Finance and Accounting for Decision Makers: Corporate Strategies

This report examines finance and accounting principles within a global business context, focusing on corporate financial strategies and their impact on business activities. It evaluates various theories, models, and the performance of companies in the global environment. The report analyzes corporate financial strategies, including procurement and utilization of funds, aligning strategies with business objectives, and managing operational costs. It provides recommendations on evaluating financial statements, project appraisal techniques, and stock valuation, incorporating ratio analysis to assess a company's financial health and performance. The report emphasizes the importance of corporate strategies in adapting to internal and external changes, ensuring effective resource allocation, and mitigating financial risks. It also includes a case study on Morrison, illustrating how a company can define and strengthen its brand through various financial strategies. The report concludes with a comprehensive overview of financial statement assessment, including balance sheet analysis, income statement evaluation, and cash flow analysis, providing a framework for making informed financial decisions.

Finance and Accounting for
Decision makers

TABLE OF CONTENTS
INTRODUCTION............................................................................................................................1
1. Evaluating corporate financial strategies in global business environment..............................1
2. Recommendations on the way in which company must evaluate its financial statements,
project appraisal techniques, valuation of stock etc. along with ratio analysis...........................4
CONCLUSIONs..............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Finance and accounting are the important aspect of the business on which growth and
success of the firm is dependent. Finance refers to the monetary resources that are essential for
company for carrying out its business. Accounting refers to the process of recording all the
transactions and events carried out in the company for preparation of financial statements. These
statements provide all the information regarding the performance and position of the company
during the given period of time. It is also known as financial accounting that helps the business
and management in decision making process. Finance is the life blood of every enterprise that
runs the entire business therefore it is essential that the management utilise the financial
resources of the company in best possible manner. Financial management refers to the process of
planning, organising, controlling and analysing the financial resources of the company in
decision making. Present report will address finance and accounting approaches in the global
context and its impact on business activities. This will evaluate range of theories and models,
corporate financial management and performance of company. It will also be evaluating the
corporate financial strategies used in global business environment.
1. Evaluating corporate financial strategies in global business environment.
Corporate financial strategies are concerned with the procurement & utilisation of the
funds. These strategies are framed for ensuring regular and adequate supply of funds for
fulfilling the future and present requirements of business. Corporate financial strategies deal with
areas such as analysing financial resources, analysing the cost structure of the company
estimating profitability potentials of the business, accounting functions and such other issues.
Financial strategies in short are framed for procurement, utilisation and the best management of
funds. It is focused over aligning the financial strategies with corporate and the business
objectives of the organisation for gaining strategic advantage.
Corporate strategies in the global business environment are required for enabling the
company to face all the changes and challenges of the internal and external environment
effectively. Corporate strategies are framed by the managements for planning the objectives of
the business precisely by indentifying and quantifying the available potential resources that bring
maximum benefits to the enterprise.
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The corporate strategies of the company enable the management in making the budgets
for future activities and operations of the enterprise. Defects and errors occurred are eliminated
by framing the strategies for that minimises the differences between the budgeted and actual
output. Corporate strategy of the company is helping to carry out the business with the most
efficiency (Oliver, 2017). Company is managing the operational costs of the business and having
control over the business expenditures with the use of corporate strategies that are framed by the
firm. Ensuring liquidity for covering the operating expenses without using external resources and
managing the internal resources in the best efficient manner by the business enterprise.
Corporate strategies of the company are effective as they have enabled the company to
earn short term returns over the investments made by the management in revenue earning
sources of funds. Management of the company identifies, analyses the investments decisions for
mitigating the risks and uncertainties associated with them.
The corporate financial strategy has the focus of making the best use of resources of the
company ensuring that it adds value to the business and its operations. the most beneficial
sources of finance are identified with minimum risks for carrying out the expenses of operations.
Corporate strategy of the company is ensure that the decisions are consistent with the financial
strategies are taken by the enterprise.
The corporate strategy of the company is making the most efficient allocation of
resources in the business. The resources where they could be utilised are allocated by the
business among different departments and business operations (Aprillianto and Sayekti, 2017).
Effective resource allocation enables the company to increase its productivity and efficiency
giving the maximum output. It is playing a critical role in the growth and success of the
organisation.
Financial risks associated with the business are covered at the time of framing strategies
ensuring that it is the operations of the business are not affected due to these risks. It makes the
company to have sufficient funds available for carrying out the day to operations. financial
managers while procuring funds analyse the potential sources through which capital should be
raised ensuring that the capital structure of the entity.
