Principles of Financial Management

This document provides an overview of the principles of financial management and their application in decision making, stakeholder management, cost control, fraud detection, and ethical decision making. It includes case scenarios and analysis of techniques used in financial decision making. The document also discusses the role of data in informing operational and strategic decisions for the company.

Principles of Financial
Management

Contents
INTRODUCTION...........................................................................................................................................3
SCENARIO 1.................................................................................................................................................3
1. Evaluation of the range of techniques and factors which are contributing in the decision making of
the organisation.......................................................................................................................................3
2. Stakeholder management and the management of conflicting objectives of different stakeholder
groups......................................................................................................................................................4
3. The value of management accounting techniques in cost control and maximizing stakeholder value. 5
4. Techniques for fraud detection and prevention and the approach to ethical decision making..............6
5. Reflection for the understanding of above questions...........................................................................8
SCENARIO 2.................................................................................................................................................8
1. Identify how data helps to inform operational or strategic decisions for the company........................8
2. Compare and contrast the three investment appraisal techniques......................................................11
3. Demonstrate the value of techniques which helps in financial decision making................................13
4. Analyze that how financial decisions support the long term sustainability........................................14
5. Recommendations regarding the way in which management accountants can help to improve
financial sustainability...........................................................................................................................15
CONCLUSION.............................................................................................................................................15
REFERENCES..............................................................................................................................................17

INTRODUCTION
Financial management attempts to determine the financial role of the business problem that
leads to the financial planning of the problem. Financial planning is an important component of
the business issue, which contributes to the development of an organization. The organisation is
able to make sound financial decisions through financial accounting. The financial decision will
affect the entire economic operation of the company (Anagnostopoulou and Tsekrekos, 2017).
Because there is a close relationship with various departments of the company, such as ads, sales
personnel, etc. To ensure the organization has enough income to finance its commitments,
financial administrators must control daily operating documents, including such cash receipts
and disbursements. For a longer period of time, the advisor would thoroughly examine when and
when the business will set up a new manufacturing facility. The manager can also propose the
most efficient way of financing the project, gathering the finances and then monitoring the
project's implementation and efficiency.
SCENARIO 1
1. Evaluation of the range of techniques and factors which are contributing in the decision
making of the organisation
For certain companies, successful decision making is very necessary and administrators are
expected to ensure that they use appropriate strategies and methods for much the same reason.
The executive team uses different kinds of them in Tesco and all of them promote successful
decision-making. The following is a list of them:
Brain storming: It is one of the traditional decision-making processes where all team members
work together again and try to assess the role of the organisation in order to decide successful
opportunities to boost it. It is utilized by Tesco executives to examine new ways of achieving
company objectives such that they can consider a response to the organization's problems. It
encourages efficient decision-making since it directs them to decide the measures they should
apply to achieve the organization. It is good for the company since it gives creative approaches
to challenging challenges faced by the organization (Chen, Yang and Zeng, 2018).
SWOT analysis: It is a methodology that is often used by all companies like Tesco in successful
decision-making since staffs are aware of capabilities, vulnerabilities, advantages and market

risks with the aid of it. They assess the strategic performance through evaluating most of these,
but instead develop successful decisions for the next cycle. It encourages the development of
plans and this can continue to make smart choices whenever the executive team members know
of both the advantages and disadvantages of company. This approach is primarily used only for
strategy formulation in order to boost company efficiency.
The administrators are also centered on preparation to develop appropriate decisions for potential
variables. The following is a list of them:
Risk: this is one of the key variables that Tesco top management concentrate on when
implementing appropriate choices. They assess all the financial risk that are actually impacting
the company or that could have detrimental consequences down the road. It allows them to be
conscious of both the institution's positively and negatively circumstances that direct them to
implement strategic choices for the company's improvement.
Market situations: It is very necessary for all executives to determine the economic condition in
addition to being able to evaluate whether or not company will be able to expand successfully.
The Tesco management teams evaluate the market dynamics and then make more informed
decisions such that the likelihood of attaining greater targets can be increased. Both of the
institution's executives aim to ensure that they have correct market position knowledge as it helps
in building successful strategic business planning choices (Dewantara and Agatha, 2019).
2. Stakeholder management and the management of conflicting objectives of different
stakeholder groups
Management of stakeholders is a vital part of any programme, strategy or organization’s
successful implementation. Each individual, community or organisation that may be changed,
compromised or perceived to be threatened by such a process is a participant. The stakeholder
engagement applies to the project stakeholder period and the development of constructive
relationships with members. The investors are individuals or organizations that are interested in
the company, investments and strategy since they are processed and analyzed or affected by
performance. There is a wide range of services, expenditure or project participants. These
individuals have an important influence on the job's strength or weakness. The management of
stakeholders is associated with leveraging positive variables and growing negative effects. This

