Principle of Financial Management Analysis of Financial Statements

This document provides an analysis of financial statements for decision-making in financial management. It covers evaluating approaches, techniques, and factors contributing to decision-making, principles for effective financial strategies, role and functions of management accountants, and techniques for fraud detection and prevention.

PRINCIPLE OF FINANCIAL
MANAGEMENT ANALYSIS OF
FINANCIAL STATEMENTS FOR
DECISION MAKER

TABLE OF CONTENTS
ASSIGNMENT: PART 1................................................................................................................3
1.0 Introduction ..........................................................................................................................3
2.1 Evaluating approaches, techniques and factors contributing in decision-making along with
management accounting functions..............................................................................................3
3.0 Evaluation of Principles for effective and efficient financial strategies to maximize
shareholder value and fulfil needs...............................................................................................5
4.0 Analysing role and functions of management account in regard to financial control and
monitoring...................................................................................................................................6
5.0 Analysing techniques for fraud detection and prevention approaches for ethical decision-
making.........................................................................................................................................7
5. Recommending strategies to management accountants for improving decision-making.......9
6.0 Conclusion .........................................................................................................................11
References ................................................................................................................................11
ASSIGNMENT: PART 2..............................................................................................................12
1. Introduction ..........................................................................................................................12
2.0. Determining ratios of Mothercare plc................................................................................12
3.0. Justification for ratios that how they help company to take operational and strategic
decisions....................................................................................................................................21
4.0 Comparing as well as contrasting investment appraisal techniques and their assistance in
maximizing ROI........................................................................................................................23
5.0 Discussing the role of cash flow statement and break even analysis in decision-making. .24
6.0 Evaluating and recommending management accounting techniques for long term financial
stability and decision making....................................................................................................24
7.0 Conclusion..........................................................................................................................25
References ................................................................................................................................26
APPENDIX ...................................................................................................................................27

ASSIGNMENT: PART 1
1.0 Introduction
Financial management refers to planning, organising, directing and controlling monetary
resources of an organisation. Further, it includes applying financial management principles to
manage organisation’s resources for longer stability of business. The retail sector of UK plays
wide role in contributing in growth of the economy. In addition to this, the chosen company in
the report is Mothercare plc which is an established British retailer. Additionally, Mothercare plc
offers wide range of clothing, footwear, home and travel. The current reports describe principles
of management and how they assist business to take strategic decisions.
Further, report highlights financial strategies for maximizing shareholder’s wealth. Along
with this, the current report gives emphasis on role and functions of management for financial
controlling and monitoring. With respect to this, the present reports show fraud detection and
prevention techniques for strategic decision making. In addition to this, the report gives details of
ratio of Mothercare plc and their justification for operational decisions. In aspect to this, report
elaborates three investment appraisal tools for maximizing ROI.
2.1 Evaluating approaches, techniques and factors contributing in decision-making along with
management accounting functions
There are several techniques and tools that management accountant uses for making
decisions in organizations. These approaches include decision matrix, Pare-to analysis, cost
benefit, conjoint, SWOT and PEST evaluation. In addition to this, every organization use these
tools according to suitability to its scale and business structure (Pedroso and Gomes, 2020).
With respect to decision-making process management functions helps the organization to
identify, implement and monitor chosen tools, etc. These management functions include
forecasting, organizing, coordinating, controlling, analysing, communicating, etc.
Decision matrix
It helps business to evaluate all the options of decisions by formulating matrix table
which clarifies all the factors that can affect business. In regard to this, score is given in table in
turn it makes management to forecast and analyse that the decision will be appropriate for
business growth or not. In this tool final score reveal that which option of decision is best. In

