Principles of Financial Management: Techniques, Stakeholder Management, and Long-Term Decision Making

This document discusses the principles of financial management, including techniques for better decision making and stakeholder management. It also explores the significance of financial decision making for long-term success, using a case study of Continental Clothing Limited. The document provides analysis of financial data and ratios to evaluate the company's performance.

Principles of financial
management

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
CONCLUSION.........................................................................................................................................17
REFERENCES..........................................................................................................................................18

INTRODUCTION
There are five general principles for determining the business exchanges of endorsed
research money. Policies and practices within the data analysis Accounting Services have been
established to enable these principles. The five principles must therefore be uniformity,
promptness, rationalization, supporting documents and accreditation (Shapiro and Hanouna,
2019). These principles are useful for better financial management. The term financial
management can be described as having to deal with and evaluating cash and expenditure for a
company or individual to help make better business decisions. In this project report a company
has been selected that is Continental clothing limited. This company is located in United
Kingdom and deals with manufacturing of various kinds of cloths for different age groups. The
project report is based on two parts. The first part of report includes information about analysis
of different techniques and factors for better decisions as well as role of techniques in fraud
deduction to ethical decision making. As well as second part of report covers information about
different financial techniques and their importance for long term decision making.
MAIN BODY
Part 1
1. Evaluation of techniques, approaches and factors for better decision making.
Approaches:
 Knowledge based approach- Information-based approach means understanding
awareness as a tool for achieving corporate competitiveness; knowledge implies a
method for controlling and optimizing organizational efficiency. It is important
for a business organization to provide a knowledge-based strategy such that the
decisions made for change have any factual foundation (Dowell-Jones and
Buckley, 2016). That has a huge effect on the decision-making process of the
managers in the company.

 Formal and Informal approach- It offers a consistent approach to the decision-
making process for the organization. This method eliminates the analytical
approach to decision-making and gives descriptions of the reasons for decision-
making. It helps to improve the likelihood of choosing solutions that meet the
multiple expectations of the company's stakeholders. The complexity connected
with the assignments is minimized by the presence of rational alternatives. The
strategy allows for a quicker reassessment of the conditions, specifications or
adjustments in priorities of the stakeholders. This helps organizations to make
more rational choices about all aspects.
Techniques used in decision making:
 Decision matrix- Managers are able to analyze certain choices for decision taking. In this
matrix, all choices are put in the first column of the table and the variables that influence
the decisions in the first section. It includes ranking and evaluating considerations
depending on their value and chooses the best possible choices.
 T –Chart- The chart is built to balance plus and minus choices. This guarantees that all
negative and positive factors are taken into account when making decisions
Factors affecting decision making:
 Socio economical factor- Continental clothing limited is restricted to recently formed
businesses and interests, the trust bond with the public and their company has a full effect
on their corporate life cycle. In order to create trust with the company managers of this
agency, it is important to take actions that are in support of the public (Jones, Finkler,
Kovner and Mose, 2018).
 Financial factor: Taking a business decision depends on an organization's capital
structure. The liquidity and ability to make decisions on the loans therefore invest in
those projects whose costs can easily be borne by the company.

2. Stakeholder management and management of conflict objective of stakeholder groups.
Stakeholder management- Stakeholder management is a key part of the effective
execution of every initiative, plan or operation. A stakeholder is any person, community
or association that may be influenced, affected or considered to be impacted by a system.
Stakeholder management relates to the cycle of involving stakeholders and establishing
positive partnerships with participants. The stakeholders are people or organizations with
an involvement in the business, portfolio and plan as they are involved with research or
are influenced by outcomes (Zietlow, Seidner and O'Brien, 2018). This is a broad variety
of partners in programs, investments or initiatives. These people have a significant impact
on the success or failure of the work. Stakeholder management is concerned with
harnessing constructive factors and reducing adverse impacts. This focuses on defining
stakeholders, determining priorities and impact, creating a relationship management
strategy and involving and shaping stakeholders. The corporation will provide an
appropriate stakeholder relations plan for controlling the company's stakeholders.
Identifying a Stakeholder shall involve all relevant parties whose existence has a direct
and indirect impact on the company enterprise. Customers, suppliers, owners, lenders are
also known to be stakeholders. Stakeholders play a crucial role in the decision-making
phase as the company makes actions based on the desires of its stakeholders.
Managing conflicting objectives of different stakeholder groups
The manager is expected to consider the need to align the needs of the different
shareholders and sales managers are concerned with the production of revenue and
benefit and getting an acceptable return on their assets. The procurement Team expects
the task to be completed in less time to increase their efficiency. Each organization and
stakeholder has its own priorities and it is important for the manager to define his or her
priorities.
3. Value of management accounting in cost control.

