Principles of Financial Management

This document provides a critical evaluation of approaches, techniques, and factors contributing to effective decision making in an organization. It discusses how management accounting supports decision making and evaluates the principles guiding efficient financial strategies to maximize shareholder value and meet stakeholder needs. The document also critically evaluates the role and function of the management accountant, especially in regard to financial control and monitoring.

Learner Name ID
Unit Number and Title Unit 15 – Financial
Management
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Academic Year
Assignment Title Principles of
Financial
Management (Part
Issue Date
Submission Deadline
IV Name
IV Date
Statement of
Authenticity:
I certify that the work
submitted for this unit
is my own and the
research sources are
fully acknowledged.
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Table of Content
Assessment Part 1
1.0 Introduction p
2.0 A critical evaluation of a range of approaches, techniques and
factors which contribute to effective decision making in an
organization p
2.1 How the management accounting function will support
organisational decision making p
3.0 Evaluate the principles which guide effective and efficient
financial strategies to maximize shareholder value and meet
stakeholder needs p
4.0 Critically evaluate the role and function of the management
accountant especially in regard to financial control and monitoring
p
5.0 Techniques for fraud detection and prevention and approaches
to ethical decision making p
5. Recommendations on how management accountants can
improve financial decision making p
References p
Conclusion p
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1.0 Introduction
Management accounting is a function of accounting process that organisation make use in
short and long run. As management is a vital part for an organisational sustainability,
therefore, accounting management is also crucial to get enable sound performance of
business practices. There are various principles and methods of accounting that play their
own significance as per organisation size, scope and area swerved. It is necessary to maintain
records, data and statistics into proper documented form in order to make appropriates
decision regarding cost consumption and overall revenue. Management of accounts shows
how the cost will be cover during the financial year, what decision and strategies are needed
to develop effective plans for future growth and sustainability of the organisation.
According to the institute of management accounts(IMA), it is the function which
assist in sound decision by showing all potential capabilities of organisation under monetary
terms that needs to be better to promote sustainable development (Chunfei, 2019). This
report is going to undertake UK organisation I.e Davison Canners Ltd. It provides bakery and
catering services. The company maintain all financial records during the year so that they
could compare, contrast and evaluate their performance with past results. This could be done
through adapting appropriate techniques and approaches of management accounting along
with effective principles and accounting standardised which the essential to format strategies
and enhance decision aspects.
2.0 A critical evaluation of a range of approaches,
techniques and factors, which contribute to effective
decision making in an organization
Decision making is the essential criteria for organisations to perform with effectiveness.
Decisions needs to be relevant and accurate which could help in making the organisation
fruitful and profitable (Adshead, 2018). This process involves various procedures such as,
collecting information, evaluate sources, analysing factors and important elements and come
to an effective decision. These decisions are important to have alternative solution for
business problems and resolve present crises that stops their growth. Morrison using both
formal and informal approaches for decisions making which are described below:
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Formal decision making:
knowledge based approach: this approach signifies upon decision making criteria as
per human preference. It is well stated that human problem will be clearly understandable by
a human only. For that instance, companies using this approach to by taking humans
experience, knowledge and their area of expertise in making decision for company’s
strategies. It is depended upon artificial intelligence through which human connects with the
company for problem solving and giving reliable solutions. Morrison’s use this approach to
better understand about what marketers and customers wants. They prefer to analyse the
market first and make the changes as per requirements (Agasandyan, 2017).
Participatory decision making: under these approaches of decision making,
organisation put focused on getting participate into formulation of company’s strategies.
Employees and members are a vital part of organisation that needs to be mutually agreed on
company’s decision. This way, effective organisations could come up by the influence of
other opinions and advices. This approach is useful for Morrison’s as they initiate their
employees to take participate and give their opinion what would be the best for company
(Ebrahimpoor and Afzali Mehr, 2020).
Informal decision making;
Subjective: informal decision is used where there are small concepts and less data
collection. This subjective approach is all based on the changes occurring into environment
and market. Through this approach, past performance are resulted into proper changes. In
other words, decision is being made by checking on past records and profitability. Morrisons
uses this approach for b the help of financial data due to have different departments and
complex functions. Some reliable decision and aims would be set through past experience. As
the company come up with the aim to increase its sales through 10% more from the last year.