addition to this, management accountant uses this tool to organize, evaluate and control its
financial resources of organization to ensure impelling operations of business.
Pareto analysis
This tool is used by manager when organization need to make numerous decision at
single time. It assists business to prioritize decisions which is very essential for managing
organizational activities. It makes easy for firm to evaluate that which decision should be made
first by determining overall impact on business activities. Further, this tool helps business to
identify a proper procedure for managing different functions of business to assure that it’s all
activities are carry out in systematic manner.
Cost-Benefit analysis
This tool is very beneficial to enterprise for making decisions regarding financial
resources of organisation. There are several benefits and drawbacks that business get from usage
of this approach. In addition to this, it plays vital part in managing business functions by
determining respective benefits and cost that firm need to incur for functioning of organisation. It
is majorly used by those businesses whose motive is to reduce cost of products than quality
management.
SWOT analysis
It refers to analysis of internal and external environment of business that helps it to take
strategic decision. In addition to this, the techniques identify company's internal strength and
weakness to measure its performance (Wahyuni and Triatmanto, 2020.). Further, it evaluates
external environment of firm by assessing available opportunities and threats of market. In turn
this analysis helps business to make critical decision by considering all its internal and external
factors which can impact its overall performance (What is SWOT analysis? 2021). This approach
aid firm to improve its strategies of managing functions such as organising coordinating,
controlling, and analysing its resources of enterprise.
PEST analysis
It refers to evaluation of political, economic, social and technological macro factors that
can influence functioning of organization (Lebedev, 2019). This method helps business to know
present trends so that it can modify its strategies of managing management functions to deliver
effective product and service into the market. It is one of the best decision-making tool that
enable company to recognize its macro elements of environment.

These are tools and approaches that can be used by organization to take strategic
decisions. Additionally, SWOT and PEST can be considered better techniques to conduct
decision process as it provides platform to analyse micro and macro factors that helps business to
manage functions of organization.
3.0 Evaluation of Principles for effective and efficient financial strategies to maximize
shareholder value and fulfil needs
There are several principles of financial management that helps organization to meet its
objective of increase wealth of shareholders along with company. These principles include
formation of optimal capital structure, considering time value of money, wealth maximization,
determining cost of capital, diversifying investment and borrowings, etc.
For making effective functioning organization require to make optimal capital structure
so that it can fulfil needs of its shareholders (Prasad, 2020). Whenever investors evaluate options
of investment their primary expectation from the company is to be efficient in optimizing its
capital structure. So that investors can understand financial plan of organization and take
decision regarding investment. Additionally, it is essential for company to follow this principle
to ensure that it is acting accordingly so that it can execute need of shareholders.
On the contrary note, it is also essential for the company to be aware with principle of
time value of money. This principle assist company to know what is expected from it in terms of
return on investors' capital. It decides the company's intentions in turn to safeguard interest of
investors. Through these shareholders evaluate that organization is accomplishing their needs
and maximizing wealth or not.
Another principle on which company needs to focus is cost of capital. Effective financial
management always does a comparison of financial reward and cost associated with it. In
addition, this assists it to decide interest rate because company need to fulfil its own
requirements also along with maximizing wealth of shareholders. If the cost of capital is more
than rate of return, then investors will not take interest in investing their capital in the company.
So it is essential for the organization to considering this principle to make sure that it is matching
with expectations of its shareholders.
In addition to this, forecasting cash flow plays vital function in making financial strategic
decision. There are various ways through which company can evaluate its cash flow to determine
company's liquidity ratio (Rikhardsson and Yigitbasioglu, 2018). The liquidity ratio measures

organisation’s ability to pay its current obligations. In addition to this, it becomes crucial for
company to evaluate its cash flow to make investors assure that their invested capital is safe. It
will result in gaining trust of investors that can motivate company to deliver good outcomes to
shareholders.
On the other side, maximizing wealth is also stated as an essential principle of financial
management. For achieving this, management accountant need to consider all the above
mentioned principles to have maximization of wealth. In addition to this, along with following
strategic financial management principles company need to be effective and efficient in
managing financial resources and fulfilling necessarily of investors.
4.0 Analysing role and functions of management account in regard to financial control and
monitoring
Roles
Management accountant is accountable for commencement, formulating and efficient
functioning of organization. He is responsible for collecting, compiling, preparing report and
interpreting internal financial information of the company.
He is obligated to prepare frame work of the cost and financial report so that all
departments of organization can perform effectively. In addition to this, management accountant
computes the variance of all activities to compare the difference between estimated and actual
performance so that improvement actions can be taken. The important role of management
accountant is to interpret financial reports to check the current performance of company in turn it
can evaluate reasons for errors so that corrections can be made.
The main role of management accountant is to keep control over activities of all
departments to make sure that company is performing better than prior stage. Additionally,
preparation of reports and interpretation helps him to identify lacking areas where firm need to
monitor and control effectively to achieve desire outcome.
Functions
There are several functions of management accountant that clarifies his roles and
responsibility which depends on capacity of organization. In addition to this, these functions
include planning, controlling, reporting, coordinating, interpreting, evaluating, advising
government reporting, economic appraisal and protection of assets, etc.

