Managing Financial Resources (D O)

This report discusses the concept of GAAP and the users of accounting information for decision-making. It also explains the components that supplement financial statements in annual reports and calculates financial ratios for Smart Resort Ltd. A report on the performance of the organization is also provided.

Managing Financial
Resources ( D O )

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. Meaning of GAAP and users of accounting information for making decisions ...............1
2. Describing the most significant financial statement to the various persons.......................2
3. Explaining the components that supplement financial statement in annual report and
numerous financial components ............................................................................................3
4.(a) Calculate the financial ratios for Smart Resort Ltd........................................................4
Q.4 (b) Write a report to the CEO concerning the performance of the organisation Smart
Resort Ltd...............................................................................................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES ...............................................................................................................................8

INTRODUCTION
Every organisation require various funds for conducting the operations of the business.
Finance is the lifeblood of the business which assits in running the mangerial activities. As
resources are limited and its uses are unlimited. It is mandatory for firms to keep check on the
mangment of fianncial resources (Amir and Ghitti, 2020). It provide way to attain goals and
objective of the firm. This report is divided into four parts. In part one, it explains the concept of
generally accepted accounting principles which ease the accountants in prepartion of financial
statements of the company. It also encompasses several external as well as internal users of the
financial information and how these records helps to take short term and long term decisions of
the enterprise. Discussing the importance of each statement of income, cash flow and balnace
sheet and showing which is more interest to the loan creditor and trade ceditor. Financial
reporting concepts are discussed in part three of the report. In part four, it entails the
interpretation of the fianncial ratios of two consecutive years and commenting on the same as a
finance director of Smart resorts ltd.
MAIN BODY
1. Meaning of GAAP and users of accounting information for making decisions
All the organisations are required to mainatin financial statements which are framed with
some specific rules and follow general principles in putting the transactions in various books of
accounts. For achieving transparency and uniformity in the different enterprise, GAAP was
formed by the financial accounting standard board (FASB) and govermental accounting standard
board (GASB) (Dicuonzo and et.al., 2022). It creates a base for different corporations to work on
single concept and principles. There are the some common principles which aids in prepartion of
financial records such as principle of consistency, conversatism, materiality and utmost good
faith. There are several number of users which use financial statements. It can be discussed as
given below -
 Company management - The management teams uses financial statements to know
about the actual position of the enterprise. It aids in knowing the deviations in their
current performance through which it can improve the future performance .
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 Competitors - The rivaliries in the existing market takes the help of financialsattement to
identify the trends of the competitor's startegy and its plan for capturing the market share.
 Employees- These are key assets of the organisation because every plan is executed by
the employees of the enterprise. With the help of finnacial statements, its employees
ensure that whether the firm is capable to pay remuneration and other compensation to its
employees or not (Dong, Liao and Zhang, 2018).
 Goverment - The goverment inspect finnacial statements to know whether the
organisations are adhering to legal rules and capable to file the tax return. Goverment
inspection validates the firm to conduct is operation in smooth manner.
 Investors - These are the person who plough funds in the organisation through which
financial needs can be fulfiled and raises the capital of the enterprise. Finnacial
statements aids in knowing whether investors got good dividend or not. By analysing
records it eases investors to take long term investing decisions.
 Lenders - These supply raw material, goods or other monetary payment to the enterprise.
Lenders inspect the statement to know whether the enterprise is capable for repayment or
not. It signifies the total assets, liabilities and revenue of the firm.
All the above stakeholders use the financial records to interpret the financial performance and
take several managerial and financial decisiuons related to the organisation.
2. Describing the most significant financial statement to the various persons
In fianncial statements, there are normally three types of statements which are - Cash
flow sattement, balance sheet and profit and loss account. Each fianncial statemeant has different
pupose for the external users. The main creditors of the business are as follows, detailing about
the information provided in the financial statements which cater to the needs of these persons.
a) A loan creditor: These refer to the persons who extend loans to the businesses who are in
need of the funds to operate their operations in any marketplace. These people of the business are
intrested in knowing the liquidity position of the business and at what rate the business is earning
profits (Imtikhani,. and Sukirman, 2021). The profitability of the business is the main concept
which these people are intrested in. the profitability of the business determines if the business
will be able to pay back the principal amount with the interest or not.
b) A trade creditor: These refer to the people in the operations of the business which are mainly
the suppliers of the business and grant the businesses time to pay back the amount for the
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products which are supplied to the business. These creditors need the information related to the
liquidity of the business and check the creditiors turnover of the business. The balance sheet also
gives the insights about the current liabilities of the business. These are crucial for a strat up as
they can help the business to start its operations in a low cost and meet the market demands for
their products(Kvatashidze,2019). The activity ratio of the business also helps these creditors in
taking their decision of extending credits to the business or not.
