded in this
statements. It is more difficult to assemble and so it is more generally used by outside parties.
Statements of changes in equity: Such kind of documents are based on all necessary
changes related with equity during the period of time are recorded in it (Healy and Palepu,
2012). It consists of purchase of shares, divided issued and profit and losses incur by company.
Comparison of formats with various organisations
Sole proprietorship Private Ltd company Public Ltd company
The financial records for this
particular company is very
simple. The reports is just
representing image of the
It is primary mode of
determine actual result of the
company with the use of these
In this company, the
statements must reflects the
current and non current assets
and liabilities and other
2

company. statements. aspects.
It is not complex, it does not
have any statements such as
balance sheet and income
statements.
They need to follow proper
format and correct records of
statements (Kirkham, 2012).
They decision making process
are done by analysing all the
financial statements of the
company.
They are mostly target to have
prime focus on profit, if they
are able to incur maximum in
an year then, it is not necessary
to consider such issues as
important.
A complete decision and
future investment for the
purpose of further investments
and growth prospectives.
At the end of the year financial
statements are used in their
financial year report.
Q2: Various users of financial statements and assess the information needs
The purpose of financial accounting is to analyse the data in more effective manner so
that profitability can be determined. It can be useful for many users for taking necessary decision
making. Such financial information is used by external parties such as investors and creditors.
Management accounting data is used for taking valuable decision by inside users such as
administration and other functional managers (Müller, 2011). The major stakeholders of these
statements are mostly categories into group which are as follows: investors and other potential
parties that are interested in attainment of profits and safety of investments. Upcoming
profitability can be identified from targeted Hilton Hotel company with its previous year
performances as mentioned in income statements. The necessary information collected from
profit and loss statements, balance sheet are mostly used by management, workers, investors and
other regulatory bodies associated with the company. It is mostly concern with two departments
such as internal and external.
External users are communicated accountancy data which is usually categories into
various forms of financial statements. This involve functional aspects of Hilton Hotel but it hold
some financial interest . They are categories into various users such as:
 Creditors: They are responsible for determining credit worthiness of an organisation.
Terms and condition of credit norm are set by creditors as per the assessment of their
3

clients financial position. It consists of suppliers as well as lenders of funds such as
financial institution and banks.
 Investors: For, identification of feasibility of investing in the company. So many
investors wants to ensure that they can earn a reasonable for getting more return on their
investments (Rana, Islam and Kouzani, 2010). Before, they allot any financial
requirements to the company.
 Tax authorities: In order to make credibility of tax returns that are filed on behalf of the
company.
 Customers: Assessment of the financial position of its suppliers that is importance for
them to control a consistent supply in longer period of time. In case of long term
planning or agreements among the company its clients it become important to maintain
good ability to regulate its presence and control stability in operations (Users of
Accounting Information, 2017). Like for example: A distributors, customers in so many
cases, is depend upon the production industry from which it purchases the products it
resells.
 Regulatory norms: In order to ensure that the disclosure of accounting information is in
relation with the various rule and regulation the are made in that respect which create
certain interest for them.
 Government: It is another important parties which is operating from the outside of the
business. They belongs to especially tax authorities which is interested in an business
concern for the financial data in order to determine tax and other legal procedures. Taxes
are calculated on the basis of outcomes and other tax bases.
Internal users: They are known as primary users for the company. The managers those
are used to collected financial data for the purpose of decision making which is related with
company function departments. Accounting data is presented to inside users mainly in the form
of accounts statements, budgets and forecasted and other related information. Some of the
importance users which are related with this respect are as follows:
 Management: They are known as decision making authorities which used financial
statements for the purpose of making perfect analysis of company's position during the
year. After making complete evaluation they use to make decisions in order to improve
the outcomes which are necessary for the company. In most of the company, in case of
4

hospitality industry they are made of hired professional related with the responsibilities of
functional aspects of its departments.
 Employees: They are responsible for making maximum profitability with using resources
of the company in more appropriate manner. They also deal which various issues which
are related with them such as remuneration and job securities (Stent, Bradbury and
Hooks, 2010). As per their capability they are liable to get salaries and provide
necessary benefits. They are also value in its financial position and stability to assess
company expansion rate and development of their own career.
 Owners: They are working form the analysing of financial viability and growth aspects
of their capital investments and considered if any future course of action is need to be
taken. Potential investors are required to collect information to assess the company's
success and profitability.
TASK 2
Q3: Interpretation of financial information by using various ratios
a) Calculation of various ratios
Gearing ratio: It is related with the ratio of corporate debts to its shareholder equity.
High ratio may increase return on investments at the same time financial risk can also be
increase. It measure the percentage of a firms capital employed that are collected from long term
debts such as mortgage and debentures. Shareholder and other investors are related in the manner
to compute gearing ratios as it help to assess the point of risk.
Formula:
Gearing ratio: Total debt / Total equity *100
: 7,880,000 / 58,08,680 *100
: 135.6%
Working note: Total long term debts = Creditors amounts which is falling due after more than
one year. As, 7,880,000.
Total equity: Issued shares of £1 each fully paid + Reserves
: 5,000,000 + 808,680 = 58,08,680
5