Stakeholders contribution: effective decision making are depend upon company’s
stakeholders who being an essential part of organisation. Employees, investors are the
stakeholders who are totally liable to contribute in companies’ profits and losses so that
decision must be done after taking their consent. Managers of Davison Canners Ltd first
initiate the plan and communicate it with all the stakeholders, after taking their consent and
advices, changes will be made for effective outcome (Ameliawati and Setiyani, 2018).
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Shareholders: shareholders are also come into contact while making decision as they
are non-active member of company which have their contribution in making the firm
financially strong. Shareholders of Davison Canners Ltd support and maintain company’s
goodwill into competitive market. These functions are basically influence to make aware
about policies and performance of company. Davison Canners Ltd use effective planning and
aspects by maintaining accounts so that shareholders would make believe in shares and be
prepare for adjoining hands with company (Brusca, Gómez‐villegas and Montesinos, 2016).
Techniques for effective decision making:
Group discussions: effective decision making is essential in all aspect, for which
organisation to encourage more of group discussion in order to conduct decision
making effectively. Managers of Davison Canners Ltd creates working environment of
taking up group performance and make any decision after review of all the employees by
getting ideas, thoughts and discussion.
Brainstorming: through this technique, the outcome of the ideas and thought gets
gathered for taking all financial discussion after concerning from various new
ideas. After brainstorming, people with best ideas get appreciate and rewarded
which encourage more engagement into future.
Cost-benefit analysis: through this techniques, the cost of company will get identify
and how much benefit it will provide to the organisation. Davison Canners Ltd maintain
all records of cost in which the company could finalise what would the effective decision o
for their company to set prices. Cost could get analyse with marginal costing system and
analysis of cost.
These techniques are best of all as they are useful in getting the creative ideas and
thoughts for regulating operations and products. Through which, customers would get satisfy
and company will empower in revenue. In the opinion for the chosen firm, group discussion
band cost analysis will be more useful as the company conduct operations wit all human
workforce so that their engagement is also required to take practical results.
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2.1 How the management accounting function will support
organisational decision-making.
Decision making is a vital part for sound growth of organisations for the aim of sustainable
development. There should be evaluation of formal and informal approaches in context with
organisational effectiveness. These decision making have both positive and negatives sides as
it is all depended on practical performance which an organisation face while doing task and
activities (Fuller, 2018).
There are many advantages and disadvantages of these approaches:
 Through decision making, communication will flow in better way of coordination
which is essential for organisational effectiveness. As employees feel valuable and
eliminate delays in doing work.
 Work will be done into more prominent criteria. As decision are being made so the
work will complete within specific period of time.
Disadvantages:
1. knowledge base approach could be resulted into time taking procedure so that it is not
suitable for the situation where prompt decisions are required (Chmutova, Vovk and
Bezrodna, 2017).
2. Stakeholders interference may create chaos in effective decisions as there are several
perception comes under segmentation that would not result in sound decisions
(Munge, Kimani and Ngugi, 2016).
Formal and informal decision making are undoubtedly significant for effective decision
making. There are several approaches used by Davison Canners Ltd that impact on their
profitability. Under formal approaches, companies using artificial intelligence in order to
track customer’s insights to take their preferences and understand market trends. As per
informal approaches, Davison Canners Ltd create much consent of shareholders, employees
and investors while making decisions regarding cost and financial decisions (Agnieszka
Cyndecka, 2019).
As the stakeholders are more aware about marketers and opportunities which will be
addressed by them into fruitful manner. These factors create positive impact of company’s
goodwill and brand name to competence against rivals. The more effective decisions are, the
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more will be the chances of getting sustainable growth. Subjective approach is also reliable
for inform decision by checking past performance and drive conclusion for current scenario.
More functions of management accounting:
Modifies the data: through management accounting, data gets modified at regular basis
which create as ease for managing employees and their work. This will create eventfully
impact on effective decision making by getting updated and relevant information. So that
business decisions would get automatically up to the point. The chosen organisation is using
this functioning by maintain actual records of data.
