Financial Decision Making: Evaluating ALPHA Limited's Performance

This report provides a comprehensive analysis of financial decision-making within ALPHA Limited, a manufacturing organization aiming to expand its operations. It examines the roles of accounting and finance, incorporating practical examples to illustrate key concepts. The report includes a detailed ratio analysis, evaluating ALPHA Limited's financial performance over two years, and identifies areas for improvement. Key ratios such as Return on Capital Employed (ROCE), Net Profit Margin (NPM), Current Ratio (CR), Average Receivable Days (ARD), and Average Payable Days (APD) are calculated and interpreted to assess the company's efficiency and liquidity. The analysis highlights both the benefits and limitations of the company's financial strategies, offering insights into strategic decision-making and risk management. The report concludes by emphasizing the importance of addressing these limitations to ensure ALPHA Limited achieves its expansion goals.

FINANCIAL DECISION
MAKING

EXECUTIVE SUMMARY
The financial decision making is crucial procedure that helps organization to move
towards success. Present report is based on ALPHA limited that operates in manufacturing
industry and has objective of expanding its scale of operation. The current case study has
comprised the role of accounting and finance in organization with examples. Ratio analysis has
be exerted in report for analyzing financial performance, consequences of prevailing
circumstances on ALPHA limited and improvement in required area for getting success.

TABLE OF CONTENTS
INTRODUCTION.......................................................................................................................................4
MAIN BODY..............................................................................................................................................4
TASK 1.......................................................................................................................................................4
Describing Definitions.............................................................................................................................4
Explaining general Explanation with example.........................................................................................4
Analyzing the role of accounting and finance with in ALPHA Limited (AL) alomng with evaluation &
examples..................................................................................................................................................5
TASK 2.......................................................................................................................................................8
a) Calculations of ratios.......................................................................................................................8
b) Analyzing the performance of ALPHA Ltd for two years.............................................................10
CONCLUSION.........................................................................................................................................13
REFERENCES..........................................................................................................................................14

INTRODUCTION
Financial decision making is refers to analyzing, managing and monitoring the monetary
resources of organization to get effective outcome. Accounting department is responsible for
preparation of financial statements, bills, etc and financial area is concerned with borrowing &
managing monetary resources of company. In the current era, it becomes crucial for the company
to have appropriate approach for taking financial decisions so that competitive advantages can
be gained to overcome competition prevailing in industry. The selected company in present
report is ALPHA limited which is manufacturing organization of UK which ahs aim to expand
its operational practices. Current report will comprise the role of accounting and finance
function within the company along with examples. Present case study will include ratio
calculation and performance evaluation for recommending required improvement action.
MAIN BODY
TASK 1
Describing Definitions
Accounting refers to procedure of recording, summarizing, analyzing and reporting
business transactions. In addition this, it is one of the key function of organization that provide
assistance in recording large complex commercial transactions. Accounting play crucial part in
assessing the detailed information by giving emphasis on each aspect so that relevant & reliable
decision formulation can become possible. It ensures accurate and time record of finances of
companies that provides ability to make stable functioning in industry.
Finance is concerned with raising & managing the funds required for organization. It is
one the most important aspect of firm that permits company to have ability for obtaining
continuous functioning of its operational practices. This comprises strategic planning,
budgeting, cash flow management, cost controlling, profit evaluation, managing risk, etc.
Explaining general Explanation with example
Accounting is concerned with measuring, processing and communicating important
information of organization by covering all financial and non monetary aspects to provide depth

knowledge. This is one of the wider concept that comprises financial, management, external
auditing , taxation, etc that focuses on reporting and communicating reliable data to users so that
valuable decision making can be exerted. Measuring, analyzing and reporting the collected
financial data to both internal s well external parties for ensuring that its legal obligations are
accomplished (Role of Accounting in business, 2021). The larger focus by this function of
organization is on cost and managerial accounting so that sound planning can be done. All
mentioned practices are implemented by utilizing double entry system so that full picture can be
coved. For instance- organization has sent invoice to its one of the client in these business will
record the transaction. it be summarized as account receivable debit & sales revenue credit. On
the basis of this it can be analyzed that such accounting practices will provide convenience to
organization to know remaining its receivables so that business decision of changing credit
policy, etc can be evaluated.
Finance play important role is setting the monetary goals and strategy by considering the
various factors in turn effectual performance of enterprise can be ensured. This function area of
entity provides assistance in having guidance regarding financial planning for accomplishing the
determined objectives (Brooks and Schopohl, 2020). In addition to this, it pay attention on
raising and allocating monetary resources in turn better productivity from each segment can be
derived. It is as well concerned with budgeting and forecasting for providing road map to
company for moving towards success. This becomes helpful in making assessment of
requirement which can be fulfilled by utilizing diversifying technique. It concentrates on
qualitative analysis so that subject information can give initial reality checks. Managing payables
& receivables by getting easy accounting procedure to reach productive conclusion. For
example- firm’s finance department uses budgetary control tactic so that effective planning for
analyzing need for raising funds to smooth processing of each its task in order to achieve
desirable financial position.
Analyzing the role of accounting and finance with in ALPHA Limited (AL) alomng with
evaluation & examples
ALPHA Ltd. as being manufacturing organization has the objective of expanding its
scale of operation require effective finance and accounting department. Having proper