Earning per share: It is known as equal amount of net income minus divided by all
shares outstanding. It will help the company to determine net profit earned from each share. It is
useful tool for stock price valuation.
Formula:
Earning per share (EPS) = Net income / Total outstanding shares
: 750,000 / 5,000,000 = 0.15p
Dividend per share: It refers to be the amount of dividend that shareholder have receive
for each share they carry. They are not generally calculated by investors as it is disclose to
everyone (Purce, 2014). Earning which is distributes to shareholder's as in cash dividends. If the
ratio is high it is considered as more effective for decision making.
Formula:
DPS= Dividends / Total number of share
= 200,000 /5,000,000 =0.04p or 4%
Dividend yield: It refers as the stock's dividend that yield is termed as an annual
percentage and computed as the company's net annual cash divided per share by the current
prices of the stock. It is best to determine total cash-flows a company is getting for a every
pounds invested.
Formula:
Dividend yield ratio: Annual dividend per share / Current stock price
: 0.04 / 80p = 0.05 or 5%
Dividend cover: It is considered as ratio among disposable profits and dividends. It is
refers as that profit which is left after paying interest and taxes. This ratio indicates that
capability of an organisation to maintain the dividends on future share. If the ratio is high it
indicate healthy amount of earning available with the company.
Formula:
Dividend covers ratio: Net profit after interest and tax (EPS) / Dividend declared (DPS)
: 0.15 / 0.04 = 3.7 times
Price/ earning ratio: It is known as the valuation ratios of a company present share price
compare to its per share earnings. It is used to measure of optimism regarding firms forecasted
amount. If there is High PE ratio is means optimism while, if low ratio it indicated pessimism.
6

Formula:
P/E ratio = Market value of share / EPS
= 80p /5p= £16
b) Report
7

Analysis Report
To Date:
Jasmin
This report is based on critical evaluation of various ratios which is associated with
Aurora Plc. According to statements provided by company for 2014, some ratios is been
computed in order to make comparison of results with to the previous year data.
Objectives:
The primary objectives of this project report is to identify results whether Jasmin need
to invest in the company by observing its financial position.
Interpretation:
From the above information, it has been found that gearing ratios in previous year was
68.65% and it was jumped to higher level with 135.6%. It means that they have recorded
maximum viability as compare to its debts that cannot get stable for more time. It can be
fluctuated at any time. EPS of 5p in recent year as it was maximum in previous year which was
12p. DPS in 2014 is 0.04 or 4p which is more as compare to previous year as it was only 3.75p.
It means that company is having sufficient amount to distributes profit among its partners and
employees. Dividend yield is compare with other company's those are operating in the same
business. The rate of return on alternative investment are identified. As, it was down from last
year with 1.25% rate. Dividend cover is increase from .5 times while, price earning ratio is
maximum from last year. As, it was 11 % more as compare with two year financial
performances.
Recommendation:
After making proper analyses, it has been found that gearing ratio is much more risk as
compare it is at higher rate. They are not able to earn that much price as it was earn from past
year shares. If DPS is considered, it is more high as compare to last year which is good sign for
investment. Dividend covers from each share is more as they are getting a healthy rate with .5p
over per share. The P/E ratio is also high, as its means optimism for the company.
Aurora Plc.
8

CONCLUSION
From the above project report, it has been concluded that finance is crucial part of any
business organisation whether related with hospitality sectors. This project covers various
information related with company's financial statements and its importance in decision making.
Types of users which is related with financial analyses in an organisation are discussed under
this project. Calculation of ratio is done in order to compare current year performance with to
that of last year. On the basis of proper analysis a report is presented to Aurora Plc with crucial
decision of investment should be made in it or not.
9

REFERENCES
Books and Journals:
Arthur, N., Cheng, M. and Czernkowski, R., 2010. Cash flow disaggregation and the prediction
of future earnings. Accounting & Finance. 50(1). pp.1-30.
Bennouna, K., Meredith, G. G. and Marchant, T., 2010. Improved capital budgeting decision
making: evidence from Canada. Management decision. 48(2). pp.225-247.
Carballo-Penela, A. and Doménech, J. L., 2010. Managing the carbon footprint of products: the
contribution of the method composed of financial statements (MC3). The International
Journal of Life Cycle Assessment. 15(9). pp.962-969.
Cui, X. and Ryan, C., 2011. Perceptions of place, modernity and the impacts of tourism–
Differences among rural and urban residents of Ankang, China: A likelihood ratio
analysis. Tourism Management. 32(3). pp.604-615.
Healy, P. M. and Palepu, K. G., 2012. Business analysis valuation: Using financial statements.
Cengage Learning.
Kirkham, R., 2012. Liquidity analysis using cash flow ratios and traditional ratios: The
telecommunications sector in Australia. The Journal of New Business Ideas & Trends.
10(1). p.1.
Müller, V. O., 2011. Value relevance of consolidated versus parent company financial
statements: evidence from the largest three European capital markets. Accounting and
Management Information Systems. 10(3). p.326.
Purce, J., 2014. The impact of corporate strategy on human resource management. New
Perspectives on Human Resource Management (Routledge Revivals). 67.
Rana, M. M., Islam, M. S. and Kouzani, A. Z., 2010, February. Peak to average power ratio
analysis for LTE systems. In Communication Software and Networks, 2010. ICCSN'10.
Second International Conference on (pp. 516-520). IEEE.
Stent, W., Bradbury, M. and Hooks, J., 2010. IFRS in New Zealand: effects on financial
statements and ratios. Pacific accounting review. 22(2). pp.92-107.
Online
Users of Accounting Information. 2017.[Online]. Available through: <http://accounting-
simplified.com/financial/users-of-accounting-information.html>. [Accessed on 16th
November 2017].
10