Morrison as its corporate financial strategy created six priorities for a business in order to
define & strengthen its brand in overall industry and market (Hasan and et.al., 2017). The first
and the foremost priority relates to being as more and more competitive which means helping the
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customers in saving their money on the daily items that they desire and want. It uses its expertise
as the food makers and the shopkeepers for ensuring that its brand offers beat quality products at
affordable or reasonable price.
Another strategy indicated as serving their customer a better everyday life by producing
the products as per the specification of customers and making timely changes as per modification
in the taste and preferences of its customers. Company is also taking important measures to
improve its offerings to the shoppers and is working hard for making available the right
colleagues at right place in right time.
Morrison seeks to find for local solutions which benefit each and every store of the
community. This relates to stocking for locally produced favourites for the purpose of creating
filter lane in a petrol station which best suits to nearby flow of traffic. It listens to the wants of
local customers that is counted as meaningful at the national level. Aim of an organization is to
develop useful & popular services by offering one stop shop to people and providing them much
of what they need with respect to their shopping trip (Wilson, Morrison and Everingham, 2018).
Morrison strives for continuing to refresh its product range which they serves from its cafes,
stores and also installed a practical service which shoppers appreciated such as key cutting,
repair stations for mobile phone and picking up the points which are compatible with that of the
leading online type of retailers.
As its financial strategy company had simplify and speeded up in building the culture on
the basis of teamwork with consistent and a clear way or method of working. Firm aim to be as
cost conscious and created as the learner & an efficient business which is more and more
responsive to the customers. It had taken an initiative to make its core supermarket as strong as
possible by continuing with refreshing or refitting their stores & cafes, introducing ideas which
are been suggested by staff and the customers. Fresh look of an entity is to help in improving
shopping trip & demonstrating the degree to which they care for its products. Craft skills and
Market Street of the colleagues made Morrison unique or different and is truly valued by the
customers.
The present corporate strategy of Morrison is to drive a top line, capturing growth,
increasing efficiency etc. In context of driving for a top line it means strengthening brand
reputation, offering higher quality products and creating a leading range. It offers best and the
fresh food to its customers in UK along with it providing them a great value and an experiential
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engage shopping environment. In addition to it building new stores helps the customers in easy
accessing its products (Haleem and Jehangir, 2017). Increasing efficiency by introducing new
kind of solutions for its five major manufacturing sites in order to enhance or improve its
efficiency. Increasing the network efficiency by way of reducing the cost throughout a supply
chain is also found as one of the crucial or the most suitable strategy adopted by company.
Another strategy is capturing growth by creating different things through leveraging its
fresh and vertical integration, also values the credentials for developing compelling & distinctive
fresh food related experience, serving or offering the food at reasonable price at the location that
seems as convenient for the customers to buy and use it.
2. Recommendations on the way in which company must evaluate its financial statements,
project appraisal techniques, valuation of stock etc. along with ratio analysis
Evaluating the company through examining its final reports is known as financial
statement assessment. The primary tools that are been used for analyzing financial of the firm are
balance sheet, profit and loss statement & cash flow report (Bruining and et.al., 2018). Such
reports would indicate financial condition, cash generating ability and profitability of business
under the review.
For the purpose of evaluating financial analysis company should determine economic
characteristics of an industry in which it should prepare for a value chain analysis for an
industry. It includes the chain of activities included in creation, distribution and manufacturing
an entity’s products or the services (Muda, 2017). In order to frame value chain, an organisation
must make use of strategic tools that is porter five forces or an analysis of an economic
attributes.
Company should identify various strategies on the basis of the looking towards a nature
of service or the product that is been offered by an enterprise involving uniqueness of the
product, profit margin level, creation of the brand loyalty and controlling costs. In addition to it,
factors like integration of supply chain, industry and geographic diversification need to be
considered.
