Financial Performance Evaluation of Alpha Limited: Detailed Analysis

This report delves into the financial decision-making processes of Alpha Limited, a UK-based manufacturing company. It begins by analyzing the crucial roles of accounting and finance within the organization, detailing the functions of the accounting department, including financial accounting, audit, management accounting, and taxation. The report further examines the finance department's responsibilities in investment, financing, dividend, and working capital management. Task 2 involves a comprehensive financial performance evaluation, including the calculation and interpretation of key financial ratios such as Return on Capital Employed (ROCE) and the Current Ratio. The analysis provides insights into the company's profitability, liquidity, and overall financial health, offering valuable perspectives for financial managers, investors, and stakeholders. The report concludes with an overview of the company's financial performance and its implications for future business operations.

FINANCIAL DECISION MAKING

Table of Contents
INTRODUCTION.................................................................................................................................3
TASK 1.................................................................................................................................................3
Accounting and Finance are crucial for an organization. Analyze the role of accounting and finance
at Alpha limited.................................................................................................................................3
TASK 2.................................................................................................................................................7
With the help of financial statements of Alpha Limited, calculate the ratios and form the
interpretation of the company’s performance....................................................................................7
CONCLUSION...................................................................................................................................10
REFERENCES....................................................................................................................................11

INTRODUCTION
Financial decision making is a crucial task of the financial manager of an
organization. Financial decision making deal with allocating and borrowing of funds that are
required for the purpose of investment. The financing decisions consist of two sources that
can be used to raise finance for the operational activities in the organization. The different
sources are company’s equity that include share capital and retained earnings and borrowings
that include bonds, debentures, loans etc. The main objective of the financial decision making
is to have and maintain a balanced capital structure which must be a balanced mix of debt and
equity.
Alpha Limited is a UK based Manufacturing company. The organization was
established in the year 1954 and is planning to expand its business operations in the various
other regions of UK in the coming 10 years. The study revolves around the financial decision
making of Alpha Limited (Ahmed and et.al., 2021).
TASK 1
Accounting and Finance are crucial for an organization. Analyze the role of accounting and
finance at Alpha limited.
It is not possible for the businesses to operate effectively until and unless they are
well equipped with the finances in the organization. The efficient financial management is
very crucial in the organization to measure and enhance the performance of the business. The
accounts and Finance department of an organization performs various individual goals
(AHMED and et.al., 2021).
Finance is referred as an administrative area or a combination of various
administrative functions that revolve around the cash and credit incomes of an organization.
The Finance department is responsible for acquiring of funds in the organization through
various sources. The roles and responsibility of Accounting and Finance department at Alpha
Limited are as follows-
Accounting department has a significant role to play in an organization. The department
functions to prepare the financial statements, payroll, journal, ledger etc. Basically the
department of accounting functions to manage all the monetary transactions of the
organization. The department is also responsible to record all the transactions related to
income and expenditures of the organization. Hence it can be concluded that Accounting
Department is a key component of an organization. The accounting department performs
various functions such as Finance functions, tax functions, accounting functions and audit
functions for the organizations. The functions of accounting department are explained below
in detail-
Financial accounting- Financial accounting deals with preparation of reports that are
generated for the external users of the organization. The external users of the organization

