Principles of Financial Management

PRINCIPALS OF
FINANCIAL
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
P1 Formal and informal approaches for supporting effective decision- making.........................3
LO 2.................................................................................................................................................6
P2 Key financial management principles....................................................................................6
LO 3.................................................................................................................................................8
P3 Role of management accountants and their value..................................................................8
P4 Use of accounting control systems and their value..............................................................10
LO 4...............................................................................................................................................11
P5 Importance of financial decision making in the financial sustainability..............................11
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
The term financial management basically comprises of the activities related to the
strategical planning, controlling and organising of the different financial undertakings in an
organisation collectively (Davidova and Latruffe, 2020). It further involves all the decisions
related to the management of the financial assets in an organisation and plays a critical role in the
fiscal management as well. In the present report, financial analyze will be done of Morrison’s in
particular and the report will analyse the formal and informal approaches that are necessary in
the decision making of an organisation. The report will further analyse the key financial
management principles that are necessary for the organisations to achieve the financial
sustainability and the role of management accountants and their importance in organisations
management will be evaluated and discussed. Further the report will identify the manner in
which accounting control systems are used and lastly the report will analyse the annual
statements of the Morrison’s to critically analyse the financial decision making and its role in
sustainability.
MAIN BODY
P1 Formal and informal approaches for supporting effective decision- making
In the current global environment where the businesses are integrated on the international
platforms at multiple scales, it is necessary to take decisions regularly pertaining to different
fields and different areas so that the company can be operated successfully. The decision making
in every organisation is instrumental as this is the very manner or basis through which a
company is able to operate and conduct the business activities that are required to be performed
effectively and comprehensively. An organisation therefore cannot function without taking
certain kind o decisions every moment either big or small.
The organisations that operate at a vast scale such as Morrison’s often adopt the knowledge
based approach for decision making where the decisions are taken after proper analysis of the
quantitative data i.e. important facts and figures that are associated with the decision to be taken
(Yermack, 2017). For instance the decision of Morrison’s to develop a partnership with Ocado in
the year 2013 was a very planned and intricate decision making process where they carefully
mapped the benefits that it would given and the contribution in the achievement of their ultimate
objective that is to increase the technological integration and development in the organisation
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and to improve the overall infrastructure so that the company could launch an online website of
their own.
Further, the decision making in Morrison’s comprises of a formal as well as informal
approach in the decisions that are being made in the organisations. The company uses formal
approach where the decisions to be taken are important form the strategic point of view and can
affect the overall structure and the systems that are being followed in the organisation. Such
decisions are taken in an entirely formal procedure involving only the top management of an
organisation. Such approach is adopted in Morrison’s only when some important strategic
decisions such as mergers and acquisitions, appointment of CEO etc. is taken in the organisation.
The informal approach is also implemented in the organisations where the decisions that are to
be taken are not of strategic importance and the need for the relationship building and
networking is more (Shapiro and Hanouna, 2019). The decisions to hold an annual party for
instance or planning a farewell for an employee involves decision making that is informal in
nature.
Apart from this, there are certain key factors as well that are required to be analysed before
the decision making process. These are mainly limiting factor analysis and the key factor
analysis. The limiting factor analysis can be considered as the analysis of the constraints that
exist in an organisation which acts as the limit beyond which the company is unable to utilise
their resources. For instance, the employees at Morrison’s cannot be employed for more than the
limited number of hours that have been approved legally. Hence the limiting factor here is the
number of hours that an employee can work. These also affect the decisions making significantly
as company has to decide how can they utilise the limited resources that are available to them in
the best way possible i.e. the manner in which the maximum benefits can be drawn for the
company.
The key factor analysis on the other hands takes into consideration the internal and external
factors that are associated with the organisation and can significantly affect the profitability as
well as the productivity of the business collectively (Mitchell and Calabrese, 2019). For
Morrison's as well, the key factor analysis is a regular aspect that is being performed using the
tactics of environmental scanning and this in turn affects the every major decision that is being
taken by the top management of the Morrison’s organisation.
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