An entity should review its financial statements in accordance to relevant or appropriate
accounting standards as provided by IFRS and GAAP (Kulikova and Satdarova, 2016). While
examining the balance sheet accounts, issues like classification, valuation and recognition are the
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key measures that the firm should focused on for making proper evaluation. It reflects the
percentage or proportion of the total assets is been financed by the debt as it is opposed to the
stockholder equity and the retained earnings. Higher the debt equity ratio, greater is the default
risk in case the earnings projections are not been achieved. After that the business activity is
measured by way of comparing the total revenue on income statement to turnover of inventory
and the receivables. Rapid or quick turnover means that the customers are purchasing company’s
good and making payment within a time frame. Moreover, testing an entity’s capability in raising
excess cash of its current liabilities by reducing the short term debts from the current assets in
order to derive or compute working capital. As working capital is comprises of receivables and
the cash, in addition to inventory that not been sold yet, better determinant of the liquidity, and
immediate cash need could be determine by using quick ratio that drops an inventory out of
working capital evaluation (Maroun, 2017). Better working capital ratio depicts the cash
generated by an enterprise from that of business activities for funding the current business
operations.
Analysis of cash flow statement helps in confirming availability of operating funds.
Similarly, at the time of evaluating income statement, major point is to assess quality of the
earnings as an entire representation of company’s economic performance. Performing a
profitability assessment by computing the profit margin, hat is the net income as the sales
percentage. Measuring return on asset & return on equity helps in assessing efficiency of the firm
in producing profits from assets and the proportion of return distributed to stockholders against
their holding within the firm. ROA is reflected as the percentage that the net income bears to the
total assets and on other hand ROE is been calculated by dividing the net income with that of
total equity. Evaluation of the cash flow statement enables in understanding an impact of
company’s liquidity position from that of its operations, financial activities and an investments
over a period. This includes analyzing the medium from which the funds gathered, the place
where the fund are been allocated and to what extent overall liquidity of an enterprise was
impacted.
After assessing the quality of final report, company should analyze current and risk and
profitability where the financial professional could be able to add value in evaluating its financial
statements. The common tools that can be used by firm for assessing its final reports is ratio
analysis in relation to asset management, profitability, liquidity, debt management, market
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valuation, risk & coverage etc. In context of profitability, there are mainly two key aspects that
needs to be addressed that relates with degree to which operations of the firm are profitable in
terms of its assets, sources through which firm finances its assets and extent to which an entity
generates profits in terms of shareholders funds (Haleem and Jehangir, 2017). Moreover, it is
crucial for assessing ratios in comparative manner, by looking at current ratios from previous
periods to other industry averages or firms.
Thereafter, an organization should formulate forecasted final reports in which financial
professional should make for anticipated assumptions regarding future of firm and in
determining the way in which such assumptions would impact funding as well as cash flow. This
often took a form of the pro-form final report on the basis of techniques like percentage of the
sales approach.
The firm should use several valuation approaches for knowing the value of its business
like using discounted cash flow method. Such cash flows can be in form of the projected
dividends, or the detailed tools like free cash flows either an equity holders or the enterprise
basis (Hasan and et.al., 2017). The other approaches might include using the relative valuation or
an accounting measure like economic value added.
Financial analysis
Morrison
2019 2018
Liquidity ratio
Current assets 1382 1282
Current liability 3295 3081
Inventory 713 686
Quick Assets 669 596
Current ratio
Current assets /
current liabilities 0.42 0.42
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Quick Ratio
(Current Assets -
Inventory) /
CurrentLiabilities 0.20 0.19
Profitability ratio
Employed
Capital 6621 8981
Net operating
profit 394 458
Return on
capital
employed
Net operating
profit/Employed
Capital 5.95% 5.10%
Net Income 244 311
Shareholder's
Equity 4631 4545
Return on
Equity
Net Income /
Shareholder's
Equity 5.27% 6.84%
Cost of Sales 17128 16629
Sales 17735 17262
Gross Margin
Total Sales –
COGS/Total Sales 3.42% 3.67%
Operating profit 394 458
Sales 17735 17262
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Net profit ratio
Operating Income/
Net Sales 2.22% 2.65%
Efficiency Ratios
Inventory 713 686
Trade
Receivables 347 250
Net Assets 4631 4545
Cost of Sales 17128 16629
Sales 17735 17262
Asset turnover
ratio Sales / Net assets 3.83 3.80
Inventory
turnover ratio Sales / Inventory 24.02 24.24
Account
receivable
turnover ratio
Sales / Accounts
Receivable 51.11 69.05
Debt
Debt 5285 5122
Equity 4631 4545
Debt equity
ratio Debt/ Equity 1.14 1.13
Interpretation:
Liquidity ratios:It is the financial metrics which is used in analysing and measuring the
ability of the organization to meet its short-term obligationsagainst its current assets without any
need to get additional finance.
