Accounting & Finance: Financial Ratios and Decision Making Report

This report provides an analysis of financial decision-making within an organization, focusing on the roles and functions of the accounting and finance departments. It details key accounting functions such as record-keeping, bill payments, decision support, transaction monitoring, salary payments, and digital record maintenance, alongside finance functions like investment, financing, dividend, and working capital management. The report also explores various sources of finance including retained earnings, debt capital, equity capital, debentures, government grants, and IPOs. Furthermore, it includes a financial ratio analysis of Panini Ltd. for two years, interpreting the gross profit ratio, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, and debtor’s collection period to assess the company's financial performance and efficiency. The analysis highlights potential causes and reasons for changes in financial ratios over the two-year period, offering insights into the company's strengths and areas for improvement.

FINANCIAL
DECISION MAKING

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1. Analyse the purpose of the accounting and finance function within an organisation.............3
2. Sources of finance ..................................................................................................................5
TASK 2............................................................................................................................................7
1. Computation of financial ratios of two years..........................................................................7
2. Comment on the performance of Panini ltd results on the two years’ financial ratios
calculated in part A above. your comment should include possible causes and reasons for
changes in financial ratios over the two years............................................................................9
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Accounting and finance department is an important aspect of a company which help in
achieving the organisational goal. This report include various types of function and roles of
accounting and finance department. These department inter-related to each-other, Accounting
department keeping track of financial activities within the company and provide these
information to finance department. Finance department use this information in order to control
cost and funds and also prepare budgets(Ng, 2018). Financial ratios of Panini ltd is calculated
with the help of given data which clear the financial position of the company. This report also
contains the interpretation of ratios in the basis of two year calculations. Ratios help a company
to compare its financial position of the company and determine its growth and deficiency.
TASK 1
1. Analyse the purpose of the accounting and finance function within an organisation.
Accounting department: It is the method of recording, clarification and summarising
of transaction and event. The process of accounting starts to identify the transaction and events
which is related to financial character and then is to recorded in books of account it is called
Journal. Transaction and events are transferred in secondary book known as Ledger. After that
they classified as income, expense, assets and liabilities and summarised in Balance sheet and
Profit and loss account(Pandey and et.al., 2020). The whole process is called accounting.
 Keeping Financial Records: It is a basic function of accounting. All business transaction
relates to financial is recorded day to day such as sales,purchases and payments. To keep
financial record in a systematic manner helps to protect the business,reduce the cost and
maximization of profit, to identify risk and helps growth of the company.
 Making Bill Payments: It includes to checking the bills are properly expensed,helps in
recording of bill date to date, identify cash and bank expense, recording expenses in
proper head.
 Decision Making: Accounting is providing relevant information to the user of accounts
which helps in taking decision making. To keeping record properly helps the investors to
invest the company.
 Monitoring financial transaction: The monitoring of the transactions are helps to
identified those expense which is incurred by company in huge amount are to reduce in

next year helps in reducing cost and increase the profit of company(Liang, Moroney and
Rankin., 2020).
 Paying employee salaries: It recorded the employees data in a systematic manner so that
identified the amount which are payable to the employees. It is also helps to analyse the
salary are to pay in accordance their work, and extra benefit like bonus ,commission is
also pay properly.
 Keeping digital records: In modern system of accounting helps to record the transaction
and events in electronically so identify the expenses are not recoded in double. Digital
record are also checked by other parties like investors and employees.
 Control: Accounting is identified the weakness of operating system and provide feedback
the effectiveness. It provide the information to government to exercise the control. To
using past data analyse the future performance of the entity. It combined the effect of all
the transaction which incurred in current year.
Finance department: The department is mainly helpful to solve the issues of the firm’s
financial documents. It also controls the income of divisions and expenditures with respect to
maintain the smooth running of projected activities.
 Investment function: This function shows the comparison between the rate of interest
and the firm’s investment. It also requires the formula of investment that is, value of
investment – interest rate and it shows the decrement in the slope of investment function.
 Financing function: This function of finance department shows the procurement and
utilization of funds for the productive running of projected firm tasks. This type of
function is also known as the financial management(Rashid and et.al., 2022). It also
responsible for the administration and planning of financial funds.
 Dividend Function: this function is performed by the board of directors of the company.
In this function the board of directors decided that how much dividend will be distributed
to there shareholder & how much money will retained in the company so that company
can use that amount in development of there Business. It is also very important because
the company's reputation is depend on it. This function helps company to attract the
maximum number of investors that will enhance the company's value and goodwill.
 Working capital function: Finance department allocate fund to operate company's routine
function. In other words working capital refers to the funds which need to perform day to

day business operations. Working capital functions includes purchase of raw material,
payment of wages and salaries etc.(Tietz, Cainas and Miller-Nobles, 2020). This
function help company to smooth functioning of the day to day activities. It is very
important to maintain the working capital requirements of the firm because if these needs
are not fulfilled by the finance manager than it will also affect the working of other
departments. This function also help in maximisation of profitability by controlling of
wastage of financial resources.
2. Sources of finance
Sources of Finance are mostly important for every company so that they can use the
amount in different different activity like expansion, promotion of there product, brand building
etc. Some of the sources of finance are as follows.
Retained Earning
The main motive of every company is to earn maximum profit so that they can run there business
easily(Zhang, Dai and Vasarhelyi, 2018). Every company Distribute some amount of profit to
there Share holder & some amount of profit has been retained by company itself so that company
can expand there easily with any issue.
Debt Capital
Company also use debts to raise funds or finance. Company can take loan from the financial
institutions for a long or short period of time. The institutions can charge interests on there debts
but by the help of the fund companies can raise there production or sales & paid there debts.
Equity Capital
The another Source of finance is is equity capital. Companies can issue there shares in market to
the public & can raise the funds easily. Public purchase there shares & invest there money in the
company in return of the investment in company the public receives dividend.
Debenture
Company can also raise there money by issue of the debentures in the market to the public. It is
also a very common way of raising funds(Zhu, Huang and Bradford, 2022). They are liability for
company every company have to pay back the amount which they raise from the public. In return
public get interest on debentures from the company.