Communications: through management accounting, communication flow from top to lower
authority. First manager make decision regrading accounting and companies performance
then it will get regulate to all the staffs to work on the basis of performance revealed.
Facilitates control: an effective decision making would only be conduct when control and
rules will be regulate. It sets some boundaries and information on which work needs to be
done. The chosen organisation put almost effective control so that all the decisions gets
effective implementation.
3.0 Evaluate the principles which guide effective and
efficient financial strategies to maximize shareholder value
and meet stakeholder needs
Financial management is part of management procedure; which organization use for
formulate those policies through which they can maintain long term sustainability. Following
are the principle which management department of Davison Canners Ltd use, these are
defining below:
Risk & return principle: This principle based on the concept that investors invest
their capital in those organizations where they get higher return thus they are interest in both
risk as well as return policy. Higher risk represents or expected high earning of profits thus
on the basis financial manager need to form portfolio in which higher as well as lower rate of
risk portfolio are available (Gerber, and Shiu, 2020).
Time value of money: This principle based on the concept is that value of today's
money is more worthy then future value of investment, thus organizations need to focus on
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valuing their current financial worth otherwise they are not able to maintain their position in
business environment. Management department of Davison Canners Ltd focus on formulate
those policies and strategies of finance through which they are able to maintain their financial
capital by investing their current money sources in higher returning investment portfolios.
Profitability and liquidity: It is considering as essential and relevant financial
management principle which useful in managing assets or financial capital of organization.
Organization need to focus on invest their money in those project which help in maximize
their profits on the other side they also consider liquidity rate of investment how effect their
securities change or converted into cash. On the basis of that management department of
Davison Canners Ltd take decsi9on regarding which alternative is beneficial for their future
business activities.
Cash flow principle: This principle based on the assumption is that cash is more
essential or relevant business item as compare with profit, current value of cash inflow is
more valuable than their future values. Thus manager need to concentrate on those strategies
through which they are able to increase their cash inflow as compare with cash outflows.
Diversity principle: This principle used in order to mitigate risk of loss due to
investment in financial capital. Diversity principle based on the concept is that by investing
in different variety of portfolio manager able to control or mitigate their risk regarding with
facing loss they also provide their investor risk free capital. Which attract public to invest
their capital within this organization.
Optimum capital structure: The term capital structure is defining as ratio of equity
& debt with % of total assets of organization. Organization is focus on more financial
independent when they have more debt financial securities as compare with equities. Equity
based securities are costlier as compare with debt securities. Management department of
Davison Canners Ltd thus focus on formulate their capital structure in such manner which
help them to generate more return (Kramer, Zaaijer and Verweij, 2017).
These principles are useful and beneficial for the purpose of maintain long term sustainability
of organization.
Management department of Davison Canners Ltd use different principles of financial
management of through which they can maintain their long term position of organization. By
using diversity principle, they able to formulate their capital structure in which a way in
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which those portfolios are used which give higher rate of return by mitigate risk. Time value
money principle useful in determine present value of their assets. On the basis of that
strategies are formulates which useful in maintain long term position within organization.
4.0 Critically evaluate the role and function of the
management accountant especially in regard to financial
control and monitoring
Financial management principle help in take decision regarding portfolio as well as
long term business policies and strategies use for controlling extra cost. Manager of Davison
Canners Ltd by applying principle of financial management able to find out those alternative
which help in generate more cash inflow for future time period and on the basis of that they
are able to attain competitive business advantages. At present time Davison Canners Ltd face
high rate of competition thus their management department apply principle of financial
management in such a manner that they are able to run business operations in effective
manner, which help organization to maintain long term sustainability within the market
(Vakhrushina and et.al., 2018).
Evaluate the role of management accountants and their value as
part of an integrated system.
Management accountant is the person who work for collecting, analysis and recording
as well as representing monetary transactions in effective manner. Following are the role and
value of management accountant as part of integral system are define below:
 Help in recording transaction: Management accountant is play vital role in running
organization in effective manner. They on the basis of evaluating each transaction
able to collect, record analysis and interpret data in such a manner which beneficial
for systematically maintain records of all business activities.