With respect to this, the important function of management accountant is plan standards
for cost, sale forecast, capital budgeting, production and profit planning, etc. In addition to this
controlling all these activities for effective performance of firm by examination of standard and
actual results. With respect to this accountant analyses all reports and interpret to share details of
all departments with top management for formulation of rules and regulations. Through this it
analyses level of control require for smooth functioning of organization.
Another function of management accountant is to coordinate activities of all department
by framing proper policies. Such type of coordination helps management accountant to create
healthy atmosphere between all departments and top-level of hierarchy. In addition to this,
evaluation of formulated policies is also done by management accountant to know that adopted
structure and procedure are effective and suitable to system or not. For this purpose, he has to
consult top executives and functional managers.
Along with these functions he has to advice management of organization to improve
performance of operations. In addition to this, business organization is liable to pay tax which
needs to be address by management accountant by preparing proper financial reports. In this
aspect he is expected to pay tax and maintain records that can be shown as evidence in case of
any legal obligation.
In aspect to this, management accountant is also responsible for acquiring knowledge
regarding current economic conditions to identify its influence on overall business activities.
With respect to this it is essential for accountant of the company to keep records of each
transaction and details regarding performance evaluation to obtain exact impact of present
economic condition. Furthermore, management accountant keep control over business activities
by adhering his all duty.
5.0 Analysing techniques for fraud detection and prevention approaches for ethical decision-
making
Fraud takes place in businesses regardless of type, scale and structure of organization.
Fraud detection helps business to highlights frauds that have already happened and are taking
place in business. It is beneficial for firm to prevent frauds as this helps business to forbid losses
as this ensure stability and existence of organization for long term (Jariya, Velnampy and Lanka,
2021). There are several techniques that help business to determine prevailing fraud in the
business some of which are as follows

Whistle-blowing hotline service
There are several tools and methods that are used by businesses to prevent safeguard of
business value. It is a technique that allows confidential agents and employees of system to give
details of inappropriate activities to management of business. This tool helps business to reduce
risk and building trust as it allows manager to detect misconduct at initial stage. With help of this
technique management of organization can prevent business from fraudulent activities to avoid
losses.
Fraud Detection by internal and external auditor
External auditor determines frauds of business by analysing all financial statement of
businesses. External auditor has the authority to assess all reports of business even if
organization does not want to show (Ameen and et.al., 2018). This type of auditor perform his
duty accurately so audited statements are considered to be fair. In addition to this internal auditor
also performs same activities as external. Further, he makes process of detection easy by
analysing statements on daily basis that results in low possibility of misconduct in the future.
This is also good strategy to prevent firm from misconduct activities.
Fraud detection by accident
It is a passive detection which is discovered in organization by accident, confession or
consolidated notification by other party. This assist firm to know those unknown details that are
frequently happening in management in unsystematic manner. This is another technique that
enable business to forbid losses.
Risk management
It is an essential technique that helps business to identify areas of high risk which is the
first step in detecting fraud. Further, it does fraud risk assessments covering all relevant areas for
operations that provide business platform for making strategies sustainable and long term
organization (DONNING and et.al., 2019.). This tool also helps business to detect and prevent
all fraudulent actions in initial stage only. In addition, this, main motive this approach is to make
positive environment in organizations by reducing and eliminating inappropriate activity.
These are some techniques which aids business to take decision regarding its policies and
structure of management. In addition to this, it assists management to find errors of financial
reports and make reconciliation in these statements. Further, this fraud detection and prevention
techniques enable firm to evaluate higher risk areas so that it can take respective actions to

