Financial Decision Making: Financial Analysis of Panini Ltd - BM414

This report provides a comprehensive financial analysis of Panini Ltd, a bread-making company, focusing on financial decision-making. It evaluates the roles and functions of accounting and finance departments, including financial accounting, management accounting, tax, auditing, investment, financing, dividend, and working capital functions. The report also explores various sources of finance available for medium-sized enterprises like Panini Ltd for expansion purposes, such as bank loans, crowdfunding, and retained earnings. Furthermore, it includes a calculation and analysis of key financial ratios, including gross profit margin, operating profit margin, return on capital employed, current ratio, quick ratio, inventory turnover days, debtor’s collection period, and creditor’s collection period, to assess Panini Ltd's financial position and performance.

FINANCIAL DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
Part a: Accounting and Finance departments.............................................................................3
Part b............................................................................................................................................6
Explaining sources of finance available for medium-sized enterprise for expansion purposes. .6
Task 2...............................................................................................................................................8
Part a: Calculation of ratios.........................................................................................................8
Part b: Analysis of ratios............................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCES................................................................................................................................1

INTRODUCTION
Financial decision-making is the process of taking the crucial decision by having the
significant factors into the consideration so that competitiveness can be derived. In the current
era having significant financial decision-making is crucial in order to get the appropriate ability
to gain success by overcoming competition. The present report is based on Panini Ltd which
operates by making the breads for the supermarket in UK. The current report will pay attention
on evaluating the importance of accounting and finance functions, duties and
roles within a business organization. This will emphasize on having various sources of financial
resources available for small & medium enterprise. It will give focus on calculating the ratios
and interpreting the financial information so that strategic evaluation of its position can be done.
MAIN BODY
TASK 1
Part a: Accounting and Finance departments
These both the departments are crucial for the business to gain the appropriate
information so that strategic decision by gaining essential information can become possible
(Cockcroft and Russell, 2018). It is important for the organization to build systematic procedure
of recording & summarizing financial transaction in turn meeting the position of having all
required information for precise decision-making.
Accounting department:
Financial accounting function
There are various types of the roles which are played by the particular function which
helps the business to set the systematic procedure in turn attaining reliable insights to get
appropriate functioning (Accounting functions, 2022). The roles which are played by this
function comprises recording of data, tracking storing, analysing, summarizing h and reporting
of financial transaction which helps in accomplishing the significant information in turn gaining
appropriate functioning such as maintaining stability, filing taxes, evaluating financial
information, etc. This all permits to get the appropriate position to assess that how effectively the
firm is operating in the financial terms so that reliable insights can be derived.
Management accounting function
This is related with having the significant information which can permit Panini Ltd to
take sound decision by communicating the data that can help in attaining goal. The roles and

responsibilities which are played by this function includes forecasting, planning, organizing,
coordinating, financial analysis & interpreting, communicating, complying with tax policies
(Polak and et.al., 2020). Panini Ltd can make the strategic formulation of planning to start its
operational practice with help of the management accounting function that permit it to get
significant capacity for organizing, coordinating, financial analysing & interpreting so that
relevant communication process for setting accuracy in business can be exerted it can provide
assistance in receiving the proper position to build effective level of management in
organization. With help of the provided information particular organization becomes possible to
get significant ability to take decisions which can help in optimize utilization of resources,
declining cost, etc.
Tax function
It is the structure of accounting method focused on taxes which helps business to adhere
its legal responsibility (Jayesh and et.al., 2022). Tax accounting is basically governed by the
authority that is required to be implemented effectively in its internal process so that effective
compliance can be exerted. This functions plays roles such as preparing payments, identifying
tax savings analysing issues, etc. in addition to this, the specific function of accounting can assist
the business to have appropriate taxation requirement accomplishing by adhering fiscal,
redistributor, controlling, etc. this aids in meeting the ability to overcome tax liability in most
precise manner so that proper competitiveness in turn meeting the reliable position to have
smooth processing in firm.
Auditing function
This function is concerned with assessing & verifying the accuracy of financial reporting
& systematic in place to record and store company's data regarding its financial transaction
(Balakrishnan, Prakash and Ramesh, 2020). There are various different types of responsibilities
which are played for ensuring that effective compliance with financial reporting and other
requirements of industry. This conducts evaluation of accuracy of financial statements prepared
by firm, identifying errors & frauds prevailing, level of compliance established rules &
regulations, act, legislation, etc. This tax function of accounting helps in attaining the reliable
extent of discipline in organization in turn effectual development of social & corporate
responsibility of industry.