include creditors, regulators and stockholders. The financial accounting consists of three
types of reports. The reports are cash flow statement, income statement and balance sheet.
These reports are prepared on a routine basis either annually, quarterly or half yearly basis.
The purpose behind the preparation of the financial report is to help the external users in
taking proper decisions. The report consists of the transactions which are monetary in nature.
The reports are verified by the CPA and the reports focus on the organization as a whole. It
uses the structure proposed by the GAAP i.e. the Generally Accepted Accounting Principles
(Bazley, Bonaparte and Korniotis, 2021).
 Income statement- The Net income and costs can be followed the assistance of
monetary bookkeeping. This statement is vital for organization as it can take choices
in like manner. In the event that net income is less and costs are all the more so
organization can make enhancements in like manner.
 Cash flow statement- This statement gives data about inflow and outflow of cash. It
functions as link between the income statement and monetary record. An organization
can quantify its ability of generation of cash by utilizing this statement.
 Balance sheet- Balance sheet has different sides' assets and liabilities. Resource side
incorporates plant and hardware, cash and cash counterparts, stock and other
theoretical assets. Then again, liabilities side has throughout the entire transient
obligations.
Audit Function-
Audit work is essential for an organization to eliminate blunders or to wipe out the
danger of extortion. This capacity not just watches that bookkeeping information is precise or
not yet in addition answerable for testing that organization's activities are legitimate or not.
Auditor is liable for checking the interior controls of organization. This department is
answerable for checking the interior controls quality. It additionally decides concurrence with
the approaches and technique of an organization. Risk management quality is additionally
assessed by the audit department (Blasch and et.al., 2021).
Management Accounting-
The administrators of the organization use accounting data to keep themselves
mindful in a superior manner prior to examining it inside organization. It permits
administrator oversee better and perform control functions. Management accounting is a
mechanism of correspondence. It sets up correspondence between various degrees of
management. Lower management needs the data with minute information too, the center
level management needs standard data and top management needs moderately short data of
long stretches. It empowers the correspondence inside organization and outside world. With
the assistance of accounting information dynamic should be possible. For dynamic
information is given in the relative structure, for example, monetary proportions and tend
examination should be possible with this information. Management accounting can
communicate the targets or objectives for accomplishment inside determined time. It very
well may be finished by budgetary control and cost accounting. All these are significant piece
of management accounting. It tends to be utilized for money related and non-financial reason.

Taxation function-
The accounting department of the organization is additionally liable for dealing with
every one of the functions identified with tax. This department tracks all the pay which is
taxable and pays it on the time. It ought to be paid on schedule to keep away from tax
punishments. If in any case assuming that the organization can't pay tax on the schedule, the
organization needs to suffer consequences and it sets organization at wrong side of tax laws.
The administrators of the organization use accounting data to keep themselves mindful in a
superior manner prior to examining it inside organization. It permits administrator oversee
better and perform control functions. Management accounting is a mechanism of
correspondence. It sets up correspondence between various degrees of management. Lower
management needs even the minutest of the data, the center level management needs standard
data and the top management needs moderately short data of long stretches. It empowers the
correspondence inside organization and outside world. With the assistance of accounting
information dynamic should be possible. For dynamic information is given in the relative
structure, for example, monetary proportions and tend examination should be possible with
this information (Cornish and et.al., 2021).
Management Accounting-
Management accounting can communicate the targets or objectives for
accomplishment inside determined time. It very well may be finished by budgetary control
and cost accounting. All these are significant piece of management accounting. It tends to be
utilized for money related and non-financial reason. Organization's administrators use
accounting data to keep themselves mindful in a superior manner prior to examining it inside
organization. It permits administrator oversee better and perform control functions.
Management accounting is a mechanism of correspondence. It sets up correspondence
between various degrees of management. Lower management needs even the minute of data,
the center level management needs standard data and the top management needs moderately
short data of long stretches. It empowers the correspondence inside organization and outside
world. With the assistance of accounting information dynamic should be possible. For
dynamic information is given in the relative structure, for example, monetary proportions and
tend examination should be possible with this information. Management accounting can
communicate the targets or objectives for accomplishment inside determined time. It very
well may be finished by budgetary control and cost accounting. All these are significant piece
of management accounting. It tends to be utilized for money related and non-financial reason
(Yu and et.al., 2021).
Finance Department-
The Account department is significant piece of organization. It is answerable for
management of assets, procuring assets and anticipating consumption of assets. This
department guarantees that monetary management inside organization ought to be effective
and furthermore liable for monetary controls to help the business exercises ( Gardi, 2021).