minimize these hazard effects on business activities (Zainal, Som and Mohamed,2017).
Furthermore, these approaches avail information related to its employees and departments so that
it can implement needed monitor and control technique to improve performance of business
concern. Additionally, management of organization get proper mechanism for preparing reports
which helps business to avoid further frauds.
5. Recommending strategies to management accountants for improving decision-making
There are several ways through which management accountant can improve decision-
making process to have effective and efficient business structure.
 It can be recommended that management accountant need to have proper understanding
of all financial information that is important for business to grow. In addition to this,
proper reading of financial reports assists management accountant to have greater
understanding of business position. With respect to this, it can aid accountant to take
effective business decisions that makes the process of decision-making effective.
 Further, it is also recommended that management accountant should keep continuous
monitoring on its activities to match its policies with financial governance standard.
Additionally, complying with financial management governance rules and regulations
enable accountant to take accurate decisions. It will help business to enhance its
productivity of employees as proper framework can be provided regarding their roles and
responsibility. in aspect to this, it will remove confusion among employees that will lead
in proper functioning of organisation.
 It is to be suggested that management accountant should use modern budgetary system
which will help him to get accurate details of monetary resources. Further, modern
budgetary system will assist account to achieve desirable operation performance. With
respect to this, it will provide accurate information regarding sales and profit as modern
budgetary system considers all important costs for formulation of budget. With respect to
this budgetary system will give estimated figures to accountant so that he can compare
historical performance with current. Additionally, evaluated performance will aid
management accountant to take better strategic decisions.
 Further, it can be advised that using current techniques rather than traditional approaches
for decision-making can reduce inaccuracy and inefficiency which result in higher

productivity. In aspect to this, it provides assistance to firm to have fair current position
of business that enable business to make modification in prevailing strategies.
 Furthermore, benchmarking method should be adopted by management accountant for
evaluating standard performance with actual outcomes. This is the best technique to
analyse deviation in performance of all departments which assist business to take crucial
decisions. Additionally, benchmarking sets standards for performance of each activity
that motivates employees of business to performance better. This strategy not only
improves accountant decision-making skill but also gives various better opportunity for
growth to firm.
 In addition to this, management accountant should develop the skill for effective
decision-making so that he can choose better alternative for progress of business.
Additionally, accountant should be capable of identifying consequences related to each
decision so that better performance can be achieved. Further, it is essential for
management account to make alternative solutions for each situation to evaluate better
strategy. Additionally, it will aid management of organisation to be confident for its
decision as every possible risk can be evaluated by comparing each option.
 Another important suggestion for management accountant is that he should be capable of
analysing financial statement in appropriate manner so that correct interpretations can be
achieved. This will enable the management of business to be in position to take suitable
decisions related to circumstances of organisation. With respect to this, it is important or
management account to analyse, interpret and control each financial information for
better understanding of changing circumstances of firm.
 Additionally, it can be suggested to management accountant that involving your team-
mates for taking decision related to their departments. With respect to this, it will help
accountant to understand perception of employees so that appropriate decision can be
taken so that such decision will motivate employees to enhance their productivity.
 Another suggestion management accountant is that way of communication adopted by
him should be effective so that it can be simply understood by all workers in corrective
manner. In regards to this, the management accountant should choose the best choice
among ways of communication as at end it is essential for employees understand their
roles and responsibility clearly.

6.0 Conclusion
From the above study it can be concluded that management accounting techniques helps
business to take various strategic decision. In addition to this, the reports have given
management techniques such as decision matrix, pare-to analysis, SWOT and PEST evaluation.
The report has explained tools like cost of capital, time value of money, etc for maximizing
shareholder’s wealth. Furthermore, present report gives details of management accountant role
and functions which implies organising, monitoring, preparing reports, etc of financial
information for better functioning of organisation. With respect to this, reports recommend
management accountant of the company to understand interpret financial information properly,
utilization of modern budgetary system, etc.
References
Books and journals
Ameen and et.al., 2018. The Impact of Management Accounting and How It Can Be
Implemented into the Organizational Culture. Dutch Journal of Finance and
Management. 2(1). p.02.
DONNING, H. and et.al., 2019. Prevention and Detection for Risk and Fraud in the Digital Age–
the Current Situation. ACRN Oxford Journal of Finance and Risk Perspectives. 8.
pp.86-97.
Jariya, A. M. I., Velnampy, T. and Lanka, O., 2021. Management Accounting Research
Approaches: A Critical Review. International Journal of Financial Research. 12(1).
Lebedev, P., 2019. Management Accounting Maturity Levels Continuum Model: a Conceptual
Framework. European Journal of Economics and Business Studies. 5(1). pp.24-36.
Pedroso, E. and Gomes, C. F., 2020. The effectiveness of management accounting systems in
SMEs: a multidimensional measurement approach. Journal of Applied Accounting
Research.
Prasad, L. M., 2020. Principles and practice of management. Sultan Chand & Sons.
Rikhardsson, P. and Yigitbasioglu, O., 2018. Business intelligence & analytics in management
accounting research: Status and future focus. International Journal of Accounting
Information Systems. 29. pp.37-58.
Wahyuni, N. and Triatmanto, B., 2020. The effect of the organizational change on company
performance mediated by changes in management accounting practices. Accounting.
6(4). pp.581-588.
Zainal, R., Som, A. M. and Mohamed, N., 2017. A review on computer technology applications
in fraud detection and prevention. Management & Accounting Review (MAR). 16(2).
pp.59-72.
Online
What is SWOT analysis? 2021. [Online]. Available through:
<https://www.mindtools.com/pages/article/newTMC_05.htm>

