Principles of Financial Management

This document discusses the uses of formal and informal approaches in decision making, the role of financial management accountant in an integral system, and the key financial management principles required to maintain long term sustainability. It also explores the importance of financial decision making and the use of accounting control systems. The subject is Principles of Financial Management and the document type is an essay.

Principles of Financial Management
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Contents
Contents...........................................................................................................................................2
INTRODCUTION...........................................................................................................................3
P1 Uses of different formal and informal approaches to support decision making....................3
M1 Advantage and disadvantages of formal and informal approaches.......................................4
D1 Uses of approaches of financial management within decision making.................................4
P2 Explanation of financial management principle required to maintain long term
sustainability................................................................................................................................4
M2 Analysis’s of key financial principle.....................................................................................6
D2 Importance of key financial management principle..............................................................6
TASK 3............................................................................................................................................6
P3 Explanation of role of financial management accountant as part f an integral system.........6
P4 Uses of accounting control system........................................................................................8
M3 Role of management accountant and accounting control system.........................................9
TASK 4............................................................................................................................................9
P5 Importance of financial decision making...............................................................................9
Manager department of Tesco use principles of financial management a these principles help
in decision making process. For this purpose they us effect on analysis and each financial
statement and ratio analysis.......................................................................................................10
M4 Different ways of financial decision making support long term sustainability..................12
D3 Recommendations of importance of management accountant in decision making.............12
CONCLUSION..............................................................................................................................12
REFRENCES.................................................................................................................................12
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INTRODCUTION
Financial management is special branch of management in which mangers plans, organize, direct
and control activities related to financial. For this purpose they use certain principles of financial
management. In order to understand this concept in effective manner , Tesco has been taken. It is
world famous supermarket supply chain organization of United Kingdom. It play essential role in
maintain economy cycle of London. In this report, is of facials principles by mangers to take
decision have been define briefly. This rep[ort also contains role of management accountant and
importance of accounting control system in decision making. This report also define how
management accountant use various financial management technique to make effective division
in order to maintain long term sustainability and help in achieving business organization goals in
brief manner.
TASK 1
P1 Uses of different formal and informal approaches to support decision making
Decision making is a systematic process of managerial function in which manager takes
decision in the base of analysis the overall approaches, framework identifying information and
collect resolutions. In formal decision mange approach a systematic framework has been applied
through which manager use and plan their business strategies. On the other side informal
decision making approach is different from formal decision making in this approach systematic
format is not followed by the busies organization to take decision. Formal approaches includes
those approach in which manager takes decision on the basis of critically evaluate every poet and
stage of business organization (Folsom, Hribar, Mergenthaler and Peterson, 2017).
Management department of Tesco used formal approaches as well as informal approves for
taking decision.’
They apply capital besetting methods, dividend growth model as formal approaches of decision
making within the use of these approaches they can easily take decision regarding future policies
of business organization. Tesco is one of the most famous and multination organization of
Britain they have word wad tagger market area. Thus they need to take decision for maintain
their position within to origination in a systematic wa .For this proofs they used formal decision
making approaches. By using capital budgeting approve, dividend model approaches,
Management department of Tesco can easily recognized ad take decision regarding which
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alternative provides them more benefits and beneficial for future prospective. They also take
decision regarding dividends decision. Number of dividend approval by business organization
and rate of dividend. All these are cover up under the formal approach.
On the other side in informal approach management department of Tesco not take decision on
the basis of systematic procedure rather they us relationship network . They directly talk with the
employers or with shareholders though their review and suggestions though which they able to
identify retain of shareholders regarding future decision and pans and policies of business
organization. Tesco believes in proving satisfaction to their shareholders and work according to
fulfils the demand of their shareholders and customers thus before taking any relevant decision
they use their principles and take decision. N the baits of informal method of taking decision
management department is that it is time procedure and with the use of this approach
management department will be able to analyse the perception of shareholders regarding
business organization. Tesco is a big firm the us their each decision regarding investment,
financial or operating in affect and influence with their shareholders thus it is requited that the
shareholder play vital role in their operating business environment and they take decision by
using informal method technique though which the can retain their shareholder within the
business organization (Bondarenko, 2016).
M1 Advantage and disadvantages of formal and informal approaches
Financial management use formal and informal approaches through which they can take
decision. In Tesco they use capital budgeting and dividend model technique as formal way to
take decision and ask their shareholders regarding the business decision. These help in increasing
attachment of shareholders as well as motivating of employs.
D1 Uses of approaches of financial management within decision making
Manager of Tesco use formal and informal techniques or approaches through which they
can easily take effective decision to attain profit and maintain sustainability within the
organization.
TASK 2
P2 Explanation of financial management principle required to maintain long term sustainability.