Investment functions-
It is perhaps the main capacity of money. It is vital to distribute the capital into long
term resources to get greatest returns. There are two significant parts of venture functions-
• Proper assessment of new ventures is essential to improve returns.
• Cut off pace of new speculation and winning venture ought to be analyzed
appropriately.
Because of vulnerability of future it is difficult to ascertain the normal return.
Vulnerability consistently caused hazard. In this manner, risk factor consistently assumes a
significant part in ascertaining anticipated return of forthcoming venture. Subsequently, it
very well may be said that prior to considering the speculation choice financial backer ought
to consider hazard and bring factor back (Glover and et.al., 2021).
Financing Functions-
It is a significant capacity which money supervisors ought to perform. Prior to
procuring reserves monetary supervisor should settle on astute choices. Assets can be
obtained by numerous ways. Obligation to value proportion ought to be kept up. Blend of
value and obligation is known as capital design of firm. On the off chance that market worth
of an organization is expanded it isn't just the indication of development of the organization it
additionally amplified the abundance of investors. On the opposite side, assuming
organization utilized its obligations, it influences the danger and return of investor. Assuming
danger is higher, it might give more significant yields.
Dividend Functions-
Organization has a primary objective that acquiring benefit and positive returns.
Fundamental capacity of monetary administrator is to conclude whether to disperse every one
of the benefits to investors or hold every one of the benefits. Duty of monetary director is to
choose an ideal profit strategy. It augments the market worth of the organization. It is
important to figure the profit payout proportion. On the off chance that organization is
procuring benefits, it needs to deliver customary profits or organization can give extra offers
to its current investors (Hamawandy, Azzat and Hamad, 2021).
Working Capital functions-
Working capital management can be characterized as appropriate use of the relative
multitude of assets. Organization ought to keep up great connection with the providers.
Through, working capital proportions monetary investigator can comprehend the business in
better way. It assists organization with investigating the monetary files. Monetary lists tell
about the monetary execution of the organization and monetary administrators can take
choices as needs be. Working capital proportion tells about the resources and liabilities that

can meet the transient commitments of the organization. It takes help of current resources and
current liabilities.
TASK 2
With the help of financial statements of Alpha Limited, calculate the ratios and form the
interpretation of the company’s performance.
Return on capital employed-
This ratio is to check the profitability and proficiency of the organization. This ratio
surveys the ability of profit generation of the organization from its speculations. It is utilized
by monetary directors, financial backers and partners. Financial managers utilize this ratio
when they break down organization for venture. Equation for computation of this ratio is –
ROCE = EBIT/Capital employed
Where EBIT = Earnings before Interest and taxes
Capital Employed = Total assets – current liabilities

ROCE ratio lies between 10 to 20%. From the above table it is seen that in 2018 ROCE ratio
is 20% and in 2019 it is 17%. It implies in 2018 organization proficiently created benefit
from capital. ROCE ratio can be expanded if organization sells its unused resources like
machines. By selling unused hardware there will be less resources yet it helps in increment
ROCE ratio (Hamid and Loke, 2021).
Current Ratio-
It is liquidity ratio. This ratio estimates liquidity of the organization. With the assistance of
this ratio it tends to be estimated that how well an organization is in gathering its transient
commitments. In straightforward words, it is estimation of ratio of current assets and current
liabilities to realize that organization can pay its transient obligations on schedule or not.
Current ratio can be determined as-
Current ratio = current assets/current liabilities
The current assets incorporate plant and machinery, land and building, money and money
counterparts and stock. Then again, current liabilities incorporate every one of the transient
credits which are expected to pay inside a half year or every year. Estimation of ideal current
ratio is 2:1. In the event that current ratio isn't equivalent to two, it implies organization may
confront a few issues in paying transient obligations. On opposite side, if ratio is more than
two, it implies organization isn't as expected dealing with its assets. Organization ought to
proficiently utilize its assets to development of the business (Ke, 2021).
From the above estimation it is seen that current ratio of organization in 2018 is 2.35. It is
extremely ideal ratio. On account of year 2019 is just 0.95. It is very lesser than two. In 2019
organization may confront challenges in gathering its momentary commitments. Idea for
organization is to expand its assets and abatement the liabilities in this way, that organization
can keep up its development.
Net Profit Margin-
Net profit margin is that margin which organization acquires from its deals in the wake of
deducting every one of the costs. Net profit is otherwise called net pay. It is a profitability
ratio which tells how well an organization is at producing pay by deals. Net profit margin can
be determined by –
Net profit margin = Net profit/Net sales*100
Where Net profit = Net pay produced by an organization subsequent to cutting costs
Net sales = Total revenue generated
From the above table it is examined that net profit margin in the year 2018 is 13% and in
2019 it is just 11%. Organization has a less profit margin in the 2019. Explanation for this is
cost of production. From the above computation it tends to be seen that profit procured from
income in both the years isn't having a lot of contrast. Indeed, income is higher in the year
2019. Organization needs to zero in on cost slicing to improve the profit margins.