ASSIGNMENT: PART 2
1. Introduction
The current report evaluates the ratios for the Mothercare plc which are appropriate for
determing essential decisions. Additionally, the report explains techniques, tools and approaches
that helps business to take strategic business decisions along with functions of management. It
entails the role of cash flow statement and break even analysis in regard to strategic decision-
making. The current study recommends management accounting techniques for longer financial
stability of Mothercare plc.
2.0. Determining ratios of Mothercare plc
Ratios help company, investors and analyst to analyse its financial position of the
organisation. The current report shows ratios of Mothercare plc which is British retailer that
deals in baby products.
Gross profit ratio
It is a tool to analyse the efficiency and performance of the Mothercare plc by dividing
gross profit to sales of the year (Cescon, Costantini and Grassetti, 2019). It helps investors to
identify company’s efficiency to earn profit from reducing cost of goods.
Particulars 2018 2019
Gross profit 94 66.6
Sales 580.6 513.8
Gross profit ratio=
Gross profit/sales*100
16.19% 12.98%

Net profit ratio
It assists investors, analyst, creditors and other interested party to evaluate company’s
ability to generate profit from sales.
Particulars 2018 2019
Net profit 76.1 93.4
Sales 580.6 513.8
Net profit ratio= net
profit/sales*100
13.10% 18.17%

Current Asset Ratio
It measures organisation’s capacity to pay its short term liability (Kartikasary and et.al.,
2021). It is an essential ratio which helps lender and creditor to evaluate that corporation will be
able to pay their fund back or not.
Particulars 2018 2019
Current asset 156.1 12.1
Current liability 134.40 135.80
Current Asset Ratio=
Current asset/ Current
liability
1.16 0.90

Liquidity ratio
It also helps stakeholders to assess organisation’s liquidity position as it assists to analyse
that firm will pay them in longer or shorter period. However, it is different from current asset as
it leaves out inventory and prepaid expenses.
Particulars 2018 2019
Liquid asset 156.1 12.1
Current liability 134.40 135.80
Liquidity ratio = Liquid
asset/ Current liability
1.16 0.9

Gearing ratio
It is an indicator of risk related with company as it represents how risky it will for
investor to invest in company. Further it assists investors to analyse how much it has debt
compare to its equity.
Particulars 2018 2019
Total Debt 272.10 229.20
Total equity 35.5 164.8
Gearing ratio = total debt/
total equity
7.66 1.39

Investment ratio
Earnings per share
Particulars 2018 2019
Earnings 76.1 93.4
Number of ordinary shares 170.9 341.7
Earnings per share =
Earnings/Number of ordinary
shares
0.44 0.27

Efficiency ratios
Debtors collection period
Particulars 2018 2019
Trade receivables 64.5 45.9
Credit sales 580.6 513.8
Debtors collection period
=Trade receivables/Credit
sales*365
40.54 32.6
Earnings per share
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
0.44
0.27
2018
2019

Creditors payment period
Particulars 2018 2019
Trade payables 106.3 102.6
Credit purchases 569.2 495.5
Creditors payment period=
Trade payables/Credit
purchases*365
68.16 75.57
Debtors collection period
0
5
10
15
20
25
30
35
40
45
40.54
32.6
2018
2019