On the basis of this, it can be interpreted that financial, management, tax and auditing
function plays all the mentioned course of actions. These all are highly required for Panini ltd to
understand its accounting requirements so that executing suitable course of action to have
effective functioning by establishing this department can lead in receiving effective
understanding of taking specific actions as helps in achieving greater level of accuracy, etc. in
attaining organizational goals.
Finance department:
It is one of the crucial department that is related with having the significant data
regarding availability of funds, allocating, analysing, controlling the financial resources of the
organization. This is concerned with having the required level of funds in business in effectual
manner so that effective working procedure can be derived.
Investment function
For gaining the success in the current era, it is important for the firm to focus on having
the effective evaluation of the projects or investment options available so that reliable decision
for the growth & development can be taken. This comprises comparing financial reporting for
analysing position to get the significant ability to identify requirements of funds so that effectual
monitoring can be exerted. This helps in having proper functioning through having management
of debt of firm in effectual manner so that gaining competitiveness can be done in precise
pattern.
Financing function
finance is one of the crucial resource that helps in achieving the precise ability to
cooperate with each requirement of business (Oncioiu, Dănescu and Popa, 2019). This play role
of ascertaining needs of business which shows intelligence by managing the capital resources in
long term so that relevant decision can be made. Financing function permits to have effective
acquiring sufficient & suitable funds so that element in meeting the needs of organization. This
helps in recognizing corrective source of finance so that lower cost of capital with optimum
utilization of resource can be done to have higher profitability & sustainability in firm.
Dividend function
This is related with I distribution of profits which is earned by the organization so that
effective financial responsibility to decide an optimum dividend policy which maximizes the
market value of firm. This is helpful for attaining the objective of the organization to satisfy

investor by offering reliable & relevant distribution of profits. This leads firm towards effective
operating process which provides reliable functioning through impacting favourably to the
organization & its stakeholders. Retaining earnings and investment can be effectively exerted for
accomplishing organizational objective in effective processing manner exerting become possible.
Working capital function
it is associated with having the effective availability of funds that can be used for
operations & meeting short term obligations (Oyewo, 2021). Company require to have working
capital so that daily operational practice can be managed in such as precise pattern so that higher
profitability by establishing smooth processing can have attained. This function of the financial
department of the organization focuses on the four components that comprises inventories,
account receivable, payable and cash. These all ensures that smooth procedure in turn gaining the
effective management of all this component so that higher level of processing that can permit
receiving reliable & effective functioning.
On the basis of this, it can be identified that finance department is highly important for
the specified enterprise as it leads to have effective knowledge regarding investment, financing,
dividend and working capital function so that sound decision can be taken for possessing
favourable impact on firm.
Part b
Explaining sources of finance available for medium-sized enterprise for expansion purposes
There are various objectives of organization which are required to be accomplished by
firm for gaining goal of expansion (Turkson, Amissah and Gyeke-Dako, 2020.). Sources of
finance which can be taken into the consideration by the firm involves bank loan, crowdfunding,
retained earnings, funds from family & friends, venture capital, etc.
 The internal source of finance is related with obtaining the finance from the prevailing
funds inside the business which involves retained earnings (Easton, 2018). The retained
earnings are related with reserve that is made by company from its profits that helps in
attaining gaining significant functioning can be derived. This does not require the cost of
capital which can benefit the firm to have higher efficiency in overall processing.
 Owner funds can be used by the particular firm as it comes from his saving so repaying
burden can be removed and interest payment is as well eliminated.

 Bank loan is one of the suitable option which can be taken into the process by the
specified firm. It is an external source of finance for which it is required to pay interested
on decided period basis (Singh and Maiti, 2019.). This allows functioning effectively
without having any interference that inclines efficiency of meeting organizational needs.
 Crowdfunding is the process of raising money from the large pool of people that is
available for the medium enterprise (Raef Lawson PhD, C.M.A. and CSCA, 2020). It
can be beneficial for the organization as can provide assistance in protecting firm for
greater risk, low cost of financing, easier access to capital, less pressure on management,
etc.

Task 2
Part a: Calculation of ratios

Part b: Analysis of ratios
(i) Gross profit margin: Gross profit margin is calculated to know the profitability of a
company. The amount of sales revenue left with the company after the payment to its
labours and direct materials has been made is known as gross profit. Panini ltd.’s gross
profit margin ratio is low as compared to the ideal ratio for the industry. In the previous
year the firm had higher gross profit margin ratio that is 35% as compared to the current
year’s gross profit ratio that is only 28.39%. Panini ltd have poor control over the
expenses that it incurs on its production process as indicated by the gross profit margin.