Financial management principles provides general guideline to business organization
regarding their investing financiering and operating business decision trough which they can abet
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of maintain their success within the economy market in an effective manner. Following are the
principle apply by management department of Tesco for maintain their long term sustainability
Principle of risk return: This principle of financial management apply by every business
organization as on the basis of this principle manger able o take decision regarding their
investment. The more the risk the higher to chances of return.
Time value principle: Value of money is uncertain it will be changing with the changes of time
present value of monetary worth more than the value of future money principle help in focusing
on sing correct reduces of financial in way which help them in proving gather future return.
Leverage: Financial and operating leverage are part of operating e=activities with the use of
principle of learns business organization able to identify the effect of taxed on their profits.
Liquidly: This principle statement their kin always negative relation between liquidity and
profitability.
watching principle Liquidity Principe s concerned with amendment of current assts. basically it
is working capital management. It is concern with the short term survival. Success of an
organization depends how well organization able to maintain their working capital . Tesco used
this principle to maintain their market position by effect working capital management activity.
Principle of recovery: This proven states that whatever the terms the recovery level will be
high .Dividend valuation: Dividend will be valued on the basis of model or process of
dividend. Tesco provide regular as of divvied to this shareholder thus they use this ad apply this
principle.
Ideal principle of financing: According to their principle states for fulfil the requirement of day
to day operations management department must be used monetary resource from their working
capital or shot term funds and over fluffing the required of future actives they need to see long
tern sorrow gainful. They can not be used short term funds for fulfil alibi of lone term ablatives
its is the fundament all problem thing which organization able to run their business in effective
manner.
Benefits of principle for maintain sustainability
Setting objectives to achieve financial goals: Tesco set their short, long and medium term
financial goal through within then can analysis the source required them to fill up the goal and
formulate stagiest to give that goals.
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Maximize shareholders worth: Financial management help in taking decision regarding
dividend all the shareholders accepted to proved the higher return of dividend thus these
problems are used for profitable and interest of shareholders (Mostert, 2015).
Ethical financial management: These principles help n finding out answers of behaving in an
ethical way with the use of financial management principle the Tesco will be able to follows
rules of ethical and work in an stymie way.
Delivering sustainable long term growth: Us of financial data help in taking decision and
identifying risk in future also they can analysing customers preface and which attractive them
profitability with the use of these far information Tesco will be able to maintain its posting in the
market.
Essence of managerial decision: Financial management proved an valid sound base to all the
management decision .It also usefully planning an controlling process.
M2 Analysis’s of key financial principle
Key financial principle use by Tesco are risk management, time value, dividend decision,
financial investing and operating principle . They are used by financial mangers through which
they can identify the value and worth of money and policies which is beneficial for business
organization as future prospective.
D2 Importance of key financial management principle
Financial management principle are applies by Tesco so they are able to formulate policies
in ethical way and generated more profits by applying polices according to the environment of
business organization. These provide us to attain goal of business organization by attaining the
project and take activities within the prescribe time limit.
TASK 3
P3 Explanation of role of financial management accountant as part f an integral system
Accountant play essential role as part of integral system. Accountant take decision and
kept all the accounting record in systematic way. They perform their roles and responsiveness in
a significant way through which they can able to ensure organizations’ financial securities. They
help in maintaining business strategy.
Management accountants are the personals who are the main causes of detraining status and
business success of an organization. Management accountant of Tesco doing theses roles
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Budgeting: Management accountant prepares budget on the basis of collection of data and
anyiaisng past performance of business organization. They formulated budget by depending on
the situation of business organisation. Budget is an numerical statement which shot h future
income and expected expends incurred in future by operating business activities.
Handling taxes: Management accountant is people who check every minor detain and place
policies and evaluate each and every small details regarding tax. The calculate tax on the bad of
regulation are framework forth calculation. Management accountant help in gain benefits and
schemes though which they can reduce their organization tax liability and be o proved benefits of
tax and exception of tax calculations. As techno is multination all organization thus they tax
calculation is not easy work. They calculate the the dates for tax to get the benefits of tax.
Managing assets: It is the responsibility of the management accountant to manage all the
relevant assets of business organization. They need to management term as well as long term
assets of business organizations./ Through which their they can easily manger the cash inflow
and out waffle within the organization and able to control working capital. Accountant of Tesco
mange their asset in effective though which they scan able to having benefits of all to assets.
Help in strategic planning: Managed account is a essential part of integral system, they are
responsible for panning the policies and strategies in effective manner. Though which they can
attain competitive advantage in market place (de Mattos and ey . al. 2017).
Controlling cost: Management accountant control cost by cutting extra activities and
managing effective cost control in system. With the use of implementation of standard costing.