Management Accountant conducts a number of activities that maintain financial
stability through the administration of all financial aspects of the business. It allows the
organization to push its strategy and policies (Suprayitno and Soemitro, 2018). The
administration accountant guarantees that all procedures and activities are carried out
correctly while maintaining all expenses under track. Business organization uses the
accounting management method to deter theft and the immoral issues created inside the
enterprise. Accounting management structure aims to develop practices and processes in
a responsible way. It will also involve a financial management program that aims to
monitor the operations linked to financial assets and takes important investment decisions
on financial proposals. Such as in the above company, they use various kinds of
accounting techniques for reducing cost of operations. The important technique to control
cost is cost accounting method.
Cost accounting technique- It is a technique that is related to computing cost of various
kinds of operations and comparing with actual cost. In the Continental clothing limited
they use this costing method to manage their expenses.
4. Techniques for fraud detection and prevention.
It is essential to identify fraud, because it can put the entire company at risk.
Businesses are facing a million damages owing to theft. This is critical because the
company detects fraud at an early stage and introduces procedures to deter fraud so that it
can be avoided at an early stage in the case of fraud. Creating a profile of possible fraud,
using a top-down approach to risk management, identifying locations where fraud can
occur in the company (Jayaprawira, 2019). It includes defining the forms of fraud that
may exist in the areas concerned. Company should adopt constant auditing and tracking
strategies. Timely auditing and effective monitoring of all fraud prevention processes
should also be carried out. Management should be told by successful means of contact
regarding fraud at the initial level.
Approach to ethical decision making- Company should adopt a utilitarian approach to
effective decision-making by assessing action on the basis of its results or consequences.

Before making choices, it perceives its benefits and costs. The method seeks to achieve
the maximum value to the highest amount at the same time as developing the least harm
or avoiding the biggest suffering. The method is useful for organizations because any
choice is made on the basis of the final performance.
Reflective analysis:
The project was related to understanding various kinds of approaches and
techniques in order to take corrective actions. During this project I faced some issues as
well as understood way to manage different things.
Issues- The main issue which I faced during this project was related to research about
given concepts and tasks. I used search engines to find out relevant information but there
were too many options which increased complexity. This is so because there were too
short time period to complete the project. As well as lack of sites related to provide
authentic information was also a big problem for me.
Things which I learn- In addition with the issues during this project I learn some
exceptional things which may help me future. For instance, I learn about how to find out
relevant information from online sources. Along with I gain knowledge about concept of
stakeholder management, techniques to take make effective decisions.
Part 2
P5: Evaluating ways in which financial decision making is significant for long term.
1) Explanation of how financial data help in taking operational and strategic decisions
It has shown that administrators tend to work through their everyday operations.
Managers then will have all details on the latest discount rate for the sector. That is not as
straightforward as any more competitive or cost-effective activities. Information processing is
often a big activity that can affect companies greatly over a period of time (Agrawal, 2018).
There is a lot of functional information that managers collect on a regular basis. All relevant
decision-making depends on the aspect and role of the organization. This supports executives
and several others who apply information and examples of their daily decision-making needs. It

is essential to use Thomas Cook's financial statements to assess their current situation. The
following is the study of the business ratio by utilizing details from the financial report of the
organization which can help to Continental clothing limited for strategic and organizational
decision-making:
Ratios analysis: Analysis / evaluation of ratios is generally used as an efficient way to
assess financial statements. The numbers create a statistical or qualitative relation between two
financial statements statistics in order to determine the capabilities and shortcomings of an
enterprise, its financial situation and fiscal performance. This allows many stakeholders to assess
other facets of a company's success. In this regard, Continental clothing limited and its review
help the financial and strategic core decisions of a company: In this sense, some main ratios are:
Gross Profit Margin:
(GBP in
Millions) Year 2018 Year 2019
Gross
Profit 11105 10585
Revenues 44404 44478
Calculati
on
11105/44404*1
00
10585/44478*1
00
Gross
Profit
Margin
(%) 25.01 23.80
Analysis- On the bases of above table this can be find out that gross margin of continental
clothing company was of 25.01% in year 2018 which reduced and became of 23.80% for year
2019. This is indicating that company is able to generate higher profitability in year 2019 as
compared to year 2018. The reason of this lower margin is decreased value of gross margin in
year 2018. This decrease may be because of higher cost of goods sold in this year.