focuses on the concept of shareholders, the determination of goals and effect, the development of
a plan for client service and the engagement and forming of interested parties (Ene, 2018).
To monitor the stakeholders of the organisation, the organization will have a suitable centered
communication strategy. The identity of a stockholder involves all affiliated companies that
presence has a positive and negative effect on the business of the organisation. Interested parties
are also considered to be users, vendors, operators, borrowers. In the decision-making process,
shareholders play a vital role as the organisation takes decisions centered on its stakeholders'
preferences.
Managing conflicting objectives of different stakeholder groups
It is anticipated that the management will recognize such a need to balance the interests
of the various investors and salespeople with profit growth creation and to achieve an adequate
answer on their capital. In order to maximize their productivity, the purchasing company
managed the assignment to be done much faster. Each company and stockholder does have its
own objectives and identifying its goals is crucial for the director (Gawłowski, Nefas and
Makowski, 2020).
3. The value of management accounting techniques in cost control and maximizing stakeholder
value
Accounting for management is a method of assessing success in organizational
operations and then formulating appropriate actions to achieve them. It is very essential for
major and also smaller organizations to ensure that it continues to handle the activities since it is
related to long-term objectives. It is also performed on an annual basis by Tesco management
such how they can monitor the cost and increase profitability. The following explains several of
the primary management accounting methods utilized by them for these reasons:
Marginal costing: This strategy focuses mostly on calculating the fixed and variable costs for all
products and writing off the set price. In Tesco, that is used by management is to ensure that they
might calculate the cost of supplying one extra item to customers. They try to manage the price
with the support of it, and once they have accurate figures, it would be useful for them to seek
ways to manipulate that as well. It is often used to preserve the interest of shareholders since it

allows management to become conscious of contributing factors to rising costs and if they are
managed, company profits will be improved.
Capital budgeting: In investment evaluation, this form of strategic management has been used.
Only with aid of it, management team evaluates various sequence alignment so that the one of
the best ones could be chosen for business development. For instance, when an organisation is
keen to increase its company in a competitive area and has multiple options for about the same,
so it might use fundamental analysis to choose the right one. The management strives to optimize
the shareholders wealth with the assistance of it, since it will help to choose the greatest work
that will make the business expand. If the strongest proposal is chosen, it does provide economic
benefits but also actually boost profitability (Gomber and et.al, 2018).
4. Techniques for fraud detection and prevention and the approach to ethical decision making
Identifying fraud is critical, since it can place the whole business at risk. Companies have
experienced a million losses because of fraud. This is important although at an earlier point the
organization identifies fraud and implements processes to discourage cheating and that in the
case of corruption it can be stopped at an initial point. Going to create a database of potential
fraud, and use a top-down risk management plan, finding areas in the business that scam can
happen. It involves identifying the types of fraud which may occur in the areas in question.
Continual audit committee and monitoring techniques should be implemented by the
organisation. There should also be prompt monitoring and successful oversight of all fraud
detection systems. Management should be informed about fraud at the original stages by
effective means of communication. In Tesco, there are different kinds of approaches which are
used for both objectives. The following is a list of them:
Auditing: this is one of the key fraud prevention methods that if all the financial
statements are routinely inspected, this can serve to examine any sort of fraud created through
auditors while collecting data. Only with support of it, Tesco managers aim to ensure that all the
scams are able to actually in order to assess just so the risk of false income statement can be
overlooked. And using it, it will be very easy to pinpoint scams on a widespread selection and
devise methods for overcoming them (Killaly, 2018).