Process costing system they can control their cost . They make policies regarding se of raw
material in sufficed manner and cut the wastage activities thou which are able to control their
cost.
Internal and external control: Management accountant control the external as well internal
department by regulation an supervising. They supreme each department an with the used f their
managing report, account recall, budget, and cost reports thy provides a brief summary of
activities and performance of business organization. Tesco hire their management accountant to
o that they can done their working effect e way.
Performance measurement: They help in measuring the performance of organization department.
It is their role that they measure performance by using benchmarking , and technique of business
measurement.
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Risk management: They control the risk by prepare budget they evaluate t and measure future
risk and thus formulate regarding their which department can able to control risk Tesco has more
competitors ethic the market thus they apply those strategies trough which they can attain strong
position within the market.
P4 Uses of accounting control system
Accounting control system is a system which is developed within the organization to
measure the performance of different department resource . It induces by behaviour of the
business organization resources for impend strategies. Account control system ca be modal and
inform depend on the business organization. Accounting controls ensure that firm operates in
efficient way and provide accurate information for financial statements.
Achieve business goals: Accounting control system help in attaining business actives these are
useful for control the extern activities and able to done performance and takes within though
given time period thus they are useful in aching business objective (Mefford, RTay, N. Doyle, B.
and Ohara, F., 2017).
Controlling the cost: Accounting control system used for commuting the cost of business
organization. Tesco use this system because they will be lost of useful and stage activities which
inure higher cost. Thus on the basic of data collected by account system magnet accountant can
able to identify those actives which great higher cost. With the use of various accepting cost
controlling system they can easily cotton cost. And held in garneting more protons for business
organization.
Control fraud and illegal activities: Accounting control system is useful for controlling the
fraud and illegal actives run item the business organization. With the use of accosting reads
magnet accountant will be able to identify those record with are ill and unethical regarding
business activities and found out corroded information . Thus accounting system play a impotent
reol in refsrdid with Tesco organization.
Performance measurement: The main propos of accosting cost system is make able to every
business department so that they an able yo anises the performance of business
organization .Account control system is used to for measure performance of each and reeve
department of busbies gradation So the magnet f Tesco will be able to determine which source
needed trading for winching its performance. They are the main rest of success of business
organization. With th use of along control system they will be labe to gerante more pforo with
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enahsin performance of manumit research and go accurate and reliable bbs data o business
organization.
M3 Role of management accountant and accounting control system
Management accountant is hire for take effective and beneficial decision for business
organization. They are responsible for preparation of budget and can financial reports. Thus
management accountant with the uses of accounting system will be able to take decision of cost
reduction though which they are able to gerante gain and achieve goals of Tesco (Tussayeva,
2015) .
TASK 4
P5 Importance of financial decision making
Financial decision is a part of financial management. Thorough which organization able to
take decision regain their capital structure shareholders and debenture and liabilities and future
business position.. in financial mane investment decision is broadly concern with assets mix. or
the comps tin of the assets of a firm . he concern of to financial decision is with the financing
mix or capital structure or leverage . the term capital structure regard to the proportion of debt.
the financial decision of an organization related to the choice of the proportion of these sources
to fiancé the investment requirements. their decision affect with the ratio and also technique use
for capital decision making.
Financial decision making help in taking decision
Current ratio
Particular Formula 2018 2017
Current ratio Current Assets /
Current Liabilities
1.45 2.51
Acid-test (quick) ratio
Particular Formula 2018 2017
Quick ratio Quick Assets/ Current
Liabilities
.48 1.64
Receivables turnover
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Particular Formula 2018 2017
Receivables turnover Net credit sales /
Credit sales
0.67 .30
Return on Equity (ROE)
Particular Formula 2018 2017
Return on Equity Net income /
Shareholders equity
0.67 .30
Return on Assets (ROA)
Particular Formula 2018 2017
Return on Assets
(ROA
Net income / Average
total assts
0.67 .30
Debt to Equity (D/E)
Particular Formula 2018 2017
Debt to equity ratio Total Liabilities /
Total Equity
0.67 .30
Manager department of Tesco use principles of financial management a these principles help in
decision making process. For this purpose they us effect on analysis and each financial
statement and ratio analysis.
Uses of financial statement in decision making
Financial statement are those statement which present dates in systematic format these
includes, balance sheet, profit and loss statement. They are help in presenting information in
effective way. Which represent shareholders and external parties of organization . Financial
statement proved performance of business organization in effective way.
Manger takes decision in the basis of recognizes the financial statement. These help in
performance evaluation and comparison also (Evdoshenko Kotenev, 2015).