Creditors payment period
64
66
68
70
72
74
76
78
68.16
75.57
2018
2019

3.0. Justification for ratios that how they help company to take operational and strategic
decisions
Ratios help company to take strategic decisions for smooth functioning of organisation.
Further, it assists management of organisation to understand financial performance and position
in very systematic way. In addition to this, Mothercare plc can identify its profitability, liquidity
and solvency aspects using ratios. Additionally, ratios are calculated by financial analyst that aid
company to interpret the correct place of Mother Care plc so that suitable strategies can be
identified for better’s operational activities of business.
Ratio analysis provides company to compare financial state of organisation in against to
other businesses (Honggowati and et.al., 2017). In addition to this, it helps organisation to know
strategies that other business is using in industry to compete and earn higher profitability.
From the above ratios it can be interpreted that gross profit ratio for the year of
2018 and 2019 was 16.19% & 12.98% respectively. It helps company to evaluate company’s
earning capacity by reducing cost of goods sold. Mother Care plc can compare its gross profit
ratio not only with ideal ratio but also with competitors to know its accurate performance. In
addition to this decreasing trend has been found in the gross profit margin of firm. On the basis
of current performance business unit is advised to exert effectual control on direct expenses. This
in turn helps in increasing profitability to the significant level. Investors, analyst and creditors
use NPR to evaluate commercial enterprise. With respect to this, it aids business to evaluate
deeper insight into organisation financial performance and position in the industry. By doing
ratio analysis, it has identified that NP ratio of the firm was 13.10% in 2018, whereas at the end
of 2019 it reached on 18.17% significantly. It can be justified from the calculation of net profit
ratio that it becomes easy for organisation to evaluate its sales strategies and margin of profit.
Further, management of Mothercare plc can take strategic decisions regarding its operations of
products for predicting sales for upcoming period (Kahn and Baum, 2020). In the current
scenario, by focusing on sales promotion aspects and budgetary control tools management team
of Mothercare can enhance net profitability.
Additionally, turnover and efficiency of business can be assessed by addressing current
and liquidity ratio as it helps management to know that how its assets are helping company to
generate more funds (Role of ratios in decision making, 2020). With respect to this, Mother Care

plc takes decisions on the subject of its replacements of assets. In addition to this, investors,
creditors and lenders can discover that company’s respective ratio is higher than its competitors
or not which helps them to take decisions for investment in the firm.
In addition to this, most of the business gets into trouble due to lack of liquid assets. The
liquidity ratio of the company is 1.16 and 0.9 times in 2018 and 2019 respectively. It shows that
company’s liquidity asset has been reduced from 2018 to 2019 which is not a good indicator for
growth of organisation. Further, this interpretation helps investors to decide that investing in the
current company will be beneficial for them or not.
Earning per share ratio is utilized by investors and many other third parties to know how
much profit they can earn on particular share. The ratio of 2018 and 2019 is 0.44 and 0.27
respectively which is showing decreasing trend. Additionally, debtors collection period for the
company in the year 2018 is 40.54 and 32.6 in 2019 which shows that company collects its
receivables in this days. It is decreasing from 2018 to 2019 that represents it can get its money in
less time comparing to previous. The creditors' payment period in 2019 is 75.57 and 68.16 in
2018 in turn it can be interpretated that from prior time firm is taking longer duration.
With respect to this, gearing ratio can be used by analyst, government, creditors and other
competitors to take operational and strategic decision for their business practices. From the
above calculation it can be justified that Mother Care plc can make major corrective actions
related to its strategy to deal with debt and equity. The calculated ratio in the report shows that
from 2018 to 2019 has reduced from 7.66% to 1.39% which is very low as compared to ideal
ratio. Additionally, this helps organisation to plan its new methods and techniques for managing
its equity and debt (Mavlutova and et.al., 2021).
In aspect to this, ratios are very essential for planning organisations operation activity as it
helps business to identify its improvement areas. With respect to this, it gives clarity and simple
understanding of organization’s complex operational activities which assist business to take
decisions (AFFANDI and et.al., 2019). Further, Ratios aid business, investors, creditors, analyst
and government to take crucial decisions regarding fair practice of business. In addition to this,
government use this to check that Mother Care plc is whether following all policies related to its
operation or not. Further, investors, creditors, lenders, banks and financial institute refer these
ratios to know company’s creditworthiness.

