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.
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MANAGING FINANCIAL RESOURCES
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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 asincome 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
company.statements.aspects. It is not complex, it does not have any statements such as balancesheetandincome statements. Theyneedtofollowproper format and correct records of statements (Kirkham, 2012). They decision making process are done by analysing all the financialstatementsofthe 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 toconsidersuchissuesas important. Acompletedecisionand futureinvestmentforthe purpose of further investments and growth prospectives. At the end of the year financial statementsareusedintheir 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 partiesthatareinterestedinattainmentofprofitsandsafetyofinvestments.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 lendersof funds such as financial institution and banks. ï‚·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,IslamandKouzani,2010).Before,theyallotanyfinancial requirements to the company. ï‚·Tax authorities:In order to make credibility of tax returns that are filed on behalf of the company. ï‚·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. ï‚·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. ï‚·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: ï‚·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
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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 ToDate: 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 fromlast year. As, itwas 11 % more ascompare 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
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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