Business Finance: Performance Determinants, Accounting & Ratios

This report provides a comprehensive analysis of business finance and economics, focusing on the internal and external determinants of business performance, including the impact of competitors, government policies, suppliers, consumers, management, funds, and company culture. It explores the crucial role and significance of accounting in effective decision-making, highlighting its impact on strategy, planning, and financial data analysis. The report details major financial statements such as the balance sheet, income statement, and cash flow statement, outlining their purpose and key data. Furthermore, it includes calculations and interpretations of financial ratios like operating profit margin, gross profit margin, current ratio, acid test ratio, and earnings per share. Lastly, the report defines management accounting and its vital role in planning, controlling, and decision-making within an organization, emphasizing its contribution to achieving financial goals.

Business Finance and
Economics

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. External and Internal determinants of Business Performance................................................3
2. Role and Importance of accounting with respect to decision-making within an organisation.
.....................................................................................................................................................4
3. Major Financial Statements ....................................................................................................6
4. Calculation of financial ratios with their interpretation -........................................................7
5. What is management accounting and how it is important for planning, controlling and
decision-making within an organization.....................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Economics is the study of the scare resources which are available and focuses on the best
use of the such resources with the aim contributing to the welfare of the economy. It basically
includes the other complex issues of vital concern to the society. Finance is the broad term which
describe the activities linked with the banking, debit, credit, capital markets, funds and
investments(Mishra, Arunachalam and Patnaik, 2018). These are just basically related to the
flow of money with the aim of money management. They are basically engage in top-up funds
for the specific business and the business finance is also known as the corporate finance for the
better allocating resources, reviewing the certain opportunities and many more. This report will
going to analyse the internal and external determinants of business performance.
MAIN BODY
1. External and Internal determinants of Business Performance.
There are some of the macro factors which are influencing the entire business performance
are given below:
 Number of competitor in the market:It is the factor which is influencing the entire
working of the company by developing new set of skills in their goods and services. This
is the micro factor which leads to analyse the entire working of the company. In the target
market, there are large number of competitor which create difficulty for the company to
work in an appropriate manner. When the company is focuses on launching the certain
goods with huge of innovation, then it basically creates the impact on the entire
performance of the company. Thus, on that note, this is being said that rivals in the
market is impacting the overall performance and the business strategy of the
business(Habib, 2018).
 Government and political parties: This is another aspects that also makes the huge
impact on the overall performance of the business. This also creates the major impact on
global level as the performance of the business. Micro factors are those aspects which
impact the overall business with their internal functionality. When the firm is setting up a
new business in the given marketplace then it directly affects the overall efficiency and
the strategic performance of the business. As every business needs to follow the certain
rules of the business organisation.

 Suppliers and consumer: The external factors also impacting the entire working of the
company as they are generating the better functioning of the business at internal level. In
a given point of the the consumer view is that, when the to firms are offering the similar
goods and services. Consumer always prefer the goods which are less in prices in
comparison to other firms and suppliers affects the external factors which is leading the
rise in the entire cost of the company.
Following are the micro factors which is impacting the overall working of the company are
given below:
 Manager an staff members: After evaluating the macro factors of the business which
also impacting the overall working of the company, it can be said manager is not guiding
the their employees in the right direct then it basically leads to have the overall benefits in
the target market(Fairchild and Hahn, 2020). Every employees is working with the sole
aim of getting productivity and profitability within the enterprises by which they can
ensures the effective working in the target market. Organisation grow and frame their
own strategies which is leading to have the entire working in an systematic manner so
that they can reach to their higher level of productivity.
 Money and funds: Due to lack of funds and money, they affects the internal
environment of the company and also leading to have impact on macro-level. Every
business organisation needs money and funds in order to perform the various business
organisation so that they can effectively ensures the better working in the target market
with effective allocation of funds.
 Culture of the company: It is the factors which is impacting the overall working of the
employees within the organisation. It is important for the company to treat the employees
with equality so that they can feel motivated and valued at the workplace by which they
can rightly ensures the better working of the company.
2. Role and Importance of accounting with respect to decision-making within an organisation.
Accounting: It is the process of recording financial transactions of the business entity
and the accounting process includes the summarizing, analysing and reporting and these are the
certain transactions to oversight agencies, regulators and tax collection entities(Bandelj, Sowers
and Morgan, 2019).
Role of accounting:

 Accounting leads to have effective decision-making: In this respective point,
accounting helps in the effective decision-making and when the account of the business
conduct the effective analysis of the business which also leads to have the easy
functioning and the accountability of the business so that they can made good decisions.
 Proper strategy of accounting: accounting helps in the effective strategy of the business
and also leads to create better and accurate accounting. Planning is good and the
innovation provides the benefit to the company.
 It basically analyse the ratios which is depends upon the financial data of the
business: Accounting is based on the ratios of the business. This basically shows the
efficiency of the company by using the rations and this become easier to explains the
financial position of the company and their productivity.
Significance of accounting:
 Planning of accounting: this play the significant role in the management as it basically
define that company needs to perform the every task in an appropriate manner. When the
company is not focuses on the planning i.e., what to do, how to do and when to do the
respective business. This basically bridge the gap from where the company is and where
they want to be(Ahmed and et. al., 2022).
 Organize the structure: After focuses on the planning, now the company needs to make
the proper structure of accounting correctly and then perform the given business activity
step by step so that they can reach to the pre-defined goal of the company in an
appropriate manner. They need to follow the structure in order to accomplish the certain
goals.
 Motive the employees: This is important for accounting to motives its employees as they
perform the various business activities of the company and the staff members of the
business which need a motivation. When the company demotivate tits employees which
leads to impact the overall functionality of the business as the morale of the people goes
down and this directly impacting the entire business functionality in the target market.
This become the duty of the employees to influence the employees by which they can
contribute to the better working.
3. Major Financial Statements
Basis Balance Sheet Income Statement Cash Flow Statement

Summary As the balance sheet is
the report of the
company's financial
position at the last of
the accounting period.
The statement
indicates the overall
profit or the loss of the
company in particular
accounting period.
It is the statement
which shows the
overall cash in the
business within the
specific period of time.
Purpose The main purpose is to
demonstrate the entire
financial position of
the business and also
get the financial
obligation to meet its
long term aspects.
Income statement is
showing the
company's profitability
and it is reconciles as
before he balance
sheet with the current
balance sheet(Moosa,
2020).
As the cash flow
statement is showing
which is the major
consideration to the
overall consideration
of the business which
is operating investing
and financing.
Data Included Assets, Liabilities and
Equity
The data is the income
and expenses of the
business.
This respective data is
related to the operating
activities that includes
cash generated from
the sales, investing
task which includes
the cash sent for the
new machines of the
company and the
entire financial task in
which the cash from
the financing such as
cash from new debts
or the dividend is
being paid to the
investors.

Importance The balance sheet is
reveals the overall
strengths and
weakness of the
company for the future
planning.
Income statement is
leads to understand the
availability of funds as
from where income is
coming and how much
they can use it.
This statement is
showing how well the
company is
performing. This
respective cash flow is
useful in long term
planning and
enhancing the new
strategies for the
business.
4. Calculation of financial ratios with their interpretation -
(a) Operating Profit Margin-
Operating Profit Margin = Operating Income / Sales Revenue
In 2019 = 222 / 1850
= 0.12
In 2020 = 15 / 2375
= 0.006
Interpretation: As the firm is operating the profit margin projects the overall efficiency of the
company as how effectively the company's operations contribute to the overall profitability. This
is being used as a indicator in order to know the overall financial health of the company. In
consideration to XYZ Plc, it is being recorded that the company is generating more profit in
comparison in 2019 to 2020.
(b)Gross Profit Margin -
Gross Profit Margin = Gross Profit / Revenue
In 2019 = 650 /2500 * 100
= 26
In 2020 = 375 / 2500 * 100
= 15
Interpretation: Gross profit margin is being calculated in order to show the overall operating
profit of an business after making the necessary transactions in the business. The higher value of

