Finance for Managers: Financial Analysis and Project Appraisal Report

This report provides a detailed analysis of key financial concepts relevant for managers. It begins by discussing the purpose and requirements of maintaining financial records, outlining techniques for recording financial information, and examining legal and company requirements for financial reporting. The report then delves into working capital management, exploring its components and how organizations can effectively manage it. A comparison between management and financial accounting is presented, followed by an outline of the budgetary control process and various costing methods. Finally, the report demonstrates and evaluates different investment appraisal methods and explores ways to obtain finance for business projects. The report covers topics such as financial reporting, working capital, investment appraisal, and costing methods, providing a comprehensive overview of finance for managers.

Finance for managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
TASK 1 ...........................................................................................................................................4
(1.1) Discuss purpose and requirement for keeping financial records in organisation..........4
(1.2) Outline techniques for recording financial information in organisation........................4
(1.3) Discuss legal and company's requirements for financial reporting...............................5
(1.4) Discuss importance of financial statement to stakeholders of company.......................6
TASK 2............................................................................................................................................6
(2.1) Discuss components of working capital........................................................................6
(2.2) Evaluate how organisation can......................................................................................7
manage working capital.........................................................................................................7
TASK 3............................................................................................................................................8
(3.1) Distinguish between management accounting and financial accounting......................8
(3.2) Outline the budgetary control process in organisation..................................................9
(3.3) Outline use of different costing methods for pricing purposes in organisation...........10
TASK 4..........................................................................................................................................11
(4.1) Demonstrating the main methods of investment appraisal ‘........................................11
(4.2) Evaluating the methods of project appraisal ...............................................................12
(4.3) Explaining the ways through finance can be obtained for a business project ............14
CONCLUSION..............................................................................................................................15
REFERENCES .............................................................................................................................16

INTRODUCTION
The financial records are essential for organisation to maintain its costs and expenses in effective manner. The management is
concerned with the accurate financial statements which is useful for external as well as for internal stakeholders of organisation. The
enclosed report deals with a company which is situated in UK. The project appraisal techniques are vital part to the management as it
helps them to invest in the projects which will yield them fruitful results. As such, financial information is the main concern for
managers so that they may be able to take effective and better decisions for the company which will achieve its goals in the effectual
manner.
TASK 1
(1.1) Discuss purpose and requirement for keeping financial records in organisation
The purpose of keeping financial records are in organisation is essential as it provides company a useful insight of information
which is made available to external users. The users of accounting information are keen to know the financial position of the business
so that they may evaluate business performance in the best possible way (Gitman, Juchau and Flanagan, 2015). The stakeholders and
investors are important part of organisation as they are required to ascertain the financial strength of company. Investors are required
to present the accounting information to them by which they assess the position of company and then arrive to decision whether to
invest in the company or not. These purposes are essential for keeping financial records.
The requirement of financial records are numerous. The basic requirement is that when the organisation is dissolved, all the
source documents and accounting records must be in hand of the organisation (McCahery, Sautner and Starks, 2016). It is important as

liquidator will be appointed by government and as such, he will inspect and go through accounting records which is required for
meeting and paying the liabilities which are pending by organisation. As such, if financial records are not made, then company may
face serious repercussions legally.
(1.2) Outline techniques for recording financial information in organisation
The various techniques for recording financial information are as follows:
1. Accrual method-
This method states that revenues and expenses must be record as when they take place, irrelevant to the fact that whether cash
is exchanged or not in the business (Purce, 2014). Accrual method is commonly followed by large organisations where numerous
transactions take place on daily basis. As such, it is the useful method to record financial information.
2. Periodic method-
It is the method of recording financial information of inventory in the organisation where it records all finished goods and the
amount remain in inventory account until an inventory count is initiated by the employee periodically which is usually counted twice
in a year. This method of recording information is used by small businesses.
3. Inventory method-
This method includes various other methods such as LIFO, FIFO and weighted average. The LIFO method assumes that last
inventory is sold first by the company and FIFO method assumes that first inventory is sold by company which is stored in the
godown. This method is useful for company to keep track of inventory information in the best possible manner.