 Take decision: On the basis of recording transaction manager of Morrison take their
decision regarding formulation of business policies, through which they can attain
competitive business advantage (Luca. and Berardino, 2017).
 Formulation of statements: With the use of managerial accounting technique, data
are collected and this information are useful in formulation of cost accounting
statement, and recording to transaction, ledger useful in provide base for preparing
financial statement.
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 Internal control: Management accountant of Davison Canners Ltd play role to
control and manage the overall internal department. As management accounting
approach is useful for integration of internal factors of organization. Thus on the basis
of evaluating and supervising internal department they are able to mitigate risk of
formulation of secret profit or control issue related with corruption and internal
coherence within the organization.
 Supervision of employee: Management accountant of Davison Canners Ltd on the
basis of evaluate performance of employee formulate policies regarding with provides
reward to employees on the basis of analysis their performance.
 Communicate business policies: Communication is considering as essential tool
which useful in transfer information from one way to another way. Managerial
accountant play vital role as communicator of policies., they on the basis of
discussing regarding relevant business policies and strategies communicate each and
every detail to internal department and took their review in order to make some
changes regarding policies formulated by management department. Thus they play as
role of communicator.
Monitoring and focusing: Management accountant of Davison Canners Ltd, formulate
strategies in such a manner which is useful and beneficial in order to monitor the whole
department activities and on the basis of that they formulate strategies which useful for
employee to help them focusing on towards their work.
5.0 Techniques for fraud detection and prevention and
approaches to ethical decision making
Accounting control system is tool of financial management which is use to evaluate and
measure performance and on the basis of that formulate strategic to control the error or
difference arise between budget and actual achieved target. These accounting system is
evaluating performance of each resource of organization. It is play major role by integrate
with business system, following are the relevance of accounting control system of Davison
Canners Ltd, which are define below:
 Measure performance: Accounting control system is used for the purpose of
evaluate and measure performance of each department, on the basis of that manager
able to find out overall performance rate of sales, production, research and finance
department (Marchenko, Gagliardini. and Horenko, 2018).
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 identify errors: Accounting control system of Davison Canners Ltd on the basis of
measuring performance of various business department, find out errors and causes
which become the reason of arising difference between budgeted as well as real or
accurate target achieved. Generally, due to many of error, difference between sales,
purchase, amount for error arising between price as well as profit error of these can
be found out.
 Communicate with other system of organization: Accounting control system on
the basis of finding error able to communicate their result with other department so
they are aware regarding with their overall performance and rate of efficiency.
Management department of Davison Canners Ltd on the basis of result find out by
accounting control system focusing on communicate these result with different
department of organization.
 Evaluation and rewards: Accounting control system use various tools and
technologies which help in integrate this system with other system of business. On the
basis of that manager evaluate and measure performance of employee of different
department and formulate strategies by considering with HR department regarding
with offering rewards to employee. These incentives are given on the basis of
supervising performance
 Strategic planning: Accounting control system on the basis of providing essential
information formulate strategic plan which are beneficial for the purpose of assigning
future business strategies and plan. These are beneficial as other system of
organization formulate line diagram and structure of hierarchy, by using accounting
control system information, manager of Davison Canners Ltd able to allocate
financial capital on the basis of finding out information by accounting control system
(Melé, 2019).
 Allocation of resources: This system helps in provide are relevant information
regarding market and profitability of adoption of various pricing strategies on the
basis for that HR system of organization took decision regarding selection of pricing
and advertisement policy.
5. Recommendations on how management accountants
can improve financial decision making
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In context with Davison Canners Ltd, management accountant plays major role for this
organization. They took decision on the basis of providing essential business data as well as
provide base for formulation of final account for time period.
On the basis of using different accounting system, job costing, price optimization or
cost accounting system, manager able to formulate statement which useful in took decision
regarding selection of price and control or mitigate cost require for running business
operations. Accounting control system is useful for provide data which help in at their time of
auditing procedure as well as find out effective opportunities by evaluate cost of running each
business alternative. Thus integration of management accounting system is useful for
Davison Canners Ltd. With the use of implementation of management accounting system,
manager able to take decision regarding cost measurement, performance evaluation and took
decision regarding which pricing strategy is beneficial for their organization.