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Current ratio
This ratio is used to measure the ability of the company on account of making payment of
its current liabilities which are expected to due within ayear.Current ratio is derived by dividing
current assets by current liabilities (Bhatt and Verghese, 2018). The current ratio of Morrison is
0.42 times which is same for both the years. This mean that there is no major change in the
company’s current asset and current liabilities. Italso indicates that the being less than 1 means
that company might face problems in meeting is current financial liabilities and may require to
take additional funds to meet it on time.
Quick ratio
This ratio is similar to current ratio but its more conservative as it excludes inventory and
prepaid expenses. It considers more liquid assets (Abadi, Purba and Fauzia, 2019). The quick
ratio of Morrison is 0.20 times in 2019 and 0.19 times in 2018 which means that there is no
impact of inventory on the company’s liquidity. The liquidity position of the company is very
poor and company must be facing financial crisis or it can be considered as a warning alarm for
the company to effectively manage its current assets.
Profitability ratios:this ratio is used for analysing the profitability of the company with
respect to gross profit, net profit, operating expense taking net sales as the base.
Return on capital employed
This ratio is used to measure the efficiency of the companywith respect to generating
profit from the amount invested or the capital employed. It measures the long-term profitability
of the company.It is favourable to have higher ratio (Tissen and Sneidere, 2019).The return on
capital employed (ROCE) of Morrison has increased to approximately 6% in 2019 from 5% in
2018. The company needs to be more effective in utilizing its capital employed.
Return on Equity
Return on equity ratio measures the how the company is utilizing the money of its
shareholders in terms of profits and business growth. This ratio is very important from investors
point of view and it is expected to be high. The return on equity of the company is 5.27% in 2019
as compared to 6.84% in 2018. The fall indicates that the company is not properly utilizing the
amount invested by the shareholders. It requires to review the funds allocation and application in
order to manage it effectively.
Gross margin
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Gross margin ratio expresses the relationship between gross profit with net sales of the
company.It helps in measuring the operational efficiency off the company. Higher the ratio better
it is for the business (Walters and Helman, 2020).There is a minor fall in the gross profitmargin
from 3.67% to 3.42% in 2019. Also, the gross profit of the company is very less. This indicates
that the company is not effective in managing its operating revenue and cost of sales and needs
to take measures to improve it.
Net profit ratio
This ratio shows the relationship of net profit with respect to net sales.The net profit of
Morrison is not good and also there is drop in it in 2019 to 2.22% from 2.65% in 2018. This
indicates that the operating expenses of the company is high and also revenue is not sufficient.
Efficiency ratio:This ratio helps the business in analysing itsefficiency with respect to
utilizing its assets and liabilities.
Asset turnover ratio
This ratio shows how efficiently company is utilizing its asset in generating sales (Lubis,
Marpaung and Magdalena, 2018).The asset turnover ratio of Morrison is 3.83 in 2019 which
nearly same in comparison to previous year of 3.80. But the ratio is high which means that the
company is utilizing its assets at optimum level to gain more revenue.
Inventory turnover ratio
This ratio is used to measure how fast company is able to sold its inventory in a specific
period.This ratio of the company is 24 times which indicates that company is effect in selling out
its inventory.
Accounts receivable turnover ratio
This turnover ratio measures the efficiency of the company in recovering the due amount
from its debtors (Mursalini, Husni and Hamidi, 2017).This ratio has decreased from 69.05 to
51.11 in 2018. This means that company is not very effective in collecting the amount from its
debtors and the company should work on its collection process.
Leverage ratio:
This ratio analyses the capital structure of the company with respect to different sources
of funding.
Debt equity ratio
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This ratio measures and evaluates the debt and equity proportion in the company’s capital
structure (Efendi, Putri and Dungga, 2019). The debt equity ratio of the company is 1.14 which
means that company has more debt obligation against equity. This means that the company is at
riskier situation and should take steps to reduce its debt liabilities.
CONCLUSIONs
The above report summarizes that accounting & finance plays critical role in running the
business smoothly as it enables in tracking income and expenses, providing useful information to
the users with regards to financial performance and position of company, ensuring statutory
compliances, government & management with that of quantitative financial information that
could be used for making appropriate business decisions. Moreover, this helps the firm in
formulating its corporate financial strategies so that it could attain growing success and a
competitive edge against its rivalry. Ratio analysis is seen as the best tool through which
financial performance of an entity can be analyzed and compared in an efficient manner.
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