(1.3) Discuss legal and company's requirements for financial reporting
The company is legally abided to follow the rules and requirements of financial reporting as stated by Company law of UK. It
says that organisation has to prepare financial statements of each of the financial years which are ended so that company presents true
and fair view of its financial position to users of accounting information. It is required that organisation follow the rules and
regulations which are stated in the Act of country (Fracassi, 2016).
IAS (International Accounting Standards) body requires company to prepare the financial accounts and financial reporting as
prescribed in the law. It requires consolidated financial statements which should be imbibed with debt and equity securities listed on
London Stock Exchange which is to prepared according to the guidelines of the professional regulation body.
The Section 394 of Companies Act 2006, requires preparing individual accounts which are provided in the IAS guidelines. The
Company Act accounts are required to form and prepare by small companies and groups and large and medium sized companies and
groups. These companies are legally imbibed to prepare financial reports so that clarity of financial information may be made
available to government as well as external users (Cheng, Ioannou and Serafeim, 2014). The organisation requirements for financial
reporting is governed by IAS and GAAP. It is required to prepare cash flow statements, income from its operations and overall
financial conditions disclosing its performance in particular year. Balance sheet, income statement and cash flow statement are major
sources which are used by stakeholders to take decision for investing in the firm or not and as per the needs of stakeholders.
(1.4) Discuss importance of financial statement to stakeholders of company
There are two types of stakeholders such as external and internal. External stakeholders consists of shareholders, suppliers and
investors whereas internal stakeholders consists of managers, employees etc. These stakeholders are keen to know the financial
position of the company. The investors are required to know the profitability position of the company whether it is worth to invest or
not. The financial statements provide them complete information about the profitability aspect of the organisation. As a result, they

take fast and effective decisions by analysing financial position of organisation. Another benefit is to investors. These assess the
liquidity position of company as such, whether it will be able to pay all its liabilities within stipulated time or may default.
Internal stakeholders such as managers and board of directors analysed the growth of the company so that it may prosper well
in the market and satisfy customer needs in the best possible way. They also analyse working capital and cash flow statement so that
they may assess and control expenses and costs which might are reducing the profits. As a result, usefulness of financial statements
provide stakeholders clarity about the financial strength of company.
TASK 2
(2.1) Discuss components of working capital
1. Cash management-
Cash is the important part of current assets which is to be maintained in sufficient balanced by the organisation (Wu, Chen and
Olson, 2014). Cash management is required from the acquisition of raw materials to finished goods which are then provided and sold
to end users. Thus, it is vital to maintain sufficient cash balance to meet daily working capital requirement in the business in effectual
manner.
2. Receivables management-
Receivables management is another component of working capital which is required by company to claim its money which is
owed to customers. The debt policy and credit policy in the receivables' management plays essential role. It is essential component of
working capital next to inventories (Kaczynski, Salmona and Smith, 2014). Liberal credit policies should not be adiopted by
organisation as it increases the investment in receivables.
3. Inventory management-

Inventory management is also essential component of working capital. Better inventory management results greater earnings to
shareholders which maximises growth of the company. The main aim of inventory management is to initiate smooth flow of raw
materials in production and maximum sales on other hand.
4. Accounts Payable management-
It is required that suppliers are to be paid in timely manner so that company is able to attain suppliers' trust and continue
purchasing materials from them. In relation to this, main aim of accounts payable management is to initiate smooth flow of payments
for continuing buying raw materials for production.
(2.2) Evaluate how organisation can manage working capital
Working capital is important aspect in organisation as without effectively managing it, company may lose its efficiency to
large basis. It may be managed effectively by maintaining inventory which has a positive impact on organisation. By ensuring proper
lines of inventory such as getting stocks which will be required in the production process and then according to it, replenishing the
stock help organisation to effectively manage its working capital (Bromiley, McShane and Rustambekov, 2015). As such, no wastage
may be incurred and costs will be reduced too much extent which leads to sufficient working capital.
Effective records should be maintained so that organisation may tap and control working capital in effectual way. Sales person,
accountants need to maintain every piece of information so that payment from the debtors may be obtained and if they make excuses,
then same may be recorded. This leads to managing effectively the working capital. Also, credit terms should not be liberal as this
blocks working capital which is required for day to day functioning of the business.
TASK 3
(3.1) Distinguish between management accounting and financial accounting