4.0 Comparing as well as contrasting investment appraisal techniques and their assistance in
maximizing ROI
Investment appraisal refers to assessment of new projects on the basis of capital
budgeting and financial techniques. There are three techniques of investment appraisal which
includes payback period, net present value and accounting rate of return (Guerard and et.al.,
2021). These techniques assist business in analysing the extent to which proposed investment
will prove to be beneficial for the firm.
Payback Period
It helps business in computing period within which initial investment can be recovered.
In addition to this, there are several benefits that organisation get through using this technique
which in turn increases its return on investment (Investment appraisal techniques, 2021). The
biggest advantage of this method is that it’s simple process which mainly focuses on measuring
risk and providing liquidity to firm. With respect to this, it ignores the time value of money
which adversely affects Mothercare plc to optimize its ROI.
Net Present Value (NPV)
NPV is the difference between present value of cash inflow and outflow during a
determined period. This method helps business to obtain maximum ROI by measuring
profitability and factor risks that business can pertain. Additionally, it assists business to achieve
higher profitability and returns on investment. On the others side it is not useful in comparing
two different size of projects.
Accounting Rate of Return (ARR)
The ARRin capital budgeting is used which aid business to easily understand the best
investment option available to it. On the different side it fails to evaluate profits of two different
duration
From the above explanation it can be identified this technique is best among three
methods. Moreover, it assists business to determine rate at which it can obtain its initial invested
capital that gives it clarity to make decision. NPV is the best technique as it provides result by
taking into account time value of money concept. Hence, by undertaking NPV technique
Mothercare Plc would become able to assess return that it will get after predetermined time
period.

5.0 Discussing the role of cash flow statement and break even analysis in decision-making
Cash flow statement helps Mothercare plc to have essential information related to its
income and disbursement. It also assists business to anticipate future deficit such as lack of cash
hence organisations are able to make effective decision. In addition to this, it also aids firm to
establish a solid base for credit which also contributes in decision-making process. Further, cash
flow statement is very essential to have details regarding net liquidity of business that provides it
to analyse its current position (Paolone, 2020). Cash flow statement enables firm to determine
company's financial stability and variability.
On the others side break even analysis helps Mothercare plc to estimate details of period
where it can cover all expenses of business and obtain situation of no profit and loss. It is
beneficial for the business as it allows organisation to analyse relationship between price, value
and cost (Sintha, 2020). It aids firm to determine the number of sales required to cover all
variable and fixed expenditures which in turn provide assistance to firm to take important
decisions. With help of breakeven analysis it becomes easy for business to determine MOS,
amount of sales require for desire profits, etc.
6.0 Evaluating and recommending management accounting techniques for long term financial
stability and decision making
There are several management accounting techniques that helps business to take decision for
long financial stability. In addition to this, techniques include financial planning, analysis of
financial statements, standard costing, budgetary control, marginal costing etc.
 It can be recommended that Mothercare plc can make financial planning for its operation
to achieve its objectives of organisation. It includes determining both short and long term
objectives, policies and procedures to achieve its enterprise goals. In addition to this
policies aid business to guide amount of capital and other resources needed for process of
organisation.
 It is suggested to Mothercare plc that it should make standard costing reports to analyse
deviation between actual and estimated performance. With respect to this, it will aid
company to sustain in market for long term with better financial stability. Further it will
be useful for business to segregate its business activities’ responsibility among its
employees with better efficiency and effectiveness. With respect to this, the company can

conduct all its business activities with limited time and financial resources that can assure
it long term stability.
 It can also advisable to management of Mothercare plc that it should use budgetary
control technique for achieving longer sustainability. In addition to this, formulation of
budget can provide effective planning to organisation that can help it to direct all business
activities in desired directions. Further, for achieving higher financial stability it is
essential for business to conduct all operation as per the estimated budget. In addition to
this, it will help organisation to sustain for longer period in the industry.
 Furthermore, it is suggested to company to utilize marginal costing tool for effective cost
control and break even analysis. Additionally, this technique is very use for achieving
profit maximization and strategic decision making.
 Additionally, it is also suggested to Mothercare plc to analyse its financial statements
properly to understand appropriate current position of business. With respect to this, it
will help company to manage its financial and other resources with company
appropriately. It will not only improve company’s present performance but also provide
assistance to management for better decision-making for future of Mothercare plc.
Additionally, this technique will aid company to analyse competitors and market
performance.
 Further, it is advisable to organisation to formulate cash and fund flow statement to
evaluate increase or decrease in its working capital. With respect to this, it will make
management of organisation able to manage its financial resources so that company can
get longer sustainability in the industry.
These are some recommendations of techniques that can help Mothercare plc to evaluate
best strategies for financial stability for longer period in the industry.
7.0 Conclusion
Further, ratios of Mothercare plc are shown in report along with justification for proper
decision making of organisation. The current study has mentioned three investment appraisal
technique which include payback period, average rate of return, and net present value.
Additionally, the report has shown role of cash flow statement and breakeven analysis for
strategic decision making.