On the basis of using different system management accountant formulate various
reports which useful in take effective business decision as well as find out those alternative
which beneficial for future business project. As well as took which alternative help in
controlling cost and mitigate risk of loss, all these information is find out and strategies are
implement in effective manner for enhance productivity and efficiency of organization by
using and implementing accounting control system (Silvestri, 2019).
6.0 Conclusion
From the above analysis it has been concluded that financial management play vital
role in systematic run of organization. This approach helps in decision making process as
well as on the basis of applying various principle of financial management, manager able to
maintain their financial resource in effective manner and they able to achieve their goals by
using tools and technique of managerial as well as financial accounting. Financial decision
making is consider as one of the most relevant approach with the use of different types of
financial management technique organization able to successfully maintain their position in
market. As well as the attain competitive business advantage by managing financial resource
in effective manner.
References
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Adshead, J., 2018. The application and development of the Polluter-Pays Principle across
jurisdictions in liability for marine oil pollution: The tales of the ‘Erika’and the
‘Prestige’. Journal of Environmental Law. 30(3). pp.425-451.
Agasandyan, G. A., 2017, October. Minimum yield principle under incomplete prediction of
financial markets. In 2017 Tenth International Conference Management of Large-
Scale System Development (MLSD) (pp. 1-5). IEEE.
Chen, Y. and Hao, Y., 2018. Integrating principle component analysis and weighted support
vector machine for stock trading signals prediction. Neurocomputing. 321. pp.381-
402.
Chunfei, W., 2019. Practical Application of Materiality Principle in Business Practice:
Evidence from Archives Research. Accounting Research, p.01.
Ebrahimpoor, N. and Afzali Mehr, M., 2020. An Overview of the Principle of the Rule of the
Will of the Couples and the Differences and Similarities of the Couples' Financial
Rights in Iranian Law, Jurisprudence and English Law. Political and International
Researches Quarterly. 11(43). pp.203-226.
Fuller, C.W., 2018. “Recognize and remove”: a universal principle for the management of
sports injuries. Clinical journal of sport medicine. 28(4). pp.377-381.
Gerber, H.U. and Shiu, E. S., 2020. Hans U. Gerber and Elias SW Shiu’s Discussion on
“Agricultural Insurance Ratemaking: Development of a New Premium Principle,”
by Wenjun Zhu, Ken Seng Tan, and Lysa Porth, Volume 23 (4). North American
Actuarial Journal, pp.1-7.
The assignment is divided into 2 parts the first part from LO1 to LO3 must be
around 3250 words and the rest 1250 in the second part LO4. I am sending the
Assignment brief but as well there is assignment layout which must be used
for part 1 from LO1 to LO3.
Please bear in mind, you now work as a trainee management accountant in a small
but growing accounting practice, so everything written in must linked to the company
chosen for all Los
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Table of Content
Assessment Part 2
1.0 Introduction p
2.0 A critical evaluation of the business using appropriate ratios
p
3.0 Explanation and justification for how data obtained might help
to inform operational and strategic decisions p
4.0 Compare and contrast three investment appraisal techniques
and how these can assist in maximizing return on investment
(ROI) p
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5.0 The role of cash flow statements and break-even analysis in
informing financial decision making p
6.0 A critical evaluation, including recommendations, of how
management accounting techniques can be used to support
good decision making and ensure long term financial stability
of the organization p
7.0 Conclusion p
References p
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1.0 Introduction
Financial management is field of management through which personal able to understand
how they plan, manage and control financial capital of business organization. In this part,
various tools and technologies of financial management has been defining in system manner
to evaluate their relevance in business operations. In this report importance of ratio, use of
different investment appraisal technique and role of financial statement has been define in
systematic manner.