Assessment of records: It is also a method that could be used for fraud detection
through companies. It would be very straightforward to recognize all the frauds produced in the
documentation once all the documents are reviewed. In Tesco which is used by the management
to evaluate confidence to be able to analyze the all scams that are produced in the accounts but
for this reason they evaluate any and every expenditure that is reported in the documents.
Thorough analysis manuals to evaluate the errors.
Some of the basic approaches used by Tesco for fraud prevention purposes are as
follows:
Formulation of financial reporting: This is one of the key methods used to deter fraud.
The management uses this in Tesco by having to take care of all the operations so that the risk of
fraud in the books can be minimized. They also ensure that all documents are individually
reviewed such that all manipulation can be avoided and clear results can be produced.
Employing trustworthy employees: It is also a tool that Tesco relies on to eliminate the risk of
fraud. Every worker who has been recruited by it are reliable enough that they can exchange
financial data with no unique restrictions. Using it, the company avoids the scams in the records
of finance (Lee and et.al, 2019).
Tesco is one of the major corporations working worldwide. To implement ethical choices, its
administrators use different moral strategies. The following is a list of them:
Method to fairness or justice: This framework depends on the implementation of fair
judgments and encourages Tesco managers to be reasonable to any and all employees so how
they can function with greater dedication. It directs all leadership team mates to be impartial
from all workers and formulates ethical choices for organizational success.
Approach to Rights: It also relies on rational decision-making. It notes that it is important for
all managers and supervisors such as Tesco to ensure that they provide workers with all the
privileges and launch attacks morally.

5. Reflection for the understanding of above questions
In time to capture proactive action, the project was connected to learning different types
of methods and strategies. I faced several problems throughout that project and realized how to
handle various items.
Issues - The primary challenge I faced throughout that venture was work on innovative features
and activities. To collect this information, I used browsers, and there were so many choices that
raised the difficulty. This is because the project was too small to execute. It was also a real
concern for me, and also the shortage of websites required for providing legitimate information.
Things that I learn - In relation to the difficulties I learn several project is useful throughout
that project that will improve me potential. For example, I learn from internet sites as to how to
find necessary details. In addition to acquiring awareness of the principle of stakeholder
management, strategies are used to make appropriate choices.
SCENARIO 2
1. Identify how data helps to inform operational or strategic decisions for the company
Analysis of the ratio is a frequently used tool, an important tool of analyzing the project
report. The calculations construct a positive or negative calculation between two information and
statistics focus on the accounting details to assess the qualities and weaknesses of an individual,
the money dimensions and overall performance. This enables other investors to evaluate certain
dimensions of the success of the organization. Tesco Plc and its appraisal help the company's
primary performance and strategic activities in this regard (Mathur and et.al, 2018). Some of the
review of the ratio is provided elsewhere here:
Gross profit ratio:
Formula: Gross profit margin = Gross profit / Net sales *100
2019 (£’ M) 2020 (£’ M)
Gross profit 250000 280000
Revenues 650000 700000
Gross profit margin ratio 38.46 % 40 %
Net profit margin ratio:

Formula: Net profit margin = Net profit / Net sales *100
2019 (£’ M) 2020 (£’ M)
Net Profit 30000 45000
Revenues 650000 700000
Net Profit Margin (%) 4.62 % 6.43 %
Mark up ratio:
Formula: Mark up ratio = (Sales – COGS) / Cost of goods sold *100
2019 (£’ M) 2020 (£’ M)
Sales – COGS 250000 280000
Cost of goods sold 400000 420000
Mark up ratio 62.50 % 66.67 %
Return on capital investment:
Formula: Return on capital investment = Net profit / Capital invested *100
2019 (£’ M) 2020 (£’ M)
Net profit 30000 45000
Capital invested 520000 565000
Return on capital invested 5.77 % 7.96 %
Return on assets:
Formula: Return on assets = Net profit / total assets *100
2019 (£’ M) 2020 (£’ M)
Net profit 30000 45000
Total assets 600000 640000

Return on assets 5 % 7.03 %
Return on equity:
Formula: Return on equity = Net profit / shareholder's fund *100
2019 (£’ M) 2020 (£’ M)
Net profit 30000 45000
Shareholder's equity 435000 485000
Return on equity 6.90 % 9.28 %
Current ratio:
Formula: Current ratio = Current assets / Current liabilities
2019 (£’ M) 2020 (£’ M)
Current assets 155000 165000
Current liabilities 80000 75000
Current ratio 1.94 2.20
Quick ratio:
Formula: Quick ratio = Quick assets / current liabilities
2019 (£’ M) 2020 (£’ M)
Quick assets 65000 75000
Current liabilities 80000 75000
Acid test ratio 0.81 1
Debt Ratio:

Formula: Debt ratio = Total liabilities / Total Assets
2019 (£’ M) 2020 (£’ M)
Total liabilities 165000 155000
Total Assets 600000 640000
Debt ratio 0.28 0.24
Supervisors of Tesco plc will formulate strategic business decisions with the aid from the
above ratio review. Recorded information enables the company to align its results with industrial
norms or to be able to make informed decisions accordingly. According to the above equation, it
has been noted that the company financial improves, leverage also improves, and Tesco's capital
structure also increases. Essentially, the firm's corporate output will improve from 2019 to 2020.
It also helps the organization to make tactical or strategic choices in order to meet company goals
and policies but to further improve sales and efficiency over the year.
2. Compare and contrast the three investment appraisal techniques
The firm’s investment evaluation method is used to define the best choice for financial
decisions among several alternatives. These methods are part of the capital budgeting technique.
The management of Tesco Plc utilizes these techniques to measure the favorite projects that will
benefit more in the future. As the best strategy for financial advisers is found, methods are
developed that help cut the price of producing products (Matveeva, 2018). An illustration of
various investment assessment methods is listed below, which is as continues to follow:
Payback period: Another critical approach is to show that a fixed time cycle is to be recouped /
rehabilitated, irrespective of net cash flow from output, with the amount of initial design
financing.
Advantage: The payback period is vital information exposed by no other type of capital
budgeting. A proposal with a shortened payback time typically has a lesser likelihood as well.
For small companies with minimal capital, such process is especially essential. Smaller firms
therefore need repay their expenditures carefully in order to leverage them in other possibilities.

Disadvantage: No certainty that it will be successful is a company with a shorter payback. Even
if it's at the payback period the capital expenditures from the project cease, or decreases after the
interest amount. Across both examples, once the payback period expires, the business may
become unworkable.
Accounting rate of return: This plan is crucial for the true feasibility of a project. This
shows that the sum cash flow of a project is linearly correlated and net expenditure in each
budget is created. This method helps to calculate potential returns on investments or ventures. In
order to measure the expected sales revenue, the procedure is streamlined; all cash flows have
been used and decomposed by client duration. The estimated cost is then separated on the
programme by the original and real total spending. On a venture, the percent change shows
profits (Missimer, Robèrt and Broman, 2017).
Advantages: Return rate accounting is simple and easy to calculate. It tends to focus on
the net total operating financial reporting. Investors and analysts utilize net operating revenue
from accounts to analyze organizational effectiveness.
Disadvantages: The return on equity discount rate does not consider taking the
opportunity costs into consideration. Under this system the equal amount is called to be dollars in
hand and dollars to be earned in potential. Per each company the money is very essential. If
expenditure produces cash inflow rapidly, then the company has invested in other lucrative
markets. But return technique accounting rate focuses on financial reporting net operating
income instead of working capital
Net Present value: It is another investment method that illustrates the benefits of the
existing principles of a particular economy or project. This analyses the different equity returns
from such an expenditure that the corporation will reap. More towards the equation elsewhere
here:
Advantage: The benefits of the net present value have included the assumption that the exact
amount of resources is factored into the equation and allows the management team to make
informed decisions.

Disadvantage: By using acceptable rate of return, the overall NPV equation is based on
comparing the total to their book value. There are no rules, although, method for the
determination of this pace. This percentage value is left to manufacturers' decision, and there
may be occasions where, due to an incorrect risk and return, the NPV was incorrect (Moś, 2019).
3. Demonstrate the value of techniques which helps in financial decision making
There are many management accounting instruments that help companies to make
budgetary decisions and ensure that the productivity levels and profitability of business activities
are maximized appropriately. Through these methods generates value for organizations including
such Tesco Plc, it enables organizations to make investment decisions according to accounting
reporting by using method identifies elsewhere here:
Cash flow statement: It is a financial report that at a specific point in a company records
inflows and outflows of cash. It is one of the most important factors in the profits management of
an organization as it is an important liquidity measure of the business. In making investment
decisions, this assertion provides managers. Predict financial difficulties but instead developing a
decision for expenditure in preparation (Revelli, 2017). Develop a sound credit-taking basis;
integrate it, for instance, into our strategy formulation or organizational action plan. If positive
funds have accumulated in each time period, most of this profit will be invested in the company
to create an additional level of revenue. The income is listed as investment income underneath
one of the income parts. In order to boost the company's efficiency, it can also invest in
infrastructure or equipment. The crucial feature of the statement of cash flows is that it helps
corporations to easily consider their flexibility, offering essential information to enable financial
decisions being made.
Break-even analysis: This is the point in which the company’s earnings have generated
adequate cash flows almost all of its operational costs and expenses. At this point, as long as the
expenses and taxation are not increased and the sale amounts are not reduced, all profits
generated from the business is obtained. The break-even point specifies the minimum amount of
sales until income that the organisation has to earn. When closely assessed, the break-even
calculation also helps the organisation to consider high operational costs. It is tightly linked to
variable costs, higher costs and the control of these costs helps the business to achieve greater
efficiency at a reduced break-even point (Sauviat, 2017). It can find things simpler for