3. Explaining the components that supplement financial statement in annual report and numerous
financial components
Annual reports are the documents which signifies the performance of the organisations. It
is used by stakeholders to make judments about the specific firm. It is prepared on annual basis
and it is mandatory for every organisation especailly public corporations to publish its reports.
The various components of the financial records are explained as given below -
a.) Cash flow statements - For knowing the net cash flows of the enterprise, every enterprise
prepares cash flow statement. It is widely divided into three main activities which is cash flow
from operating activities, cash flow from investing activities, cash flow from financing
activities.The former consist all the activities of daily routine of business and adjustment of
working capital. Another head includes the purchase and sale of fixed assets. Financing activities
includes the issue and redemption of shares and debentures(Lin, Lin and Miao 2018).
b.)Notes to financial statements - These include the detailed discussion of the components
specified in financial statements. It gives complete picture of the items shown in another
statements. It is usually shown seperately at the bottom of the financial records. These statements
aids auditor to check the accuracy of the conventions and principles followed by the
organisation.
c.)Profit and loss account or income statement - For knowing the level of profitability of the
business, profit and loss account is prepared. It includes the summary of all the operating
expenses and income of the current year. The operating expenses such as wages and salaries,
utilities, interest paid on debt and property taxes. On the other hand, income include commission
received, interest and dividend received. It helps in creating base for further performance by
knowing the current performance.
d.) Balance sheet - The balance sheet of an enterprise signifies the total assets and liabilitites
owned by the business at a specific period of time. The assets are further divided into two
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categories such as fixed or non current assets and current assets. Non current assets assets are
those which exists in the business for a period of more than one year. Few examples of Non
current assets are plant, machinery and fixtures. On the other hand, current assets include trade
debtors and bill receivable it remains in the enterprise for a periuod less than or upto one
year(Marigi,2018). Liabilities are divided into two categories which are current liabilities and
non current liabilities. Current liabilities include trade payable and bill payable. Non current
liabilities consist long term loan and debentures.
Financial reporting is the prepartion of the statements by following the policies and
procedures of various laws. Provide sattements on time helps to gain insights to the investors. By
reporting company can keep track on the working capital, liquidity and profitability. It is
essential to follow GAAP and IFRS rules. It gives standard treatment for every transactions
which produces equal results. There are several objectives of financial reporting such as it aids
investors to know the exact amount of dividend, shareholders will get and other bonuses or perks
available to the employees. It is also cruical for mangament accounting in which it shows how
effectively the mangament is utilising its resources and applying in the operations of the
business(Ospina&Bermeo, 2021).
4.(a) Calculate the financial ratios for Smart Resort Ltd.
Ratio 2019 2020
ROCE = EBIT / Capital Employed 277662 / 1656382 =
0.168 %
323631 / 1913934 =
0.169 %
Net Profit Margin = Net profit / Sales * 100 167914 / 5732145 *
100 = 2.93 %
185370 / 7123189 *
100 = 2.60%
Current Ratio = Current Assets / Current
Liabilities
1786140 / 982480 =
1.82
2064100 / 1265332 =
1.63
Quick Ratio = Current Assets – Inventory /
Current Liabilities
661498 / 982480 =
0.67
723668 / 1265332 =
0.57
Debt to Equity Ratio = Total Liabilities /
Shareholders Equity
1544377 / 1,094,485 =
1.41
1522380 / 1,656,886 =
0.92
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Times Internet Earned (Coverage) Ratio =
Earnings before interest taxes and
depreciation / interest Expense
277662 / 21955 =
12.65
323631 / 17370 =
18.63
Inventory Turnover Ratio = Cost of goods
sold / Inventory
4377690 / 1124642 =
3.89
5396923 / 1340432 =
4.03
Average Collection Period = Accounts
Receivable / Net credit sales * 365
203143 / 5732145 *
365 = 12.93
221836 / 7123189 *
365 = 11.37
Accounts Receivable Turnover = Trade
Receivables / Net credit sales
203143 / 5732145 =
0.035
221836 / 7123189 =
0.031
Earnings Per share (EPS) = Total net
Income / Outstanding Shares
167914 / 1875 = £
89.55
185370 / 2175 = £
85.23
Working Notes:
Change in the value of equity = 1656886 – 1094485 = £ 562401
Number of outstanding shares:
2019 = 562401 / 300 = 1874.67 shares
2020 = 1874.67 + 300 = 2174.67 shares
Q.4 (b) Write a report to the CEO concerning the performance of the organisation Smart Resort
Ltd.
The CEO Report
Considering the monetary statement of the organisation, it can be asserted that the company
has increased revenue with the decline in the net profit margin. It infers that the company
can generate more profit but it needs to reduce its operating expenses by strategizing the
operating activities. By looking at the figures of balance sheet and income statement it can
be reviewed that the company has generated the profit of £ 167914 in 2019 and £ 185370 in
2020 by also issuing the number of shares which is 300 in the term period of 2019-20(Pham,
Driml and Walters, 2018).