Cash flow statement: These statements represent the cash inflow and cash outflow activities of
business organization. Cash flow statement define the operating , financing an investing
activities related to cash traction. Tesco used cash flow statement regarding their intestine
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finding acuity thee stamen ripen those actictie which revalue ore investing though which to can
rosily raisin or gerante more cash inflows. Theses statement also define those acuity thwack are
the main reroof cash out flows. Cash flow statement help in garneting profit and focus of cash
and cash equivalent activities and these are lawful for take decision regarding the cash equivalent
activities.
Ratio analysis: These are the part of financial Management Accountant essential an useful for
business organization . Ratio analysis helps in during the relation between to variable asset able
of business organization. On the basis of ratio analysis of 2018 and 2019 statement it clear doing
that the Tesco will b bale to generate more profits in 2018 as compare to 209 because of the
politic and environment reason They are be able to generate more profit . It his report invesiyn,
operating and financial ratio has been clause though with mange can be able to department all the
activities performing. They éclair and take decision and able to cage position and grind ort
resign of decreeing of profaned .
Ratio analysis would help in effect decision making process.
Capital budgeting techniques: With the use of capital budgeting techno anger will be able to
accept and recto proposal. Tesco organization use various capitals budgeting method which
includes net resent value, internal react of return. These memos help in taking effective decision.
Capital budgeting method use to calculate each and every detail regarding the proposals. With
the use of tease methods usages organizational be able to recognized the each an reverie short
detune rte of profitable, value of cash flows and present values outcome in future. Though these
information manger of Tesco take fandom wick are in favourable condition. By the se of theses
technique Tesco will be able to take decision when are beneficial for them .All these are useful
for busies decision making (Haertle and Miura, 2014).
Financial decision use for success s of business organization. it totally depends on which
decision are in favourable condition to business organization
Financial manger help in taking effective and attribute business decision in effect through which
the can able to attain their business goals an objective.
M4 Different ways of financial decision making support long term sustainability
Financial decision making useful for maintain long term sustainability with the
organization. Manage of Tesco use various techniques of financial management and principle of
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financial management though which they take effective division and increases their profitability
to maintain long term position in market.
D3 Recommendations of importance of management accountant in decision making
Management accountant play important role within the business entities. They apply
effective management techniques and system of management accounting through which they can
take attractive and beneficial decision . They able o formulates strategies through which they can
reduce cost of capital and incurred their profits and maintain long term sustainability within the
market.
CONCLUSION
From the above analysis it has been concluded that financial management is essential branch
of business management though which mangers able to take decision regarding their future
business activities. Various types of financial management principles are use to provides
directing to the management accountant through which they can able to take decision and done
work in right direction in order to formulate budgets, fulfil tax liabilities and able to follow code
of conduct. Thus financial management help of business organizations by suing their ratios,
capital budgeting methods and statements of fiancé to formulate an prepared long term polices
and strategies in order to achieve predetermine goals of business organization by using scare
resource in effective manner and also help in attaining long term sustainability in market .
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REFRENCES
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Bondarenko, O .S., 2016. Methodological Principles of Financial Management under Economy
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Mostert, E., 2015. Who should do what in environmental management? Twelve principles for
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de Mattos Nascimento, D. L., Sotelino, E. D., Caiado, R .G.G. and Faria, P. S., 2017. Synergy
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management in industrial plants. Journal of lean systems, 2(4), pp.80-105.
Machado, C .G., de Lima, E .P., da Costa, S .E. G., Angelis, J. J. and Mattioda, R. A., 2017.
Framing maturity based on sustainable operations management principles. International
Journal of Production Economics, 190, pp.3-21.
Hadi, R., 2018. Transformation and Implementation of Sharia Principles In Management of
Rural Agribusiness Business Development Programs. Ijtimā'iyya: Journal of Muslim
Society Research, 3(2), pp.167-179.
Mester, L. J., 2017. Guiding Principles for Financial Regulation; Panel Remarks at" The Future
of Global Finance: Populism, Technology, and Regulation" Conference, Columbia
University, New York, NY (No. 87).
Mefford, R. N., Tay, N. S., Doyle, B. and Ohara, F., 2017. Portfolio Risk Management Using Six
Sigma Quality Principles. Quality Management Journal, 24(2), pp.6-30.
Tussayeva, A., 2015. Principles of stock portfolio management for individual
investor. International Journal of Advanced Studies, 5(4), pp.36-42.
Evdoshenko, V.V. and Kotenev, A.D., 2015. KEY PRINCIPLES OF FUNCTIONING OF
CRISIS MANAGEMENT AT THE ENTERPRISE. In Актуальные проблемы науки:
от теории к практике (pp. 72-75).
Haertle, J. and Miura, S., 2014. Seven years of development: United Nations-supported
principles for responsible management education. SAM Advanced Management
Journal, 79(4), p.8.
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