management must make choices, but this cannot be skipped altogether. Break-even analysis does
not facilitate the production of cash flow or different uses for surplus power, human labor or
money. As a method of confirmatory decision-making, the break-even method is useful. The
management of the company used these strategies to make strategic decisions and increase both
overall motivation and effectiveness.
4. Analyze that how financial decisions support the long term sustainability
Financial decision making is one of the methods which are used by the almost
every organization to make important decisions related to financial for the overall development
of the enterprise. The technological expertise of top management is focusing on the knowledge
and expertise of trying to build funding strategies that will allow improving the potential future
success of the company (Chand, 2019). The financial decision was used to ensure
that organisation is capable for long-term sustainable growth. Managers make choices related
to equity stock, acquisitions, financial reports, stock market legislation, inventory control
decisions and functional obligations. The primary obligation of a company needed to function is
to ensure its competitive position in the market over a longer time period. In addition, for long
term sustainability organization need to be more focused on their operational activities and
ensure that company able to maximize their inflow instead of outflow because it further helps in
maximizing productivity as well as profitability.
If Tesco Plc has an efficient business culture and good financial management, they will
survive and prosper in market competition for a long time. If companies make wrong
acquisitions or new innovations, they could not compete on the global market. The reputation of
a company based on how efficiently its managers make investment choices on their business
activities. This implies a good market reputation and security against rivals. It takes strategic
measures by means of efficient techniques that can monitor the employees of the organisation.
The management team strives to ensure an integrated operational strategy that increases their
productivity and gives them comparative edge in preserving the viability of their corporation and
also long-term sustainability with the help of financial decision making process.

5. Recommendations regarding the way in which management accountants can help to improve
financial sustainability
In order to achieve the stage of financial sustainability, organizations need to adopt some
recommendations which are provided to management accountant (Finkler, Smith and Calabrese,
2018). There are varieties of ways in which management accountants can direct their
organizations towards financial sustainable success in business:
 Describe social and environmental developments that will have an influence on the
organizational ability to generate long term value.
 Connect sustainable business issues with the company's plan, business model, better deals
and authorization to function.
 Describe the effects of such sustainability issues in concrete business terms, along with
how and since they may have an impact on business.
 Develop KPIs that endorse strategic and financial sustainable objectives.
 Apply accounting management methods and strategies, such as natural resource
availability scenario preparation, useful life costing, and carbon emissions, to better
incorporate environmental problems into the decision-making process. it further helps in
improving long term sustainability.
 Generate reports that contain data on sustainability performance to guide financial
planning and purchasing strategies, investment evaluations and long term planning.
 Design a disclosure strategy that incorporates sustainability challenges to ensure the
disclosure of appropriate monetary and non - monetary details. An example of this is the
International Integrated Reporting System developed by the International Integrated
Reporting Council.
CONCLUSION
From the above discussion, it has been inferred that one of the key terms commercial
enterprises need to consider is financial management. There seem to be a lot of standards that
organizations would recognize. The research looks at the various key methods, methods and
factors for decision making. It is also necessary for companies, in contrast to assessing clients,
such as deciding the liquidity position of the business. The next segment of this study looks at
the various financial techniques that can be useful for important decision-making. There are a

number of approaches, like accounting ratios, approaches of investment evaluation, and so many
others. On account of the chosen customer, occurrences of NPV, payback time and ARR are
explained. A next part of the study continues with the effectiveness of public techniques in long-
term decision-making. The final portion of the report offers advice to businesses about use of
accounting techniques in administration.

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