2.0 A critical evaluation of the business using appropriate
ratios
Financial management is approach of accounting in which various technique use for measure
performance of organization, ratio analysis it part of it. It is considering as one of the most
relevant and universally accepted tool of financial management which help in determine
position of organization. Following ratio is calculated to analysing performance of Tesco:
Calculation of ratio
On the basis of calculating different types of financial ratio it is evaluate that as
compare to 2020, Tesco is more financial stable in 2019. Organizations probability ratio rate
had been decline due to the impact on environment factors, however their rate of efficiency
ratio has been increase as value of current assets is enhance from 0.60 to 0.72 and quick ratio
also increase. However, organization an ability to generate profit by using their debt
liabilities and profit on investment is reduce due to facing ups and down of economic crisis.
Relevance of ratio for in strategic decision making process.
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Interpretation:
 Gross Profit ratio: This ratio is evaluated for the purpose of finding out relation
between gross profit and sales. Higher ratio showcase positive relation between these
variables. In context to Tesco, value of gross profit was measure at 7.35 % and in
2020 it was decline, which means that organizations performance has been decile due
to reduction in the sales rate.
 Net profit ratio: Value of net profit in 2018 was 1.99 and as compare it with 2020 it
was evaluated at 1.50% which means that even gross profit ratio of organization has
been increase but due to the high rate of expenditure incurred in promotion and
business operating activities, Tesco’s ability of generate net profit has been decline.
 Current ratio: From calculation of ratio it is analysis that value of current assets as
compare with 2018 has been increases thus current ratio of organization has been
increases from 0.60 to 0.72. The main reason of increment in the value of current
assets is that organization adopt effective cash management strategy for maintain
value of current assets.
 Interest cover ratio: This ratio used to evaluate ability of organization to pay their
debt liability, rate of quick ratio has been increase from 0.47 to 0.58, which represent
that organization must use relevant strategies of managing assets which help in
increasing their ratio of quick ratio. mean value of current assets has been increase.
Organization have capacity to bear their debt as compare with past year as they have
sufficient value of financial resource to fulfil debt liability.
 Quick ratio: This ratio used to evaluate ability of organization to pay their debt
liability, rate of quick ratio has been increase from 0.47 to 0.58, which represent that
organization must use relevant strategies of managing assets which help in increasing
their ratio of quick ratio.
 Debtor collection period ratio: This ratio helps in determine time require to collect
payment from debtors. In this case Tesco take 8 days to collect funds from debtor and
these days has been decline from 9 to 7 which mean that management department use
effective policies for increase manage their debtor collection period.
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 Value of this ratio has been decline which means that organization not able to
maintain their probability ratio.
 Earnings per share ratio: This ratio is calculated for determine ability of
organization to generate profit at per share. Value of this ratio has been decline which
means that organization not able to maintain their probability ratio.
 Creditor payment period ratio: This ratio is used for calculate time require to pay
creditors liability. In 2020 organization took 54 days and 2019 it was 56 which means
that as compare to 2019, Tesco able to quickly pay their short term debt liability.
 Gearing ratio: This ratio used in order to find out relation between debt and equity.
On the basis of that ability of organization to borrow funds from market has been
analysis. Value of gearing ratio was 0.83 in 2018 and as compare to 2020 it was
valued at 0.79 which means that organization 's ability to borrow funds has been
decline.
3.0 Explanation and justification for how data obtained
might help to inform operational and strategic decisions
 Analysis financial stability: By calculation of different types of ratio, manager able
to evaluate and find out whatever organization is financial stable or not. On the basis
of evaluating profitability and gearing ratio manager can find out their answer of
questions.
 Evaluate efficiency of organization: Calculating efficiency ratio manager of Tesco
able to measure rate of efficiency of organization's different department. On the basis
of measuring efficiency manager able to find out which department require training
program for enhancing their work efficiency.
 Planning & forecasting: Manager of Tesco able to formulate or plan for future
business policies in order to enhance their profit and control cost acquire for running
business operations (Simone, 2017).
 Measure performance: The main purpose of evaluating ratio is to measure
performance of business organization, management department of Tesco able to
evaluate their performance of different year and compare it with their rival
companies.
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 Useful in determine risk: Organization is able to find out rate of risk for running
business operations. On the basis of finding out risk manager formulate strategies for
mitigate or control risk arise during the time of run future business projects.