processing can provide assistance in gaining competitive benefits to incline its capacity of
meeting futuristic goal. The specified organization’s accounting department records all
transactions irrespective their size for providing deeper knowledge while decision making
(Young, Herath and McCoy, 2018). AL pay attention on recording transactions related with its
suppliers, lenders, debtors, creditors, etc for getting efficiency I making end judgment in order
to improve prevailing lacking areas. For essence- ALPHA Ltd has recorded the information
regarding trade payables and accruals so that proper identification of current liabilities can be
assessed for the particular period. This can aid in determining efficiency for taking appropriate
course of planning in order to execute modifications in lacking areas.
Advantages
 ALPHA Ltd can become possible to maintain the records and ability to formulate
financial statements so that information regarding the business procedure to
stakeholders.
 Comparing financial as well non monetary aspect with standard established can be
exerted by AL with help of accounting department. This provides guidance in having
reliable decision making through having required evidence to avoid irrelevant legal
obligation that can harm reputation of organization.
 Valuation can be ascertained by executing accounting activities in ALPHA Ltd so that
taxation matter related obligation may be fulfilled appropriately. In addition to this,
financial health evaluation can be done by AL in significant pattern to recover the
limitations in order to lead in concerned sector.
Disadvantages
 The accounting information is presented only in the terms of money which is completely
based on estimates that can lead to inaccurate decision formulation. The bias nature can
result in omission of any important aspect crucial for reaching end conclusion which is
one the biggest limitation faced by ALPHA Ltd as qualitative aspects are ignored.
 Assets are recorded at original cost that diverts the attention of company from market
value that is another negative component of accounting which required to be keep in

mind while formulating decision on the basis of it (Eberhardt, de Bruin and Strough,
2019).
 The manipulating practices by avoiding taxes and false estimation of investors position
can be done by making alteration in financial statement which can make it immaterial
sources. The historical information is as well utilized which contributes in formulation
of inaccurate interpretation of liquidity condition of company that may be largest
obstacle can arise for ALPHA Ltd.
The specified company’s finance department play crucial role in making sure that its all
practices regarding management of monetary assets are exerted in efficient manner. ALPHA
Ltd’s particular functional area is responsible for identifying suitable method for getting funds,
managing and controlling the cost structure developed in organization so that proper allocation
and optimum utilization by all segment can be done (Morshed, 2020). To get competitive
advantages it becomes essential for AL to ascertain that purchase, sale, payment, collection of
funds, etc are exerted in effectual manner to maintain appropriate level of liquidity for getting
the ability to accomplish objective of expansion. Financial forecasting is implemented in turn
identification of f urgent requirement to meet unforeseen circumstances with maximum
capability to avoid its adverse effect on organizational growth & development. Analyzing the
cash flow statement so that proper assessment of in and out flows can be achieved. This aids in
making strategic decision for attaining various objectives in smoother manner. Proper capital
structuring through making balance between debt & equity is implemented by AL to obtain
fluent process. For instance- AL conducted activities such as taking loan for having resources to
meet business requirement. Organization has issued share capital for maintaining liquidity in
company The more emphasis by financial department of ALPHA Ltd is executed for analyzing
risk and mitigating them by having significant working, inventory, etc. management system.
Benefits
 The foremost benefit that organization can get through implementation of finance
function ALPHA Ltd becomes able to get higher managerial efficiency that increases
the productivity and profitability and helps in getting lead position in manufacturing
industry.

 Transparency of information can be obtained with help of financial control to
maximizing wealth &profitability so that better decision making to gain competitiveness
can be derived (Greenberg and Hershfield, 2019).
 ALPHA Ltd can estimates the adequate amount of capital required to continue the
operational practices in fluent pattern through fulfilling requirements of working
processes. In addition to this, avoiding debt assist in achieving efficiency of proper
application of fund via aiming declining cost.
Limitation
 This leads to rigid process by setting standards for measuring performance with certain
parameters and due to this valuating actual outcome becomes difficult for the company
(Kimanzi and Gamede, 2020). ALPHA Ltd can found it difficult while applying
controlling measures.
 It is too costly procedure as it requires higher skilled professionals for implementing set
of courses to get desirable outcome which makes it time consuming as well.
 Lack of coordination can leads to inaccurate decision formulation which may create
manipulative situations and decline efficiency in dealing with changing circumstances.
From the above report it can be concluded that accounting and finance play essential role
in getting ability to formulate strategic decisions. There are various areas in company’s that are
integrated with these mentioned functions and leads firm towards success. ALPHA Ltd as being
manufacturing organization can get several benefits for accomplishing the goal of expansion. It
comprises ability to identify risk, availability of sufficient of data for decision making. The
practical examples has been included to get proper exposure. It is important to give emphasis on
limitations of financial & accounting role in business so that proper action overcome challenges
can be done by ALPHA Ltd.
TASK 2
a) Calculations of ratios
(i) Return on capital employed (ROCE)