gross profit margin, more efficient management must be there in the effective management for
generating huge profits. This financial statement shows that the company is more effective in
2019 than in 2020.
(c)Current Ratio -
Current Ratio = Current Assets / Current Liabilities
In 2019 = 595 / 190
= 3.131
In 2020 = 690 / 295
= 2.33
Interpretation:Current ratio is being used to show the liquidity of the company and they are
able to meet the current assets and current liabilities. Thus, the financial statement of XYZ Plc,
current assets are more in comparison to the current liabilities which also shows that company
can maintain the good liquidity in the year of 2019 and 2020.
(d)Acid Test Ratio -
Acid Test Ratio = Total Current Assets – Inventories / Total Current Liabilities
In 2019 = 595 – 350 / 190
= 1.28
In 2020 = 690 – 410 / 295
= 0.949
Interpretation: This is the tool which is being used to measure the short term liquidity of the
business and this also shows the overall capacity of the business as the firms pay off current
liabilities with the major use of its ample of assets. In context to XYZ Plc, company is paying the
current liabilities which also help the liquid assets is more in 2019 in comparison to 2020.
(e)Earnings Per Share(EPS) -
EPS = Earnings available to equity shareholders / Weighted average no. of shares
In 2019 = 167 / 800
= 0.208
In 2020 = 12 /800
= 0.015

Interpretation: This basically shows that each share of equity shareholder and higher the
earnings per share of the company, the more profitability. In the company XYZ Plc, company's
profitability is higher in 2019 than 2020.
5. What is management accounting and how it is important for planning, controlling and
decision-making within an organization.
This concept is vital in order to know the management accounting basically helps in the
supervision of the company for betterment that also analyse the impact of the certain actions on
a firm's capabilities so that they can achieve the pre-defined goal of the company within the
financial year. This needs to determine or make the strategies in regard that how they can
achieve the given target of the firm. In other consideration. Management accounting is also
defined as the planning activity, organize the structure of the task then it basically helps in the
direction of the company.
 Planning leads the company to reach the goal of the firms: this respective function of
management is helpful for the company in order to achieve the goal of the company.
Basically, every organisation without taking any step which is related to the targets of the
company because they leads to achieve the overall working of the company in the target
market. Thus, it is clear that in order to achieve any such target, company needs to make
the effective plan before start any operational task as it becomes easier for the firm to
reach to the goal.
 Organizing helps in attaining the goal of the company: After planning the organizing,
this is the another function of management accounting. This basically helps in attains the
objective of the company. Generally, after completion the planning process, an
organisation start the structure so that they can rightly ensures the better working by
which they can reach to the pre-defined goal in an appropriate manner(Zhang and Zhang,
2018).
 Decision-making helps the company in management accounting: it is important role
to attains the organisational objectives of the company. As the decisions are being related
to the firm as they take the corrective actions. Every decisions in the company perform
the major factor in management accounting decisions.

CONCLUSION
From the above report, it is being concluded that company is availing the all the resources
and they are efficient in generating more revenue and profitability in the financial year.
Company check the financial position through the use of ratios such as gross profit ratio,
operating profit, acid-test ratio & current ratio which are very helpful and easy in order to
understand the overall condition of the company. Afterwards, this also concluded that how the
certain external and internal aspects is ensuring the financial performance of the company by
analysing the roles and important of accounting which also shows the meaning of the
management accounting. This basically analyse how the planning and organizing helps in the
decision-making of the company.

REFERENCES
Books and Journals
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Zhang, A. and Zhang, Y., 2018. Airline economics and finance. The Routledge Companion to
Air Transport Management, pp.171-188.
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Publishing.
Ahmed, S. and et. al., 2022. Artificial Intelligence and Machine Learning in Finance: A
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Bandelj, N., Sowers, E. and Morgan, P.J., 2019. All about profit? How economics and finance
experts disseminate the instrumental market logic to family businesses. Poetics, 76,
p.101362.
Fairchild, C. and Hahn, W., 2020. Accounting and finance majors outperform other majors on
the major field test in business and the Comprehensive Business Exam: An analysis of
exam performance drivers. Journal of Education for Business, 95(6), pp.345-350.
Gökalp, B.T. and Yu, X., 2018. Do the Business Cycles and Financial Cycles Move Together in
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Habib, S.F., 2018. Fundamentals of Islamic finance and banking. John Wiley & Sons.
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Mishra, A.K., Arunachalam, V. and Patnaik, D., 2018. Current issues in the economy and
finance of India. IEEF Springer Proceedings in Business and Economics.