Net profit margin:
(GBP in
Millions) Year 2018 Year 2019
Net Profit 2897 -1225
Revenues 44404 44478
Calculation 2897/44404*100 -1225/44478
Net Profit
Margin
(%) 6.52 -2.75
Analysis- The table indicates the net margin of above chosen company. As per the table this can
be find out that company had net margin of 6.52% in year 2018 that reduced and became as net
loss margin of -2.75%. It is so because of company suffered from net loss of -1225 GBP million
in year 2019. As a result, they faced net loss. Along with there were too many operational
expenses in year 2019 that resulted as net loss for year 2019.
Current ratio:
(GBP in
Millions) Year 2018 Year 2019
Current
assets 16787 17844
Current
liabilities 15714 16871
Calculati
on
16787/157
14
17844/168
71
Current 1.07 1.06

ratio
(times)
Analysis- The table is showing that company is unable to meet the criteria of ideal current ratio
that is 2:1 times for both years including year 2018 and 2019. Such as in year 2018, their current
ratio was of 1.07 times that reduced by a little margin and became of 1.06 times. The cause of
this poor liquidity position is that there are too many current liabilities as well as growth rate of
current liabilities in year 2019 is higher as compared to current assets.
Quick ratio
(GBP in
Millions) Year 2018 Year 2019
Quick
assets 12074 12947
Current
liabilities 15714 16871
Calculati
on
12074/157
14
12947/168
71
Quick
ratio 0.77 0.77
Analysis- The table is showing that company is unable to meet the criteria of ideal quick ratio
that is 1.5:1 times for both years including year 2018 and 2019. Such as in year 2018, their quick
ratio was of 0.77 times that remained same for next year 2019. The company is able to manage
their liquidity position at strong level.
Return on equity ratio

(GBP in
Millions) Year 2018
Year
2019
Shareholde
r's Equity 17850 15395
Net Profits 2897 -1225
Calculation
2897/17850*1
00
-
7.957
13
Return on
Equity
(%) 16.23 -7.96
Analysis- The above mentioned table is showing that company is generating different volume of
return from their equity such as in year 2018, they generated return of 16.23% on their equities.
While in year 2019, their return was negative. This is so because of net loss in year 2019.
Debt to equity ratio:
(GBP in
Millions) Year 2018 Year 2019
Debt 22595 27173
Equity 17850 15395
Calculati
on
17850/22595*
100
15395/27173*
100
Debt
Equity
Ratio 79.00 56.66

Analysis- The above mentioned table is showing that debt to equity ratio in year 2018 was of
79% which reduced and became of 56.66%. It was because of lack of equities and higher debts
in year 2019 as compared to year 2018. As a result they faced issue of lower ratio in year 2019.
2. Effectiveness of investment appraisal technique in decision making
Investment Appraisal Techniques
Investment assessment approach employed by the company to determine among many
options the appropriate option for investment decisions (Njenga and Jagongo, 2019). Such
strategies are part of the methodology of capital budgeting. Continental clothing’s manager uses
this tool to analyze best projects that will have more advantage in future. When best solution for
investment managers has been established, they establish approaches that help to reduce the cost
of manufacturing goods. Below an example of different investment appraisal techniques is
mentioned that is as follows:
Payback period: It is another significant method demonstrating that a particular time span is
supposed to be retrieved / recovered with the sum of original project funding regardless of net
cash inflows from production.
Investment: 100000
Year Cash flow Cumulative cash flow
1 30000 30000
2 40000 70000
3 90000 160000
4 120000 280000
5 150000 430000
Payback period= Year before cost recovered + amount to be recover / next year cash flow
= 2 + 30000/90000

= 2.33 years
This is indicating that cost of this project will be covered in 2.33 years and this will be beneficial
for companies.
Net present value: This is a crucial method that shows the present values benefits of a specific
investment or project (Hilkens, Reid, Klerkx and Gray, 2018). It evaluates the valuation
multiples advantages that the company will derive from making an investment.
Cost of capital- 10%
Investment- 100000
Year Cash
flow
PV
factor
Discounte
d cash
flow
1 30000 0.909 27270
2 40000 0.826 33040
3 90000 0.751 67590
4 120000 0.683 81960
5 150000 0.621 93150
303010
NPV= Discounted cash flow-investment
= 303010-100000
= 203010
The net present value of project is positive that is of 203010 pounds and company should accept
this project.