But, this does not justify the productivity of the organisation. The increase in profit does not
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accompany the growth of the firm. The percentage of the margin of profit has been lessened
comparatively from the previous year. The interest which has been paid for the long – haul
of time has been decreased.
The Return on the capital employed has been calculated or assessed the efficiency and the
proficiency of the organisation. It is almost the same for both years, even though the EBIT
has increased. But this constant percentage has remained due to the increase in the current
liabilities which has affected the ROCE margin(Resnik and et.al., 2021). The current ratio
has been lessened which has impacted the liquidity position of the company. It means that
the efficiency of the firm for repaying its short–term obligation has been reduced. This will
indirectly impact the economic status of the entity. It does represent good liquidity for the
firm. Although, the operating profit has risen which is the management for paying off the
debt amount which is incurred by the business concern. This hike in the income has effect
the interest payment of the company which has suffered a downfall. The inventory turnover
has increased which is good for the entity because it means that the company can generate
more sales and the demand for the products and services is high. Also, the collection period
is of approximately 13 days which has decreased to 11 days. It means the company can
expand its functions by collecting payments from its creditors more frequently. It will help
Smart Resort Ltd to recover the amount more easily and frequently.
Thus, from the above analyses, it can be asserted that Smart Resort Ltd is performing
moderately. Some of the elements have to be considered for the improvement in the
organisation by strategizing and developing the liquidity status of the company(Shivaraj and
Gokula, 2020).
CONCLUSION
From the above report, it can be asserted that the GAAP is an essential principle of the
accounting systems. It is mandatory for every listed company to follow because it helps in
incurring homogeneity in the accounting report of the organisation. Moreover, it makes it simple
for assessing and compare the financial statements of the company by its competitors from the
same industry. It also helps the organisation as well as the users of the accounting ratios to
evaluate the annual reports of the entity. The main transaction takes place between the creditors
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and debtors which helps in completing the amounts and getting the amounting and assists the
company is expanding its business functionalities. Although, the annual report is prepared by
considering various elements such as cash flow, notes to this statement and many more. Further,
the financial ratios are calculated which will help in determining the productivity and the status
of the organisation.
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REFERENCES
Books and Journals
Amir, E. and Ghitti, M., 2020. Financial Analysis of Business Combinations (Ratios).
In Financial Analysis of Mergers and Acquisitions (pp. 141-164). Palgrave Macmillan,
Cham.
Dicuonzo, G.,and et.al., 2022. The role of transformational entrepreneurship in managing a
digital platform: the case of Yamamay. Journal of Strategy and Management.
Dong, W., Liao, S. and Zhang, Z., 2018. Leveraging financial social media data for corporate
fraud detection. Journal of Management Information Systems, 35(2), pp.461-487.
Imtikhani, L. and Sukirman, S., 2021. Determinan Fraudulent Financial Statement Melalui
Perspektif Fraud Hexagon Theory Pada Perusahaan Pertambangan. Jurnal Akuntansi
Bisnis, 19(1), pp.96-113.
Kvatashidze, N., 2019. Impact of Changes of the Conceptual Framework for Financial Reporting
on the Indicators of the Financial Statement. International Journal of Economics and
Management Engineering, 13(9), pp.1177-1180.
Lin, C.Y., Lin, T.C. and Miao, B., 2018. Financial Statement Disaggregation and Bank Loan
Pricing. Available at SSRN 3113170.
Marigi, S.N., 2018. Hydrology and Best Practices for Managing Water Resources in Arid and
Semi-Arid Lands. In Hydrology and Best Practices for Managing Water Resources in
Arid and Semi-Arid Lands (pp. 164-184). IGI Global.
Ospina&Bermeo, J., 2021. Managing Human Resources as a Business Strategy in Times of
Disruption. In Handbook of Research on Management Techniques and Sustainability
Strategies for Handling Disruptive Situations in Corporate Settings (pp. 300-324). IGI
Global.
Pham, L.D.Q., Driml, S. and Walters, G., 2018. Managing seasonality in rural destinations: A
case study of South Gippsland–Australia. Tourism Recreation Research, 43(4), pp.445-
455.
Resnik, D.B., and et.al., 2021. For the “good of the lab”: Insights from three focus groups
concerning the ethics of managing a laboratory or research group. Accountability in
Research, pp.1-20.
Shivaraj, H.N. and Gokula, K.S., 2020. A Study on Financial Statement Analysis of Avant Grade
Hospitality Private Limited Bangalore.
Wahyudi, E. and Widhaningrat, S.K., 2020. Develop a perceivable financial statement: A
qualitative study at SME four coffee. In Understanding Digital Industry (pp. 31-34).
Routledge.
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