4.0 Compare and contrast three investment appraisal
techniques and how these can assist in maximizing
return on investment (ROI)
In financial management manager able to find out future rate of return of each business
projects by using different techniques of financial management. Theses technique have their
own benefits and drawbacks which are define below:
Payback period: It is consider as easiest method of capital budgeting tool. Through
which personal able to find out time require by organization in order to recover their initial
cost of investment. Higher pay back period showcase that business entity need more time in
order to cover up their cost and vice versa. Following are the relevance of this technique:
Benefits:
It is simple and easy to calculate procedure of finding out best alternative.
Useful in evaluation of project in quick manner.
Drawbacks:
It is not considering time value prospective during the time of calculation (Stagnol, 2017). In
payback period, cash inflow after payback period are not consider after finding out value of
payback period
Net present value: This technique is used for the purpose of finding out net present
value of generating cash inflow for given time period. This is consider as universally
accepted of capital budgeting which most of organization use while taking decision
regarding selection of business projects.
Benefits:
In this method time value is consider for finding out real value of money.This method useful
in determine and give accurate and reliable business decision.
Drawbacks:
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While calculating of net present value, accountancy not consider sunk cost, and hidden cost.
For calculate net present value rate of return is requiring. There are no set guideline regarding
with how to calculate net present value.
Accounting rate of return: It is consider as expected rate or average rate of return
which organization expect while investing in any project or alternative. it is tool of capital
budgeting which useful in find out average rate of profit which organization able to generate
by investing in their alternatives.
Advantages:
Calculation of rate of return from this method is easy as compare with internal rate of return
method. This technique is helpful and easily calculate which save time of manager.
This method is useful in find out difference between those alternatives where timing of
saving and cash flow is similar.
Disadvantages:
This method is totally ignoring life cycle of project. This it is not consider as essential capital
budgeting technique as manager face many issue during the time of implementation of this
technique.
It is not considering time value of money and size of investment project. Due to not using
time value , it is not essential that they proved accurate decision.
From this evaluation it is recognized that management department of Tesco need to
apply net present value method from their tools of capital budgeting, on the basis of that they
are able to find out real value and time require top complete to recover cost of initial
investment. They calculate rate of return for the purpose of find out present rate of cash
inflow through which they able to decide alternative.
Return on Investment
This method is considerate modern technique of capital budgeting in which rate
of return has been evaluated. Manager decide to select alternative which return
is higher another project. This technique is used in order to measure how
investment is performance. It is expressed in terms of percentage and calculated
on the basis of measuring or divided profit by investment;s initial cost or outlay.
Advantage
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Return on investment is used to evaluated time value of money thus it is
consider as accurate and reliable technique of capital budgeting.
This technique help in measuring profitability and help in comparative analysis it
is define as indicator of measuring performance which useful for management
department to take relevant business decision.
Disadvantage:
It is difficult and complex method. Lack of agreement on the right or
optimum rate of return might discourage managers whose opinion is that
the rate is set at an unfair level
5.0 The role of cash flow statements and break-even
analysis in informing financial decision making
Ratio analysis and tools of capital budgeting, financial management is wider approach which
manager use to take relevant decision by formulating cash flow statement and find out value
of Break Even Analysis. Following are their relevance which define below:
Financial manager of Tesco used to evaluate or calculate Break Even Analysis value
through which they can able to find out relation between fixed cost, variable cost and profit.
As well an as impact of changes of different production units for find out value of profit at
different stage of production (Wang and Yin, 2017).
Changes in price and cost can be easily evaluated and compared as well as it is useful
in find out measurement of margin of safety.
This ratio helpful in formulation of strategies as well as evaluate value of cost and
relationship between different constraint of cost.
Management department of Tesco formulate statement of cash flow for their
following reason:
Cash flow is useful in order to find out or measure value of cash inflow or outflow activities
for specific period of time.
Role of cash flow in decision making:
Cash flow statement play vital role while taking essential or relevant business decision.
On the basis of reviewing cash flow statement manager able to find out cash flow of
organization and on the basis of that they formulate business policies regarding with how
effective they enhance profitability rate of organization.