Basis Management accounting Financial Accounting
Concern It is concerned with providing
managers a complete
information which is based on
accounting information
provided by financial
accounting.
It is gathering of accounting
data which is provided
regarding financial
transactions (Vernimmen and
et.al, 2014).
Users The management accounting
information is used by
managers only to take
enhanced decisions so that
company's internal structure
consisting of employees may
work towards accomplishment
of goals in effective manner.
Financial accounting
information is made available
to external users such as
investors, suppliers,
shareholders, government so
that these may analyse
financial strength of
organisation in effective way
to make better decisions.
Reporting Management accounting is
continuously reported
regularly so that managers
may take decision as and when
they required for the
On the other hand, financial
accounting reporting is based
on annual basis, quarterly or
monthly. The reports are
broken down into these

betterment of company. segments stated above.
Legal Requirement Management accounting is not
legally required to be prepare
by company. If organisation
prepares for its efficiency, it
may do the same. Otherwise, it
is not required by law to
mandatory prepare this
accounting.
Financial accounting is
required legally to be prepared
by organisation as it is
important to impart meaningful
information to the users of
accounting information by
which they assess profitability
position of the organisation.
Law requires preparing
financial statements.
(3.2) Outline the budgetary control process in organisation
Particulars Budgeted data Actual data Variance
Output units 1000 1100 100 (F)
Sales revenue 62000 69900 7900 (F)
Direct labour 22000 24420 -2420 (A)
Direct materials 20000 23260 -3260 (A)
Fixed overheads 6000 6400 -400 (A)

Profit 14000 15820 1820 (F)
It can be interpreted that variances are unfavourable in Direct labour, Direct materials and Fixed overheads are more than
budgeted ones. While, sales revenue, output units and profits are good as actual performance is good in comparison to budgeted data.
The budgetary control process is an important process in organisation as effective decisions and coordinating different
departments with reference to the budget is known as budgetary control process. As such, it is essential process in organisation. The
organisation which is incorporated in UK follows its actions according to the budget (Baños-Caballero, García-Teruel and Martínez-
Solano, 2014). The budgetary process starts with good communication and coordination between the departments so that budget may
be controlled in the best possible way. Management is involved so that budget may be controlled in effective manner so that
department's needs are met in accordance with the income available with the company.
Cash flow forecasts are much helpful in controlling the budget which provides clarity to form that how much loan it as to repay
and what are the cash generating activities in the organisation. It also analyses what amount is spent on various activities so that
effective budget may be controlled by analysing cash flow in the organisation. By controlling the budget, organisation compares actual
budget with the budgeted one which providers them with useful variances if any occurred in actual results. As such, controlling of
budget process is essential task which has to be done by organisation in effectual manner.
(3.3) Outline use of different costing methods for pricing purposes in organisation
The different costs which are incurred in the company are direct, indirect and fixed costs. These costs are important to be
controlled in effective manner (Loughran and McDonald, 2014). The pricing methods of these costs are analysed by organisation.
Each of these aforesaid costs has a separate unit. For pricing and costing, organisation must compute unit costs and afterwards, it has

to deal with raw materials and utility overheads. For pricing purposes, costs has to be calculated such as cost plus, marginal cost and
price taker. These costs are used for effective pricing which is required by organisation. Marginal cost is to be calculated by
organisation and it allocates only direct material, direct labour and variable overheads to the production. It is used for pricing purpose
as with the help of this, firm keep their sales price low which has benefits to it because during slow periods, sales are encouraged for
increasing share in the market.
These costs plays important role as it distinguish between fixed and variable costs. Moreover, investors are price takers as their
actions in buying and selling shares is not sufficient to change the price (Swanson and Frederick, 2016). Consumers are also regarded
as price takers as the purchase made by them does not result in change of the price of the goods. Another cost method which may be
assessed in costing is that break even. It means that no profit no loss is made by company as this may be observed after balancing the
costs. These methods are used for pricing purpose in organisation. Absorption costing is used for taking into account direct costs and
indirect costs which are overheads. It is quite effective of pricing purpose as entire manufacturing costs are added to total cost of item
plus profit and as a result, products are priced in a better way.
TASK 4
(4.1) Demonstrating the main methods of investment appraisal ‘
Investment appraisal techniques may be served as a financial tool which in turn helps in evaluating the viability and
attractiveness of project. Main methods that director of business unit can undertake for the evaluation of potential investment proposal
are enumerated below: Payback period: Such method of investment appraisal helps business entity in assessing the time period within which initial
investment will be recouped. Hence, such method helps manager in identifying the time after which firm would become able to
generate profit margin (Investment appraisal, 2017).