Organization should discover less expensive wellsprings of crude materials. Organization can
expand the cost of labor and products to build profits. The most clear factors that influence
net margins are production cost and income. Accordingly, it tends to be said that organization
needs to zero in on decreasing the production cost to build the net profit margins (Khan and
et.al., 2021).
Debtors collection period-
Debtor collection period is referred to the time period allowed by the organization to
collect its debts of the business. A low debtor collection period refers to the situation that the
organization is working efficiently. The debtor collection period can be computed with the
help of the formula mentioned in table. In a situation where organization offers a credit for
one month i.e. 30 days, in that case the credit needs to be returned in 45 days. The company
is liable or must compulsorily collect the credit which is allowed to their clients in order to
maintain growth of the organization. When the organization is not able to collect or recover
its debts from the clients within the specified time, then the organization is likely to face
various challenges in the business.
The debtor collection period computed for Alpha Limited is 68.44 days in 2018 and in 2019
it is 73 days. It implies in 2019 organization isn't proficiently gathering cash from its debtors.
It ought to be improved so that working of operations can't be influenced (Liou and et.al.,
2021).
The Organization can utilize numerous methods to improve the debtor collection period, for
example, organization can offer discounts on early installment which is also known as cash
discounts. Exchange ought to be finished with providers. The terms and conditions of
Installments can be changed. Credit control can be mechanized and stock control can be
improved. Along these lines, organization can utilize various methods to decrease its debtor
collection period.
Creditors collection period-
The Creditors collection period is the inverse of debtor collection period. It is period of time
taken by organization in paying its obligations to the supplier of the raw materials to the
organization. Organization should pay the entirety of its obligations within the indicated time.
On the off chance that organization fails to pay its obligations on the scheduled time or date,
the organization isn't considered as reliable in the market. From the above table it can be
observed that, in the year 2018 creditor collection period is 77.06 days and in the year 2019,
it is 159.69 days. In 2019 creditor collection period is exceptionally high. The organization
can improve its creditor collection period by negotiation with the providers. The organization
needs to keep up great relations with the provider so it helps in decreasing creditor collection
period (Riyazahmed, 2021).
In general it is examined that organization's present situation is not as per the standards.
Every one of the ratios states that the organization should focus entirely upon upgrades. Thus,

organization should emphasize on the transformation so that it can lead to a better performing
organization and can be more profitable (Šeligová, 2021).
CONCLUSION
It can be concluded from the study that the financial decision making is of great
significance in the organization. The study focuses on the Financing and accounting
department of an organization. The study highlights the different functions performed by the
Finance and accounting department of an organization. The financial records or the financial
statements allow the users to analyze its financial position in the market. This helps in
measurement of various ratios that help in deriving the financial position of the organization.
The ratio analysis in the report helped in analyzing that the performance of the organization is
below satisfactory and changes need to be made in order to provide opportunities for growth
in the organization. The organization can think of ways to increase the price of their product
so that they can incur more profits. The organization has already listed various liabilities so it
is important for the organization to maintain an ideal liquidity ratio and avoid approval of
loans. The organization can grow in the market by expanding its ways of net income.

REFERENCES
Books and Journals