For improvements the company can consider rising its selling price and increasing the
sales volume.
(ii) Operating profit margin: It is the measure of the Panini ltd earnings before interest and
tax and after paying for the variable costs of production. For knowing the value of the net
operating profit margin the percentage of the operating profit of the company out of its
net revenue sales is considered. When compared to the ideal operating profit ratio in the
industry the operating profit ratio of the Panini ltd is found to be higher than the ideal.
The operating profit ratio of the firm for the year 2018 is 27.65% and in year 2019 it is
20.04%, indicating a fall in the ratio. The reasons behind the fall is increasing expenses of
the firm and its weak control over the expenses. Panini ltd should control its expenses for
the increase in operating profit margin.
(iii) Return on capital employed: ROCE is the ratio calculated to know the company’s
ability to generate return from the amount invested in the company (Dwidjosumarno,
2019). Return on capital ratio indicates in percentage the return Panini ltd generated from
the capital it employed. Although the company increased the amount of capital employed
this year the return it generated from the capital employed fell. This indicated the
inefficiency of Panini ltd to generate the profit out of the capital that has been invested
for its operations. The total assets of Panini ltd are underutilized. For the generation of
higher returns the firm should put its resources to the optimum use.
(iv) Current ratio: Current ratio indicates the capability of Panini ltd to pay for its short term
obligations using its current assets (De Neve and Gerds, 2020). The current ratio of the
firm for the year 2018 is 1.21:1. It indicates that Panini ltd is having 1.21 worth of assets
for every unit of currency worth of short term obligation. This situation was below the
ideal situation of 2:1. In the current year the company’s current ratio is 4.12 indicating
the inefficiency of the company. Panini ltd should utilize its current resources optimally.
(v) Quick ratio: This ratio is also known as liquid ratio or acid test ratio. It is a type of
liquidity ratio like current ratio. The difference is liquid assets excludes inventory and
prepaid expenses whereas current assets include every short term asset. As indicated by
the quick ratio of Panini ltd the current year is having too much of liquid assets ideal. The
company can invest the excess liquid assets to get income in the form of returns. This

will improve the ratio for the company. Higher the liquidity of the firm lower is the risk it
undertakes and less is the profitability of the firm.
(vi)Inventory turnover days: Inventory turnover days tells the number of days Panini ltd
takes to replace its entire inventory (Ajeigbe, Swanepoel and van Vuuren, 2021). Lower
inventory turnover days are good for the company as it indicates higher sales. The
inventory turnover days of Panini ltd are nearly 30 days for the current year. The
inventory turnover days were 20 days approximately in the previous year. The reason
behind increase in inventory turnover days is the higher cost incurred on the materials
and labour this year. For improvements the cost of sales should be reduced and the sales
are required to be increased.
(vii) Debtor’s collection period: This period indicates the efficiency of Panini ltd in the
terms of time taken by the firm to get back the credit sales payments from its customers
(Meester and Slooten, 2020). Average days taken by Panini ltd.’s customers to return the
amount against the credit purchases made by them were 27 days in the previous year. The
debtor collection period became 42 days in the current year. The increase is not in the
favour of Panini ltd as it means blocking of cash in the operating cycle. For reducing the
debtor’s collection period company should make the terms of credit clear to its debtors.
(viii) Creditor’s collection period: The creditor’s collection period says the result in the
number of days’ company takes to payback the amount to its suppliers for the materials
purchased by Panini ltd on credit. The creditor’s collection period was around 30 days for
the previous year. In the current year the creditor’s collection period is computed as 16
days approximately. It will be beneficial for the Panini ltd to have higher creditor’s
collection period so that the firm can get more time to pay for its obligations. For
increasing the creditor’s collection period Panini ltd can negotiate with its suppliers.
On the basis of the ratios calculated it is clear that the profitability and liquidity of the
firm is not optimum. So it is recommended for the investors not to invest in the Panini ltd. It is
not advisory to invest in the company.
CONCLUSION
On the basis of this report the meaning and significance of undertaking optimum
financial decision for a business enterprise have been made clear. The report has highlighted the

need and various roles of the financial and accounting department of an organization. Further the
report has outlined the varied sources that can be used by a medium sized firm in order to fulfil
its fund requirements. Bank loan, crowding funding and equity sources has been explained in the
report. Eight different kinds of financial ratios have been computed in this report. On the basis of
the ratios computed the report has done individual analysis of each ratio.

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