Government Grants
Companies can also raise the finance from the government also government provide grants to
companies so that company can raise the employment rate or can also help in increasing the
national income of the country
Initial public offer (IPO)
Initial Public Offerings (IPOs) are used when companies have profitable operations, management
stability, and strong demand for their products or services & company want to raise there funds
so that they expand there business to the next level(Inci and Saraoglu., 2019).

TASK 2
1. Computation of financial ratios of two years

2. Comment on the performance of Panini ltd results on the two years’ financial ratios calculated
in part A above. your comment should include possible causes and reasons for changes in
financial ratios over the two years.
Gross profit ratio: This financial ratio is mainly analyzing the performance and
productivity of business by dividing the amount of gross profit ratio with the company sales
revenue(Frizzo-Barker and et.al., 2020).
Interpretation: The computation of above ratio indicates the company performance of
2018 and 2019. In which it express that in 2018 firm earn more gross profit as compare to 2019.
It means company sales revenue in 2019 is less and they spend more in direct expenses of the
company. It also shows the less efficiency of the company. There is only way to improve the
performance of business is they need to more focus on the high sales revenue very efficiently.
Operating profit margin: The financial ratio of the company indicates the percentage of
profit a firm generates from its projected task.
Interpretation: The above calculation of ratio indicates about the company outcomes of
2018 and 2019. It mainly shows that in 2018 company profits is high as compare to the 2019. In
Which company is not so capable to create incomes from its operations. Company perform low
in 2019 that means its less productive to achieve their targets. There is only way to improve the
performance of the company is they need to work in a very efficient manner with good
understanding.
Return on capital employed: In this financial ratio company is mainly used to evaluate
a firm’s profitability and capital productivity(Yang and Wu., 2020). In simple words, it helps the
company to know how better a firm is creating profits from its capital.
Interpretation: The computation of ratio indicates that company earn less profit from its
capital in 2019 as compare to the 2018. Firm is more efficient to achieve their objectives in the
year 2018 but less efficient to achieve their targets in 2019. Which means company is less
productive and efficient to achieve their goals. The only way to improve the firm performance is
it need to show more concentration on the firm goal with high capability and understanding.
Current ratio: It is the part of liquidity ratio; it can be defining as the ratio which can be
simply converted into cash along with the current debts are duties anticipated to pay within a
year(Xu, Pham and Dao, 2020).

Interpretation: This financial ratio of the company indicates that the organization
performance in 2018 and 2019 is good as compare to its ideal ratio. In which it shows that in
2019 company having high current ratio as compare to the 2018 that means company obligations
to pay its debt is better. So, there is no improvement need to show in the performance of the year
2019.
Quick ratio: It is also one another part of liquidity ratio; it analyses the capability of a
firm to pay all of its outstanding debts(Harris and Hampton., 2022). When it can come due along
with the assets that they can be speedily transform into cash.
Interpretation: The ratio indicates that in 2019 company quick ratio is high as compare to
the 2018 which means company efficient and capable to achieve their targets and objectives in
the year 2019. In the year 2019 company is more capable to pay all of its outstanding debts. So,
on that basis company need not to show any improvement in the quick ratio of the enterprise in
the next upcoming years.
Inventory turnover days: This financial ratio of the company expressing how many
times a firm has sold and exchanged it stock during a particular period of time (Al-Aroud.,
2018).
Interpretation: This financial ratio of the company indicates the performance of the firm
for the year 2018 and 2019. In 2018 company is less sold and replaced its inventory as compare
to the 2019. In the year 2019 company is highly sold and replaced its stock, so many times
company sold its inventory in comparison the previous year 2018. So, there is no need of
improvement company need to show in their inventory turnover ratio.
Debtor’s collection period: The amount of time company takes to collect money from
all the trade debtors(McGovern and et.al., 2019). The time period to collect the debts is short
then it shows high efficiency of the company and more time shows less efficiency.
Interpretation: The calculation of this ratio show the company performance of the year
2018 and 2019. In the year 2018 company takes less time to collect the money from all its trade
debtors as compare to the 2019. It basically means that company is less capable in 2019 as
compare to the 2018 to achieve their targets. The need of improvement company need to show in
this ratio is they need to become more productive and highly efficient.

Creditor collection period: It refers to the amount of time it takes to recover he loanable
funds. Higher the time it takes to recoup the amount its more beneficial and less time to recover
the loan amount is less beneficial for the company and also show the less efficiency of the firm.
Interpretation: The above ratio of the company indicates that in 2018 company takes high
time to recover is loan amount which show that company is highly efficient to achieve their
targets and in 2019 company takes less time to recover the loan amount that means it shows
company less productivity and capability to achieve their targets. Company need to show
improvement in the ratio of the company is they need to become more efficient and concentrate
on their targets in a better way.
CONCLUSION
It is concluded from the above report, the firm panini Ltd provide information and
discuss the function of Accounting and finance department these two departments play a very
important in the performance and to achieve the targets of the business. They also manage the
projected activities and financial statements of the company in a proper manner. In another step
it also explains the sources of finance used by the small and medium enterprises to fulfil the
scare of funds for achieving the company targets and projects. In another task it shows the
computation of financial ratio and the interpretation of ratio for the year 2018 and 2019. Which
mainly show the financial position of the business and the performance of the company in these
two years.

REFERENCES
Books and Journals
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