21

This statement also useful in take decision regarding investment on the basis of measuring
investment inflow and outflow activity.
Manager take decision regarding distribution of dividend on the basis of observing and
analysing business activity.
They control cash outflow activity on the basis of finding out activities which generate more
cash.
Role of break even analysis in taken business decision:
Manager use break even analysis statement in order to define relation between profit and
other items of income statement, on the basis of that manager formulate strategies to enhance
profit rate.
Break even analysis useful in order to find out relevant expense, they set revenue target and
on the basis of that decision is take in order to attain business goals.
With the use of profit volume ratio manager understand which alternative is better in order to
provide more profit to organization.
This statement useful in measure performance and find out cash generate from
operating, financial and investing business activities.
On the basis of formulation of cash flow statement manager of Tesco able to evaluate or
formulate strategies and business policies for future time period. Which will help in maintain
position of organization fin business environment (Zhang, S. and Et. Al., 2019).
6.0 A critical evaluation, including recommendations, of
how management accounting techniques can be used
to support good decision making and ensure long
term financial stability of the organization
Financial management tools are relevant in decision making procedure. Management
department of Tesco, use ratio analysis for measure their financial performance as well as by
formulation of cash flow statement they able to find out activities which become the reason
of increment in cash outflow. They on the basis of calculating value of Break Even Analysis
able to find relation between different variables and constrain of income statement on the
basis of that manager formulate long term purpose of strategies and polices which useful in
maintain their position and goodwill in the competitive business environment.
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Techniques of management accounting:
Marginal costing: This technique is used in order to find out cost of running business
activities. On the basis of that manager able to recognize, value of variable outcomes and find
relevant cost of running business operations.
Absorption costing: This technique is used in order to find cost of each business activities
which includes variable as well as fixed cost.
Pricing strategies: By applying different types of pricing strategies manager able to determine
price of their products. This includes price skimming, price penetration and discounting
strategy.
Budgeting: On their basis of formulating activity based budgeting, rolling and zero based
budget, manager able to forecast or product future profit and loss value.
Benchmarking: This technique useful in find out causes of deviation and on the basis of that
target is set to mitigate financial problem.
Management accountant by using various system of managerial accounting and
financial management tools they able to find out relevant accounting information which
useful in formulate statement of cost as well as statement of finance which includes, income
statement, balance sheet and cash flow statement. They need to use break even analysis and
with the use for pricing accounting system, manager able to decide their pricing strategies as
well as on the basis of that organization able to generate profit and maintain their
organization's goodwill strong for the purpose for long term sustainability (Yuniningsih,
Pertiwi and Purwanto, 2019).
7.0 Conclusion
From the above analysis that financial management is consider as essential part of managerial
process. By implementing of principle of financial management, organization able to
maintain their position and successfully run their activities within the competitive business
market. There are various kind of assumptions on which Principle, risk return, hybrid,
diversity, optimum utilization of cash, all these are used for implementation of various
technique.
On the basis of theses principle, manager able to formulate cash flow statement as
well as find out reason of arises difference, they evaluate best alternative from others as well
as by analysing ratio manager can evaluate their performance with other organization. Tools
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of financial management are applying organization in such manner which help in successfully
run business activities by controlling managing business activities in effective manner.
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Appendix 1.0
1 INVESTMENT RATIOS
i. Earnings per share = Earnings
Number of ordinary shares
2 EFFICIENCY RATIOS
i. Debtors collection period = Trade receivables
x
3
6
5
Credit sales
ii. Creditors payment period = Trade payables
x
3
6
5
Credit purchases
3 LIQUIDITY RATIOS
i. Current ratio = Current Assets
Current Liabilties
ii. Quick asset ratio = Current Assets - inventory
Current Liabilties
4 FINANCING RATIOS
i. Gearing ratio = Debt x100
Debt + equity
25

ii. Interest cover = Profit before interest and taxes
Interest charges
5 PROFITABILITY RATIOS
i. Gross profit margin = Gross profit x100
Sales
ii. Net Profit margin = Net profit x100
Sales
26