References
Books and Journals
AFFANDI, F. and et.al., 2019. The Impact of Cash Ratio, Debt To Equity Ratio,
Receivables Turnover, Net Profit Margin, Return On Equity, and Institutional Ownership To
Dividend Payout Ratio. Journal of Research in Management. 1(4).
Cescon, F., Costantini, A. and Grassetti, L., 2019. Strategic choices and strategic
management accounting in large manufacturing firms. Journal of Management and Governance.
23(3). pp.605-636.
Guerard, J. B. and et.al., 2021. Financing Current Operations and Efficiency Ratio
Analysis. In Quantitative Corporate Finance (pp. 79-98). Springer, Cham.
Honggowati, S. and et.al., 2017. Corporate governance and strategic management
accounting disclosure. Indonesian Journal of Sustainability Accounting and Management. 1(1).
pp.23-30.
Kahn, M. J. and Baum, N., 2020. Basic accounting and interpretation of financial
statements. In The Business Basics of Building and Managing a Healthcare Practice (pp. 13-18).
Springer, Cham.
Kartikasary, M. and et.al., 2021. The effect of working capital management, fixed
financial asset ratio, financial debt ratio on profitability in Indonesian consumer goods
sector. Accounting. 7(3). pp.661-666.
Mavlutova, I. and et.al., 2021. Business Restructuring as a Method of Strengtening
Company’s Financial Position. Journal of Optimization in Industrial Engineering. 14(1).
pp.129-139.
Paolone, F., 2020. Concluding Remarks: The Importance of Cash Flow Statement.
In Accounting, Cash Flow and Value Relevance (pp. 69-81). Springer, Cham.
Sintha, L., 2020. Importance of Break-Even Analysis for the Micro, Small and Medium
Enterprises. International Journal of Research-Granthaalayah. 8(6).
Online
Investment appraisal techniques. 2021. [Online]. Available through:
<https://efinancemanagement.com/investment-decisions/investment-appraisal-
techniques>
Role of ratios in decision making. 2020. [Online]. Vailable through:
<https://www.ipl.org/essay/Role-Of-Ratio-Analysis-In-Decision-Making-
PKNBCJY3RJED6>

APPENDIX
Particulars Formula 2018 2019
Profitability ratios
Gross profit 94 66.6
Sales 580.6 513.8
Gross profit ratio Gross
profit/sales*100
94 / 580.6 * 100 =
16.19%
66.6/513.8*100=
12.98%
Net profit 76.1 93.4
Sales 580.6 513.8
Net profit ratio net profit/sales*100 76.1/580.6*100=
13.10%
93.4/513.8*100 =
18.17%
Liquidity
ratios
Current asset 156.1 12.1
Current liability 134.40 135.80
Current Asset Ratio Current asset/
Current liability
156.1/134.40
= 1.16
12.1/135.80
0.90
Liquid asset 156.1 12.1
Current liability 134.40 135.80
Liquidity ratio Liquid asset/
Current liability
156.1/134.40
=1.16
12.1/135.80
= 0.9
Solvency ratio
Total Debt 272.10 229.20
Total equity 35.5 164.8
Gearing ratio total debt/ total
equity
272.10/35.5
= 7.66
229.20/164.8
= 1.39
Earnings per share
Earnings 76.1 93.4

Number of ordinary
shares
170.9 341.7
Earnings per share = Earnings/Number of
ordinary shares
76.1/170.9
0.44
93.4/341.7
0.27
Efficiency ratios
Debtors collection
period
Trade receivables 64.5 45.9
Credit sales 580.6 513.8
Debtors collection
period
=Trade
receivables/Credit
sales*365
64.5/580.6
40.54
45.9/513.8
32.6
Creditors payment
period
Trade payables 106.3 102.6
Credit purchases 569.2 495.5
Creditors payment
period
= Trade
payables/Credit
purchases*365
106.3/569.2
68.16
102.6/495.5
75.57