Particulars Formula 2017 2018
Operating profit 375 412.5
Total assets – total
liabilities
2,235-1072.5
=1162.5
4,035-2610
= 1425
Return capital
employed
Operating profit/
(Total assets – total
liabilities)*100
32.25 28.94
(ii) Net profit margin (NPM)
Particulars Formula 2017 2018
Net profit 300 262.50
Sales revenue 2,400 3,000
Net profit margin Net profit/ Sales
revenue*100
12.5 8.75
(iii) Current Ratio (CR)
Particulars Formula 2017 2018
Current assets 757.50 1,035
Current liabilities 322.50 1,110
Current ratio Current assets/
Current liabilities
2.34 0.932
(iv) Average Receivable Days (ARD)
Particulars Formula 2017 2018
Receivables trade 450 600
Sales revenue 2,400 3,000
Average Receivable Receivables trade/ 68.43 73

days Sales revenue* 365
(v) Average Payable Days (APD)
Particulars Formula 2017 2018
Payables trade 285 1,050
COGS 1,950 2,625
Average Payable days Payables trade/COGS
*365
53.34 146
RATIO 2017 2018 Changes
ROCE 32.25 28.94 -3.31
NPM 12.5 8.75 -3.75
CR 2.34 0.932 -1.408
ARD 68.43 73 4.57
APD 53.34 146 92.66

b) Analyzing the performance of ALPHA Ltd for two years
ROCE NPM CR ARD APD
-20
0
20
40
60
80
100
120
140
160
2017
2018
Changes
Return on capital employed provides assistance in measuring company's efficiency in
terms of generating profitability with helps of capital. From the evaluation of above graph it can
be interpreted that ALPHA LTD. has declined as compares to previous year. In the year 2017
and 29 the outcome derived is 32.25 and 28.94% respectively. On the basis of this it can be
interpreted that change obtained as compared to earlier performance is -3. 31% that is a negative
indication of organization's efficiency in generating profitability from its capital. This can
negatively influence decision making procedure of investors which may not be in favor of
company (What is ratio analysis? 2021). In addition this, the ideal gearing ratio is 10% which is
lower than the firm's actual outcome but it's in downward moving trend that requires firm to
make certain improvement for regaining competitive advantages. It can be done by selling the
outdates assets for removing unnecessary element, paying off debt, etc can help Walmart to get
ability to improve return on capital employed. The organization's overall performance can be
improved by paying attention on inventory management so that higher conversion rate to
maximize revenue can be established. The current chosen criteria will increase operating profit
and help in getting higher return on capital employed. Coordination in overall mentioned area
will provide assistance achieving positive outcome in future.
Net profitability margin refers to capacity of company in order to generate profitability
from the revenue. It is one of the major indictor of financial performance of company which
review by stakeholders like investors, lenders, financial institutions, etc. from the evaluation of

pictorial presentation of calculated ratio it can be articulated that organization NPM in 2017 and
2018 is 12.5 and 8.75% respectively. The outcome of current year 2018 is lower as compared
to 2017 which is not positive sign of ALPHA Ltd. Crucial reason behind lowering performance
of AL can be considered as firm’s expenditures are inclining as compared to earlier period
which required attention of AL management. The particular condition of specified company
can adversely affect the liquidity position of firm in industry. Creditworthiness can be declined
which can harm fund raising capacity, working capital and lead to dissatisfaction among
shareholders (Prasoona and Reddy, 2021). The current mentioned situation of enterprise can be
modified by concentrating on lessening expenditure through formulating appropriate cost
structure in turn lower expenses can lead to increase margin of profitability. Having strategic
pricing strategy, effective marketing & promotional practices, etc can make company to move
towards higher profitability to improve potential performance in effectual manner. Giving
emphasis on market analysis can provide more information regarding the prevailing trends to
identifying relevant lacking areas in turn effectual strategy to cooperate with changing
circumstances can be adopted for achieving significant growth in industry.
CR helps in identifying efficiency of company in terms of utilizing its current assets to
pay short term liabilities. This gives assistance in measuring capability of organization to
maintain the creditworthiness and trustworthiness in sector. There are several types of
stakeholders like lenders, suppliers, investors, etc who have attention on firm’s current
obligation paying ability so that better decision can be made. In the 2017 and 2028 current
ratio of ALPHA LTD. is 2.34 and 0.932 times respectively. The ideal ration lies between 1.2 to
1.5 times which is lower than performance of 2017 that is positive reflection. Result of 2018 as
compared to 2017 is presenting downward movement trend which requires firm to implement
improvement action. This can affect adversely credibility of AL which can harm the
organization’s reputation and may create hurdles in achieving objective of operational scale. In
order to bring modification organization can focus on generating greater liquidity to pay to meet
obligations (Pavone, Migliaccio and Simonetti, 2021). Another course of action that can be sued
by firm to improve the prevailing situation comprises faster conversion rate cycle of debtors
account, set off unproductive assets, delaying capital purchase, etc can lead to increase cash
segment of current assets or inclining the particular matrix. Reducing personal withdraw can