Accounting rate of return: This technique is often essential to the real feasibility of a proposal. It
indicates that the overall cash flow from a project is proportionate and total expenditures in every
project are created (Khitrin and Pachkova, 2016). This approach helps determine potential
returns on ventures or acquisitions. It is a streamlined methodology. To order to determine the
expected profit of the product, all the cash flows are sued down and split by business duration.
The estimated amount is then separated by the overall original and subsequent project spending.
Returns are shown by the percentage gain on a project.
Formula: Average net income / Initial investment * 100
Calculation of net income:
Formula: Net cash inflow – depreciation
Depreciation = Initial investment / life of project
Calculation of depreciation:
= 100000/5
= 20000
Net cash flow:
Year Cash flow (A) Depreciation (B) Net cash flow (A-B)
1 30000 20000 10000
2 40000 20000 20000
3 90000 20000 70000
4 120000 20000 100000
5 150000 20000 130000
330000

Average net income:
Year Net cash flow (A-B)
1 10000
2 20000
3 70000
4 100000
5 130000
Total 330000
= 330000/5
= 66000
So,
ARR= 66000/100000*100
= 66%
The value of ARR is of 66% that shows that project is viable for company.
3. Importance of financial management techniques in decision making.
Help in identifying profit- Cash flow, breakeven analysis, capital budgeting strategies, etc. is
included in the financial accounting strategies (Marti and Scherer, 2016). Such methods help
businesses predict potential income from company practices. By help of this, Continental
clothing company’s managers can compute their actual amount of profitability.
Determination of long term goal- These techniques help organizations to evaluate the long term
goals of businesses while executives agree about their strategic plans when evaluating their
financial pertinence and cash profits over a certain time.

Help in formulating polices- Managers use break even analyzes to devise strategies regarding
their cash flow control. Other management financing tools are used by companies to assess their
businesses' performance for a certain period. After evaluating financial data administrators plan
plans to achieve full business advantages.
Determination of capital structure- Decisions shall be made dependent on an organization's
financial resources position. These instruments help to determine a business entity's capital
structure. Cost of capital procedures helps the Department to evaluate an organization's cost
structure and capital structure. In deciding their capital structure, manager of Continental
clothing can use this strategy. This also helps management to decide whether funds and resources
will be allocated to specific activities.
Management of financial activities- Cash flow statement used to recognize net cash and cash
equivalents for a certain period. Cash flow statement used to identify net cash and equivalent
equity generation. The manager of Continental clothing should use optimization method in order
to monitor the garbage-cash outflow operations (Masadah, Al—Omush and Shiyyab, 2016).
Help in take decision regarding distribution of profits- Ratio and trend analysis included
management accounting techniques. This tool helps identify the profit ratio of the shareholders.
Such instruments are often beneficial for determining the extent of productivity at a given period.
Continental clothing managers are using financial management techniques to decide on their
prospective shareholders' dividend distribution and bonus.
4. Importance of financial decision making to maintaining long term sustainability.
Financial decision-making is a process of taking essential financial choices on the future
growth of the organization. The skill sets of management teams depend on the skills of trying to
make an investment strategy that will help to improve the future success of the firm (Hanbali,
Dhaene and Trufin, 2019). The financial decision used to maintain the long-term sustainable
development of the business enterprise. Executives take decisions on capital, investment,
corporate governance, equity shareholder policies, inventory control decisions, sustainability

management of their institution. The primary goal of a running company is to maintain its market
sustainability over a long period of time. This important economic decision is required.
And if a company has an efficient organizational structure and good financial practices, it
can survive in profitable markets for long. If companies make misguided acquisitions or
innovative technologies, they cannot succeed in the global market. The success of a company
depends on how effectively its managers decide on their business activities financially. This
includes keeping a good market presence and protecting rivals. Organizations take financial
actions using effective methods that can control the company's employees. Continental clothing’s
managing Director adopts an optimal strategic policy that increases their competitiveness and
offers them comparative benefits to preserve their company operations' sustainability.
5. Recommendations for how management accounting can be used to improve financial
sustainability.
Many organizations still do not use management accounting tools in current time to help
provide information on sustainability for decision-making and influence (Maneerattanasak and
Wongpinunwatana, 2017). It can make negative impact on companies’ performance. This is so
because for better performance of business entities it is important to gather information in an
accurate manner and this can become possible by help of management accounting. So companies
should use these accounting techniques so that they can take corrective actions. As well as in
Continental clothing company, their managers should apply this accounting method.
CONCLUSION
On the basis of above project report this can be concluded that financial management is
one of the key term that needs to considered by business entities. There are a range of principles
which must be considered by companies. The report concludes about different techniques,
methods and factors for taking key decisions. As well as stakeholder analysis is also crucial for
companies such as for assessing company’s financial position. The second part of report
concludes about, different financial techniques which can be useful for taking crucial decisions.
There are range of techniques such as ratio analysis, investment appraisal techniques and many

more. Under the report, example of net present value, payback period and accounting rate of
return is explained in behalf of chosen company, continental clothing limited. The next part of
report concludes role of financial techniques for long term decision making. The end part of
report articulates about recommendation to companies in the context of using management
accounting techniques. As there are range of methods and system to management accounting to
overcome financial problem.

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